Three ways out
G., P.
Three ways out The first step to ending the municipal bond paper chase is to end the tax exemption for all municipal bonds that go for nonmunicipal purposes: more tax-exempt money for K-Mart...
...McDonalds, which drives up the rates that localities must pay to build bridges and schools...
...Better, still, Congress should end the taxexemption for all revenue bonds—those not backed by the taxing power of state and localsovernments...
...Besides, unless we tamper with the inefficient municipal bond subsidy, that trillion dollars of crumbling infrastructure we've been warned about—the repair of which will have to be financed largely with municipal bonds-will cost the taxpayers many billions of dollars extra...
...But then, these people are silent about the compromising effects of the more than $90 billion in federal grants and aid states and localities already get each, year...
...The best solution of all is to eliminate the tax exemption for municipal bonds entirely, Sure, states and localities should get an interest rate break when they borrow for genuine public projects...
...This would eliminate the lawyer-intensive tools corporations use to pick the lock on the tax-exempt bond market and politicians use to incur debt without the approval of voters...
...It would also eliminate the reams of federal regulations through which projects qualify as tax-exempt...
...But shouldn't the subsidy go to them and not to rich tax lawyers and investors...
...In the late seventies both Congress and the Treasury estimated that municipal governments would lose nothing, and taxpayers would actually come out ahead, if municipalities issued taxable bonds and let the federal government pick up...
...percent Of the interest cost...
...P.G...
...If a state or local government were willing to put its taxing power behind a bond, that would indicate strongly that the project served a true public purpose and the bonds would qualify automatically...
...This direct subsidy idea outrages many bond professionals Who claim that any "tampering" will "compromise" state and local government sovereignty...
...Three ways out The first step to ending the municipal bond paper chase is to end the tax exemption for all municipal bonds that go for nonmunicipal purposes: more tax-exempt money for K-Mart and...
Vol. 17 • February 1985 • No. 1
