As part of the February stimulus package, Washington offered new inducement for municipalities to issue taxable bonds. The program may have the effect of pushing up tax rates for the wealthy.
Some background: municipalities generally issue tax-exempt bonds, attracting investors — often wealthy individuals — who like the bonds because the investments lower their overall tax bill.
But lots of big institutional investors, like public pension funds, don’t pay taxes, so they don’t need the bonds’ tax exemption.
The stimulus’s “Build America Bond” program addressed this issue. Under the program, municipalities can issue taxable bonds at the higher interest rate such bonds command, and the feds simply subsidize the higher cost by making a direct payment to the municipalities.
So far, municipalities have issued $13.4 billion in Build America Bonds.
But the program, as Municipal Market Advisors points out, is a means “to increase the progressivity of the US income tax.”
If taxable muni bonds grow relative to the tax-exempt market, wealthy individuals will have fewer opportunities in the tax-exempt market to reduce their tax bills.
Meanwhile, they’ll be paying the cost of the subsidy for the taxable bonds, since they pay disproportionate federal taxes.
“Should demand among … buyers and issuers remain strong, policy makers are very likely to renew the program,” MMA notes.
You may also like
One of New York’s Biggest Medicaid Contractors Is Quietly Acquiring a Competitor
Author's note: This post has been updated to correct an error in the second paragraph.
As state lawmakers debate the future of Medicaid home care, one of the program's bigg Read More
The Union Gave Them the Wrong Data. The Pols Cited It Anyway.
The episode shows the extent to which New York elected officials fail to question the state’s public employee unions—or look at data themselves. Read More
New York’s Home Health Workforce Jumped by 12 Percent in One Year
New York's home health workforce has continued its pattern of extraordinary growth, increasing by 62,000 jobs or 12 percent in a single year, according to newly released data from the U.S. Bureau of Labor Statistics. Read More
While New York’s Medicaid Budget Soared, Public Health Funding Languished
Four years after a devastating pandemic, the state has made no major investment to repair or improve its public health defenses.
While funding for Medicaid over the past four years Read More
Unions are pressing bogus arguments for blowing up NY’s public pension debts
New York's public employee unions are arguing, without evidence, that state lawmakers need to retroactively sweeten the pensions of workers who have been on the job for more than a decade. In fact, state and federal data show why state lawmakers shouldn't. Read More
A Medicaid Grant Recipient Sponsors a Pro-Hochul Publicity Campaign
While much of the health-care industry is attacking Governor Hochul's Medicaid budget, at least one organization is rallying to her side: Somos Community Care, a politically active medical group in the Bronx that recently r Read More
New Jersey’s Pandemic Report Shines Harsh Light on a New York Scandal
A recently published independent review of New Jersey's pandemic response holds lessons for New York on at least two levels.
First, it marked the only serious attempt by any state t Read More
Senate, Assembly Budget Plans Include $4B Pension Giveaway
A little-noticed provision in lawmakers’ budget proposals would also be the most costly: their proposal to change state retirement rules would slam New York taxpayers with more than $4 billion in new debt, and immediately drive up pension costs, by retroactively sweetening the pension benefits of public employees. Read More