The confusion began last week, when Senator Bob Packwood of Oregon, chairman of the Senate Finance Committee, unveiled his tax-reform plan. Buried in the 250-page document was a two-sentence proposal to subject tax-exempt securities, like municipal bonds, to an "alternative minimum tax." The idea was that upper-income people who use municipal bonds as a shelter and pay little or no taxes would be subject to a 20% tax on the interest from the securities.
When news of Packwood's proposal flashed across brokerage-house computer screens Wednesday morning, the municipal-bond market was thrown into turmoil. As prices plummeted, Prudential-Bache Securities and other firms...
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