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R40523 – Tax Credit Bonds: Overview and Analysis – 10/11/2016

Author: Steven Maguire, Specialist in Public Finance
Pages: 17

Nearly all state and local governments sell bonds to finance public projects and certain qualified private activities. The federal government subsidizes state and local bond issuances through a number of policies. The mostly widely utilized policy instrument is the tax-exempt bond, which excludes bond interest payments received from the investor’s federal taxable income. In contrast, interest payments from other types of bonds, such as corporate bonds, are included in federal taxable income. Because of the difference in taxability, state and local government tax-exempt bonds-often referred to as municipal bonds-offer a lower pre-tax interest rate than corporate bonds, which reduces the interest costs owed by state and municipal governments. Bills: S. 796, S. 1436, S. 727, S. 3521, H.R. 11, H.R. 736, H.R. 747, H.R. 992