And if you look at it the muni exemption is really a subsidy for state and local governments

Reader comment on: Obama's Buffett Tax

Submitted by Lyle (United States), Sep 17, 2011 23:02

The muni bond exemption is really a disguised subsidy to state and local governments, lets call a spade a spade. You take less interest on these because the income is not taxable. So yes this does fall into the concept of a Tax Expenditure (and a very old one to boot). So if you passed a modification that all muni bonds issued after say 1-1-2013 are taxable it would work but you would have raised state and local taxes in the bargain. Or you could turn it into a direct payment to state and local governments of some percent of their bond issuance after that date. In one case it's a wash in the Federal government, the other is a net tax increase overall (letting muni bonds go for higher interest).

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