Application of a Minimum Income Tax to Municipal Securities

The Government Finance Officers Association (GFOA) reaffirms the policy adopted at the 1969 Annual Conference in opposition to a minimum income tax that will, either directly or indirectly, adversely affect municipal securities.

Under a recent Administration proposal for a new and expanded corporate minimum income tax, a preference item would be added which would include in the minimum income tax base the interest on indebtedness which is used to purchase or carry tax-exempt securities. The effect of including this preference item would be to partially diasallow the interest cost deductions which commercial banks now incur by subjecting those interest costs to a 15 percent minimum income tax. According to GFOA research, this change would greatly reduce commercial bank demand for municipal securities and will have severe adverse impacts on an already weakened bond market.

The GFOA is not taking a position on a minimum income tax, but is opposed to minimum income tax features which would adversely affect the municipal securities issued by state and local governments.

• Publication date: May 1982