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When States Discriminate: The Non‐uniform Tax Treatment of Municipal Bond Interest
Author(s) -
Denison Dwight V.,
Hackbart Merl,
Moody Michael J.
Publication year - 2009
Publication title -
public administration review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.721
H-Index - 139
eISSN - 1540-6210
pISSN - 0033-3352
DOI - 10.1111/j.1540-6210.2009.01992.x
Subject(s) - supreme court , bond , state (computer science) , economics , position (finance) , revenue bond , revenue , tax reform , tax policy , tax credit , state income tax , direct tax , tax exemption , tax court , law , law and economics , public economics , political science , finance , taxpayer , algorithm , computer science
There is a long history of states using tax systems to encourage residents to invest in bonds issued by jurisdictions within their state. This preferential or discriminatory tax treatment was ruled unconstitutional in 2006 by the Kentucky Court of Appeals. The Kentucky court decision, which sets the stage for this essay, was overturned by the U.S. Supreme Court in 2008. This essay addresses the possible implications of this and similar discriminatory tax policies. Such discriminatory policies are the foundation of the municipal bond market, and altering the practice would have significant implications for revenue collections and borrowing costs in most states and localities. While the Supreme Court's position has been rendered, the case has caused policy makers and administrators to scrutinize discriminatory tax policies and their impact on budgets and borrowing costs.