BEWARE: Budget headed wrong way

The recent budget proposed by President Obama includes a provision that would severely limit the tax exempt status of municipal bonds. Since tax exempt bonds are a key financing mechanism that states and communities use to finance the infrastructure (sewer, water, roads, bridges, etc.) needed to expand our economy, this proposal appears to be directly contrary to the important role such infrastructure will play in an expansion of our country’s economy.

Ironically, elimination or restriction of the tax exempt status of these bonds would dramatically increase the cost that our local governments — and their taxpaying citizens — are facing to meet the expanded requirements of the Clean Water Act, as required by the EPA. The municipal bond market has functioned effectively for more than a century. The tax exemption provides local communities and states with below market interest rates and the bonds have long been a safe haven for conservative investors (60 percent of whom are individuals) who receive a competitive yield due to the exemption of the interest from state and federal taxes.

The Securities Industry and Financial Markets Association analyzed the proposal and found that had it been in effect during the 10-year period 2003-2012, it would have increased borrowing costs for state and local governments by $173 billion on bonds sold during that period. Costs which would have resulted in higher taxes for the citizens of those states and communities.

Even more dramatic is that the president’s proposal would apply to interest income on bonds that investors have already purchased, resulting in an immediate decline in the value of those bonds and in a tax increase for those who purchased the bonds relying on the tax exempt pledge.

This is bad economics and is contrary to the objective of securing new public investment in the 21st century infrastructure that our states and local communities need to support economic growth.

LEN CROSBY

Post Falls