Fortunately, there would not be any capital gains tax on the closing of the CD's assessed to either you or your daughter. I really don't agree that pulling out the monies from your daughter's CD is a smart thing unless you are planning to invest the proceeds into a 529 Education Plan. Other investments in this environment are an extremely risky proposition.
Also, I heard Tax Free Muni's may also be a risky strategy, just look at California Municipal Bonds!!! It is better to play safe in this environment, there is no clarity or visibility in the 1-2 years. CD's are the best short term option, I think your Daughter paid tax that was fairly high because her effective tax bracket was the same as your's, so I would not alter your long term strategy because of the $700 tax liability on the federal 1040!