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Taxation

Muni Coalition Writes, Meets with Lawmakers to Save Tax Exemption

NOV 27, 2012 6:35pm ET

Tax-exempt bonds should not be replaced and should be excluded from any cap on tax expenditures, a municipal bond coalition wrote leaders of Congress on Tuesday.

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Comments (2)
The old saying about Washington that "if you don't get a seat at the table you will be on the menu" holds true once again. Folks in Congress who may be thinking of taxing municipal bonds as a convenient piggy bank that can be raided without consequences should talk to the Treasury officials who were involved with the taxable Build America Bonds (BABs) program. The fact that Treasury was bitterly disappointed at the pricing (expressed in interest rates) that BABs received is witnessed by the large number of IRS audits of sales of those issues. Higher than expected interest rates meant higher than expected interest subsidies payable by the US Treasury. Moreover, the benefit to the Treasury from replacing tax-exempt interest with taxable interest was much less than officials hoped for. This was because a large portion of the BABs issued by state and local governments was purchased by non-taxable accounts - pensions, endowments and IRAs, etc. (BABs held by such accounts provide no tax revenue at all.) At the same time as Treasury staffers feel disappointment, many issuer officials are experiencing a case of nerves. WIth the federal government headed for the fiscal cliff how good is the promise of continued payment of the BABs interest subsidy? Investors holding BABS that are callable in the event of a federal interest subsidy non-appropriation have reason to worry, as well.
Posted by t3240m353 | Wednesday, November 28 2012 at 11:56AM ET
Munis will get taxed. BABs showed that the market will go on. The states are already dependent.
Posted by Thomas D | Monday, December 03 2012 at 5:20PM ET
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