That is exactly the point of the exemption to reduce state and local borrowing costs.
Reader comment on: State Fiscal Crises
Submitted by Lyle (United States), Jan 5, 2011 16:06
The exemption reduces the cost to local tax payers to borrow. In addition there is a question about the comment about the power to tax is the power to destroy. quoting John Marshall. If the feds taxed state and local bonds they would according to the logic of Mccolugh vs Maryland (about taxing the bank of the US in 1819) be able to destroy the states. Of course it is a subsidy to the states, but if you want to cut that then cut all federal aid to states and localities following the logic of Andrew Jackson on the Maysville road bill. If the states or localities want to do something let them put the taxes on themselves.
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