Another section of the Rep. Dave Camp’s federal tax policy overhaul would phase out tax benefits for private activity bonds (PABs). The changes would not apply to any outstanding PABs, but any interest earned on newly issued PABs would be included in income calculations and subjected to federal taxes.
States often issue PABs to help finance projects that deliver a public benefit (such as a water or wastewater facility) but are constructed by a private company. Volume caps currently limit the total value of tax-exempt PABs each state may issue annually.
To justify the new taxes on PABs, a section-by-section document circulated by Camp’s office said the “government should not subsidize the borrowing costs of private businesses, allowing them to pay lower interest rates, while competitors … must pay a higher interest rate on the debt they issue.”