Federal Tax Treatment of State and Local Securities: A Background Paper Prepared for a Conference of Experts Held January 25-26, 1962, Together with a Summary of the Conference Discussion

Federal Tax Treatment of State and Local Securities: A Background Paper Prepared for a Conference of Experts Held January 25-26, 1962, Together with a Summary of the Conference Discussion

Federal Tax Treatment of State and Local Securities: A Background Paper Prepared for a Conference of Experts Held January 25-26, 1962, Together with a Summary of the Conference Discussion

Federal Tax Treatment of State and Local Securities: A Background Paper Prepared for a Conference of Experts Held January 25-26, 1962, Together with a Summary of the Conference Discussion

Excerpt

This volume on the federal tax treatment of state and local government securities is the second Brookings publication of the series of Studies of Government Finance sponsored by the National Committee on Government Finance, and it is the first of this series stemming from the Conference Program of the National Committee. The volume includes a study undertaken by the authors in 1961 to provide background material for a conference of experts on the taxation of state and local securities, held at the Brookings Institution on January 25 and 26, 1962, together with a summary of the discussion at the conference.

The federal income tax exemption for state and local government securities has been a controversial issue for many years. Opponents of the exemption believe that it is inequitable, reduces risk investment by high-bracket taxpayers, and costs an excessive amount to the federal government. Proponents of the present treatment argue that elimination of the tax exemption would make the cost of borrowing to many state and local governments prohibitive. They believe that it would be unwise public policy to remove the tax exemption, in view of the mounting needs of these units of government. The purpose of the study by Professors David J. Ott and Allan H. Meltzer, and of the conference, was to try to narrow down the differences among experts in taxation and the municipal bond market on the facts and analyses with regard to this matter of public policy.

The conference was attended by thirty-four individuals representing various shades of opinion on the tax treatment of interest on state and local government securities. A list of the conferees is given on pages 127-28. The individuals were selected on the basis of their background, experience, and ability to contribute to a discussion of the technical issues in this field. The participants were invited in their personal capacities, and not as representatives of the firms, agencies, or institutions with which they are affiliated.

The conference revealed a sharp difference of opinion regard-

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