TO: Honorable Mayor & Members of the North Port Commission
FROM: Peter D. Lear, CPA, CGMA, Interim City Manager
TITLE: Resolution 2017-R-14 Opposing Reduction or Removal of Federal Tax Exemption on Municipal Bond Interest.
Recommended Action
Approve Resolution 2017-R-14 Opposing Reduction or Removal of Federal Tax Exemption on Municipal Bond Interest.
Background Information
The President and Congress are considering, as part of their deliberations on a tax overhaul of the income tax code, a reduction or repeal of the federal tax exemption on interest earned from State and Municipal Bonds.
The history of the tax exemption of municipal bonds started in 1895 when the U.S. Supreme Court held that the federal government had no power under the U.S. Constitution to tax interest on municipal bonds. However, in 1988, the Supreme Court stated the Congress could tax interest income on municipal bonds if it so desired on the basis that tax exemption of municipal bonds is not protected by the Constitution.
The Revenue Act of 1913 first codified exemption of interest on municipal bonds from federal income tax.
Internal Revenue Code Section 103(a) is the statutory provision that excludes interest on municipal bonds from federal income tax. As of 2004, other rules, such as those pertaining to private activity bonds, are found in sections 141-150, 1394, 1400, 7871.
A municipal bond is a bond issued by a state or local government or territory, or one of their agencies. It is generally used to finance projects such as roads, utilities, schools, airports, seaports, parks, governmental buildings and infrastructure-related improvements and repairs. Currently, there is over $3.8 trillion dollars in outstanding municipal bonds held by a variety of investors.
Nearly two-thirds of core infrastructure investments in the United States are financed with municipal bonds. In 2016 alone, more than $440 billion in municipal bonds were issued to finance the projects that touch...
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