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The tax exemption of municipal debt

In: State and Local Financial Instruments

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Abstract

This chapter covers the tax-exempt feature of municipal securities, a defining characteristic of most securities sold in the municipal securities market. The tax-exempt feature has historically been a source of continuing controversy at the federal level, but is a source of substantial cost savings for subnational governments and their public benefit organizations. The chapter reviews the constitutional, judicial and legislative underpinnings of the tax exemption of municipal debt. It covers the demand for municipal securities, and highlights the market segmentation that results from different state income tax systems. It concludes with a discussion of taxable debt sold in the market, focusing on the use of tax-credit bonds as a federal policy device, and highlights the federalism implications of the Build America Bonds (BABs) program and the Tax Cuts and Jobs Act of 2017.

Suggested Citation

  • ., 2021. "The tax exemption of municipal debt," Chapters, in: State and Local Financial Instruments, chapter 2, pages 24-38, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:19966_2
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