Tax Exempt Municipal Bonds.

Essay by NPROGERSUniversity, Master'sA+, August 2005

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This article is discussing whether municipal bonds should remain in the tax-exempt status. The Government Finance Officers Association (GFOA) believes that municipal bonds should remain tax-exempt because it reinforces our nation's federal system and provides major advantages to communicate across America.

Tax-exempt municipal bonds provide lower costs funds to state and local government to fund infrastructure and services. If local and state government had to pay tax on municipal bonds it would hindrance their ability to fund vital public infrastructure and services because they would be required to find other means of raising revenue to offset the increased finance cost.

Tax-exempt municipal bonds grants local and state governments' freedom from the uncertainties of the annual congressional appropriations process in funding capital needs or any portion of their costs. It also provides efficient access to capital markets without delay or interference from the federal government.

The Government Finance Officers Association believe that the national interest is well served by keeping state and local government borrowing cost low, thereby providing an incentive for public investment in infrastructure.

The GFOA has long opposed any federal legislation that diminishes the value or impairs the use of tax-exempt bonds. They believe that federal law should not undermine the municipal securities marketplace, nor threaten the tax-exempt status of these investment instruments in any direct or indirect manner.

The GFOA believes that investment of bonds proceeds at market rates for a reasonable period of time pending their application for the purposes of the bond issue is efficient financial management. They believe that state and local government should not be penalized for practicing good financial management by being required to rebate such investment earnings on the proceeds of tax-exempt bonds to the United States Treasury or by the imposition of others restriction. While the current law...