How the Tax Code Interacts with State and Local Tax Systems. President’s Advisory Panel on Federal Tax Reform April 18, 2005 Robert M. Schwab College of Behavioral and Social Sciences and Department of Economics University of Maryland. Four Key Issues.
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President’s Advisory Panel on Federal Tax Reform
April 18, 2005
Robert M. Schwab
College of Behavioral and Social Sciences and
Department of Economics
University of Maryland
State and municipal bond interest
Active duty military pay
Tax CreditsState Deviations from Federal Tax Policy
$2 trillion in outstanding municipal bonds
$356 billion of long-term municipal bonds issued in 2002
Interest rates on municipal bonds are lower than rates on private bonds because the interest is exempt from federal taxes
Corporate bond rate: 5.0 percent
28 percent tax rate
Everything else equal, would expect municipal bond rate to be 3.6 percent
Supreme Court has held that Congress has ability to tax municipal bond interest.
Tax expenditure: $26.4 billionMunicipal Bonds
State Tax Collections, by Source (%)
Source: economagic.com results from the pyramiding of tax rates that occurs when several levels of government tax the same base.