Yukishiro1 posted:

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Hello muffin_king.

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Obama posted:

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I dont think we should be federally subsidizing local government debt. Leads to bigger deficits, more local govt debt, skews investment decisions by pulling savings away from private sector investments, screws up the market signal given to local governments when interest rates rise

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RWN's posted:

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OMG!!! OMG!!! OBAMA SAID SOMETHING!!

less federal debt, less local govt debt, better functioning debt markets and more funding going to private entities at a lower rate is horrible!

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CBO posted:

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That study concludes that the amount that the federal government forgoes through tax-exempt bond financing is greater than the associated reduction in borrowing costs for state and local governments. Some analysts have estimated the magnitude of that differential and conclude that several billion dollars each year may simply accrue to bondholders in higher income-tax brackets without providing any cost savings to borrowers.

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Elkad posted:

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If you take away the municipal advantage, then more people will be driven to Treasuries. Thereby allowing the Federal Government to kick the can on overspending yet one more time.

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paulg_68 posted:

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using federal money to subsidize state/local debt and those bondholders = reducing federal government

Not using federal money to subsidize state/local debt and those bondholders = increasing federal government

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Abaddon_Ambrosius posted:

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I... kindof don't view money you personally bond, loan or pay to various US governments being exempt from taxes as 'subsidies'.

I mean, what's the point?

I'll have to ponder that more. But I'm fairly sure the point is, it shouldn't be taxable in the first place.

PRIVATE industry loans, taxes, dividends and profits, yes. Within reason.

GOVERNMENT transactions... hmmm. The cost of administration and offering is already built into the bond up front. We shouldn't have one level of government foisting taxation or obligations onto another. That kindof goes back to that no federal mandate on the states thing, states rights, etc.

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theredkay1 posted:

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paulg_68 posted:

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using federal money

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bizzarro world!

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Above Article posted:

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Individual investors who buy municipal bonds frequently have high incomes, and one of the debt's chief selling points is that they can exempt the interest from their federal income taxes. The long-standing practice allows states, local governments and authorities to offer lower interest rates on tax-exempt debt than they would on taxable bonds.

Investors buying a 10-year muni bond rated AA would need more than 80 basis points more in yield to get the same taxable equivalent as a 10-year AA-rated corporate bond using a top tax rate of 28 percent, said Richard Ciccarone, a managing director and chief research officer at McDonnell Investment Management.

"This could raise borrowing costs (for municipal issuers) because you have to make up for the tax equivalent cost," Ciccarone said.

By the middle of the day, the municipal bond market largely shrugged off the proposal, with many noting the budget must wend its way through a politically fractured Congress.

"I think everybody assumes it's dead on arrival," said Parker Colvin, managing director at Stone & Youngberg in San Francisco.

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Greg (173 Thumbs up, 7 down) posted:

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The reason municipalities can issue tax free bonds is so they can borrow money at lower rates...not so rich people can avoid taxes. Remove the tax incentive and rich folks invest elsewhere....bond rates go up...that new school costs more to finance... property taxes go up and housing becomes less affordable. How does that help anyone - except the president who can paint himself as sticking it to the man. (even though he IS the man)

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Bill K: (125 thumbs up, 6 down) posted:

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Perception: by removing tax breaks on muni bonds, rich people will lose a loophole and pay their "fair share". Reality: Funding for muni markets will dry up, and municipalities will have to go and beg the Federal government if they want anything done. It's ALL about the centralization of Power. If you don't like big corporations because they are more corrupt than smaller ones, don't go thinking it's any different with government, it's not.

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Robert (Taliesihne?) - Boston, Massachusetts posted:

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Don't worry about it. This thing is DOA. There is no way that any big city democrat mayor is going to go along with this. They are probably offering to teach a course in basic government financing to the White House as we speak.

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paulg_68 posted:

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Which federal money is that?

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theredkay1 posted:

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Oh, this explains the unhappiness here.

CBO posted:

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That study concludes that the amount that the federal government forgoes through tax-exempt bond financing is greater than the associated reduction in borrowing costs for state and local governments. Some analysts have estimated the magnitude of that differential and conclude that several billion dollars each year may simply accrue to bondholders in higher income-tax brackets without providing any cost savings to borrowers.

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http://cboblog.cbo.gov/?p=398

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paulg_68 posted:

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Lets just argue semantics....mmmkay?

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Paulg-the-worst-libertarian-ever posted:

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Damn you Obama for withdrawing a distorting subsidy that favors investment in goverment rather than the private sector!11

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Abaddon_Ambrosius posted:

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I... kindof don't view money you personally bond, loan or pay to various US governments being exempt from taxes as 'subsidies'.

I mean, what's the point?

I'll have to ponder that more. But I'm fairly sure the point is, it shouldn't be taxable in the first place.

PRIVATE industry loans, taxes, dividends and profits, yes. Within reason.

GOVERNMENT transactions... hmmm. The cost of administration and offering is already built into the bond up front. We shouldn't have one level of government foisting taxation or obligations onto another. That kindof goes back to that no federal mandate on the states thing, states rights, etc.

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paulg_68 posted:

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Zero taxes on municipal bonds doesn't put extra money in the hands of investors. It just lowers the rate that investors demand on their investment.

Back when I was in college I had an internship in the investment division of a major bank. They sold both municipal and corporate bonds. The munies sold for about 4% and the corporate ones were going for about 6%. Without the tax break the municipalities would have been paying the same 6% as corporations.

This isn't about getting rich people to pay more. Obama's only goal is to make it more difficult for local governments to borrow money. He wants this because the less local governments can do the more people will have to rely on the federal government.

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paulg_68 posted:

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Obama would love that. Anything that increases the power of the federal government and puts the states under his thumb is a good thing as far as he's concerned.

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_Gronk_ posted:

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Robert (Taliesihne?) - Boston, Massachusetts
Don't worry about it. This thing is DOA. There is no way that any big city democrat mayor is going to go along with this. They are probably offering to teach a course in basic government financing to the White House as we speak.

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theredkay1 posted:

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paulg_68 posted:

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Zero taxes on municipal bonds doesn't put extra money in the hands of investors. It just lowers the rate that investors demand on their investment.

Back when I was in college I had an internship in the investment division of a major bank. They sold both municipal and corporate bonds. The munies sold for about 4% and the corporate ones were going for about 6%. Without the tax break the municipalities would have been paying the same 6% as corporations.

This isn't about getting rich people to pay more. Obama's only goal is to make it more difficult for local governments to borrow money. He wants this because the less local governments can do the more people will have to rely on the federal government.

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The CBO report says the subsidy lowers the rate and gives money to investors. I think the report says every dollar given up by the Feds, $0.8 lowers the interest rate, $0.2 is extra income for investors.

A more efficient way would be for the Feds to borrow and give the money to the state....instead of borrowing and giving 20% of it to investors.

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Ashmaele posted:

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Because you're bitches who like to moan.

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