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Research report

Who Benefits from Tax-Exempt Bonds?: An Application of the Theory of Tax Incidence

Harvey Galper, Joseph Rosenberg, Kim S. Rueben, Eric Toder
September 27, 2013
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Abstract

This paper applies tax incidence theory to estimate the distributional effects of the exemption from federal income tax of interest on state and local bonds and the President's proposal to limit the benefit of the exemption to the 28 percent rate. When one accounts for the effects of changes in rates of return, the exemption still primarily benefits higher-income individuals, though less so than under the traditional approach that assigns all the benefit to holders of tax-exempt bonds. How states and localities respond to lower borrowing costs can either shift benefits to low-income households or increase the net benefit to high income households.

Research Area

Individual Taxes High-income households Income tax (individual) State and Local Issues Tax-exempt bonds
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Meet the Experts

  • Harvey Galper
    Visiting Fellow
  • Joseph Rosenberg
    Senior Research Associate
  • Kim S. Rueben
    Sol Price Fellow
  • Eric Toder
    Institute Fellow and Codirector, Tax Policy Center
Brief

Understanding the Maze of Recent Child and Work Incentive Proposals

Elaine Maag, Nikhita Airi
June 1, 2020
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