250 words discussion board

This is a discussion board question, don’t make it too formal

Points of Discussion: Role, benefits, subsidy, complaints of municipal tax-exempt debt. Guidance — students can comment on any, or some of the following, certainly not limited to the following, and can offer personal insights regarding this broad topic:

  1. The tax-exempt aspect of munis carries a very real subsidy for higher income investors. Who receives this subsidy has always attracted some negative comments such as “a security that does wealth transfer from one segment of the population to another”. Fair characterization?
  2. The flip side as to the use of the funds doesn’t seem to raise too many complaints when the borrowing is for building local roads, schools, bridges. Shouldn’t capital be raised in the free market fairly [with taxes]? Complaints about this use from a capitalist?
  3. However, when tax exempt bonds are used to build sports stadiums or develop infrastructure for industrial projects, many more voices of complaint have been raised:
    • Are these projects considered social goods? Why the tax exemption?
    • For example, already-very-wealthy professional soccer/football organizations getting the tax breaks; once again the poor seems disadvantaged. — they are less like to attend these expensive sporting events. True?
  4. Any other comments on the benefits / burdens of using tax exempt financings regarding the recipients of the subsidies and the use of the funds for this broader set of purposes?
  5. Recent: you may also comment on the Trump Tax Reform Plan [implemented 2018] – how it willimpact the Muni market – more/less issued in market? Tax-exempt benefits eroded?
  6. Covid-19’s impact: it is also timely to comment on the tough times ahead for weak credit-rated municipalities — spike in unemployment, potential lost of substantial local tax base:
    • It might be a liquidity problem for these municipalities to raise capital.
    • How can the federal government and/or the central bank can help out?
    • Maybe this unprecedented health crisis makes munis the feel-good security — similar to the WW1 and WW2 “support the war, buy war bonds” — this might be one way to help local communities recover from this crisis.

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