Skip to main content

View Diary: Low capital gains tax rate rewards the rich with no discernible benefit to the larger economy (120 comments)

Comment Preferences

  •  I guess the issuing authorities could always raise (0+ / 0-)

    taxes to cover the increase in interest payments.

    A more general question is why anything at all should receive preference in the tax system.  Home ownership, children, charitable contributions, accelerated depreciation, alternative energy subsidies, etc.

    Where are we, now that we need us most?

    by Frank Knarf on Wed Jul 04, 2012 at 08:54:50 PM PDT

    [ Parent ]

    •  At the total government level this is a wash (0+ / 0-)

      The lower interest rate that the investor accepts for a tax exempt bond is exactly offset by the lower taxes that he pays.

      It is very easy to see this - if investors got a larger tax benefit then they would all pile into tax exempt bonds, driving down their interest rates.  On the other hand, if investors got less tax benefit then they would just invest in taxable bonds and pay their taxes so no one would buy tax exempt bonds, driving up their interest rates.

      So, the major impact of allowing tax exempt bonds is a hidden transfer of funds from the federal government to tax exempt bond issuers.  I don't see why there is any benefit to that.

      At the federal level - for tax exempt Treasuries - it is even stupider.  It is the federal government giving money to itself while making the tax code more complicated and making some of its bonds less attractive to lower income investors.  How stupid.

      The other examples you give, like home ownership, children, etc. are all examples of things we want to encourage so tax subsidies for them make sense.  I just can't see any benefit to the tax break for tax exempt bonds, however.

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site