Thursday, December 20, 2012
New York Times: Municipalities Fight a Proposal to Tax Muni Bond Interest:
[There is a] lobbying campaign by local and state governments, bond dealers,
insurers and underwriters that is trying to pre-empt any attempt to
limit or even kill the tax exemption. The administration has proposed
capping the tax break that America’s highest earners now receive from
municipal bonds, as part of its campaign to close loopholes and enlist
more of the rich in fighting the federal deficit. Analysts expect such a
cap to be part of a comprehensive tax overhaul package that Congress
will take up next year, under a broad fiscal framework now being
negotiated by President Obama and House Speaker John A. Boehner.
“This is the most serious threat to tax-exempt bonds since Roosevelt, in
the late 1930s, tried to repeal the exemption across the board,” said
John L. Buckley, a professor of taxation at Georgetown University and
former chief counsel to the House Ways and Means Committee.
At present, the federal government forgoes about $32 billion a year in
taxes by exempting the interest that investors earn from municipal
bonds.... The tax exemption is thought to help states and local governments market
their bonds, lowering their borrowing costs. But some fiscal analysts
say that an undue share of the exemption’s value goes not to local
governments, but to the wealthiest bond buyers instead.
(Hat Tip: Mike Talbert.)