Added Costs if Municipal Bonds Are Taxed
There is support in Congress and the White House for proposals that would limit the exemption for interest earned on municipal bonds. If adopted, these would significantly increase the infrastructure financing costs for local governments, and thereby local residents. Use this calculator to see the increase in interest costs to finance investments in schools, roads, water and sewer systems, airports, bridges and other vital infrastructure in your community, if the federal government decides to tax any portion of interest earned on municipal bonds.
By entering the dollar amount of the project cost to be financed, the interest rate and length of its bonds into the calculator below, you will see three calculation.
1. The interest costs for the project under current law with the interest earned being fully tax-exempt.
2. The interest costs for the project if there is a 28 percent cap on the interest earned.
3. The interest costs for the project if the exemption is fully repealed.
The bottom line is that, if the federal income tax exemption is eliminated or limited, cities and their tax payers will pay more to finance infrastructure projects or there will be less infrastructure investment and fewer jobs created.
Annual Interest Rate:Enter the annual interest rate for your municipal bond
Loan Terms:Enter the number of years (loan term) for your bond
Principal Amount:Help - Principal Amount
Residents save an average of 25 to 30 percent on interest costs with municipal bonds as compared to taxable bonds. These savings arise because investors are willing to accept lower interest on tax-exempt bonds in conjunction with the tax benefit.
Residents would have paid an additional $173 billion in interest if a 28 percent cap on tax-exempt interest had been in effect during the last decade. Analysts estimate this proposal would raise borrowing costs by at least 70 Basis Points (0.70 percentage point).
Residents would have paid an additional $495 billion in interest if the tax exemption had not existed during the last decade. Analysts estimate elimination of the exemption would raise borrowing costs by at least 200 Basis Points (2 percentage points).