STATEMENT OF THE EXECUTIVE COMMITTEE OF THE LEAGUE OF MINNESOTA MUNICIPALITIES BEFORE THE SENATE FINANCE COMMITTEE CONCERNING THE TAXATION OF MUNICIPAL BOND INTEREST September 23, 1969 The Executive Committee of the League of Minnesota Municipalities would like to express its opposition to those provisions of the Tax Reform Act of 1969 (H.R. 13270) which would result in the direct or indirect taxation of the interest on municipal bonds. Specifically, we are opposed to the provision of this bill which includes the interest from municipal bonds in the proposed allocation of deductions rule and the provision which includes the interest from municipal bonds in the proposed limit on tax preferences. However, with the inter Our opposition to these specific provisions of H.R. 13270 should not be construed as opposition to the general objective of introducing a greater degree of fairness and equity into the federal income tax. We are fully aware that the sentiment both in the Congress and among the public at large is strongly in favor of tax reform and we are in sympathy with these views. est rates on municipal bonds at the highest level in one hundred years, we must oppose the inclusion of the interest on municipal bonds in these two provisions of the bill because enactment in their present form would almost certainly have the effect of increasing the interest rates on municipal bonds even further. If, despite the opposition of municipal officials, the Congress in its wisdom determines that the interest on municipal bonds should be included in the allocation of deductions rule and/or the limit on tax preferences, then we strongly urge 33-758 - 69 No. 11 15 that the proposed bond interest subsidy program for bond issuers who waive their tax exemption be retained in the bill, including the provision permitting the issuance of dual coupon bonds. This latter provision would be absolutely necessary in Minnesota in order to avoid violation of the state statute which limits the interest which can be paid on obligations issued by its subdivisions to 7% per annum. SUMMARY OF Principal Points of Statement by Rollin F. Agard, Financial Consultant, Aviation Department, City of Kansas City, Missouri, to United States Senate Committee on Finances, September 23, 1969, re: H. R. 13270. 1. This legislation destroys the market for securities now tax-exempted. 2. Any subsidy granted by Federal Government must be tax supported from local residents and business. 3. 4. Revenue derived from taxing this bond interest will not offset cost of subsidy and higher rate costs. Raise serious question concerning claim that there will 5. Subsidy could be, in effect, a blank check on U. S. Treasury and by controlling this, U. S. Government controls local financing. 6. Cost of administration federally and locally would be substantial. 7. Prospects of passage of this legislation has effectively destroyed the market, both primary and secondary. 8. Twenty-four states limit interest rates to 6% or below on General Obligation Bonds, six states limit interest to 7%, and twenty states limit interest to 6% on Revenue Bonds. 9. There is a question in some states whether taxable bonds can be legally issued. 10. No time to be tampering with the right of local government 219 |