scholarly journals Alternative Minimum Tax And Effective Returns From Municipal Bonds

2011 ◽  
Vol 9 (4) ◽  
pp. 97
Author(s):  
Jeffrey D. Gramlich ◽  
Edward H. Robbins
Keyword(s):  
Municipal Bonds ◽  
Tax Rate ◽  
Private Activity ◽  
Tax Exempt ◽  
Tax Clientele

Taxpayers must pay the alternative minimum tax (AMT) if a minimum tax rate applied to a broad measure of income results in an amount greater than the regular tax. The AMT rate is 20 percent for corporations and 24 percent for other taxpayers. Currently, this broad measure of income includes 100 percent of private activity bond interest and, for corporations, encompasses up to 75 percent of other tax-exempt interest. This paper explains the computation of the AMT and shows the effect of the AMT on after-tax yields from investment in municipal securities. In particular, it demonstrates that the after-tax return on municipal bonds declines with an increase in the number of years until the AMT credit resulting from previous years AMT paid is utilized. The paper then analyzes the AMT in terms of the tax clientele it creates and the implicit tax it may reduce.

Solving the Muni Puzzle: Who Benefits from Tax Exemption of Government Debt?

2020 ◽  
pp. 109114212096037
Author(s):  
Konul Amrahova Riegel
Keyword(s):  
Random Coefficients ◽  
Municipal Bonds ◽  
Tax Rates ◽  
Marginal Tax Rate ◽  
Tax Rate ◽  
Asset Pricing Theory ◽  
Marginal Tax Rates ◽  
Tax Exempt ◽  
Pricing Theory ◽  
Unobserved Effects

I provide a new approach to measuring interest savings associated with issuing tax-exempt municipal bonds (munis) and present empirical evidence offering a solution to the long-standing “muni puzzle.” I show that the tax policy is effective and consistent with theory once I account for idiosyncratic issuer risk and investor preferences. I match tax-exempt munis to near-identical taxable munis issued by the same government at the same time with the same security characteristics to identify the slope of and the trend in implied marginal tax rates. Results of the random coefficients model, which mitigates issuer- and issuance-level unobserved effects, predict the slope of the marginal tax rate to be consistent with asset pricing theory and the tax profile of the typical muni investor. Findings also imply cyclicality over time and heterogeneity in implied marginal tax rates across issuers due to variations in idiosyncratic risk.

scholarly journals Tax-Exempt Municipal Bonds and the Financing of Professional Sports Stadiums

2020 ◽  
Vol 73 (1) ◽  
pp. 157-196
Author(s):  
Austin J. Drukker ◽  
Ted Gayer ◽  
Alexander K. Gold
Keyword(s):  
Professional Sports ◽  
Municipal Bonds ◽  
Sports Stadiums ◽  
Tax Exempt

scholarly journals Industrial Revenue Bonds: Tests Of The Bank Arbitrage Hypothesis, The Miller Hypothesis, And Segmentation Of The Tax-Exempt Bond Market

2011 ◽  
Vol 11 (2) ◽  
pp. 110
Author(s):  
David S. Allen
Keyword(s):  
Commercial Bank ◽  
Market Segmentation ◽  
Strong Evidence ◽  
Bond Market ◽  
Yield Spread ◽  
Corporate Tax ◽  
Tax Rate ◽  
Empirical Results ◽  
Tax Exempt ◽  
Alternative Hypotheses

This paper considers alternative hypotheses that have been set forth to explain the relative yields on taxable and tax-exempt securities: the Bank Arbitrage Hypothesis, the Corporate Tax-Rate Hypothesis, and the Market Segmentation Hypothesis. The empirical results indicate support for the Bank Arbitrage Hypothesis for short maturities, and the modified Corporate Tax-Rate Hypothesis for long maturities. They also indicate strong evidence of market segmentation among tax-exempt securities of differing maturities. Specifically, commercial bank demand for tax-exempt securities has a significant effect on the yield spread for short and intermediate maturities, but no such effect is observed for long maturities.

Evidence of Tax-Clientele-Related Trading following Dividend Increases

2001 ◽  
Vol 23 (s-1) ◽  
pp. 1-21 ◽  
Author(s):  
Jim A. Seida
Keyword(s):  
Positive Association ◽  
Trading Activity ◽  
Ceteris Paribus ◽  
Tax Rate ◽  
Transaction Data ◽  
Dividend Policies ◽  
Common Stocks ◽  
Tax Clientele ◽  
Strong Positive Association ◽  
Dividend Increases

The tax-clientele theory suggests that higher (lower) tax-rate investors should, ceteris paribus, concentrate their portfolios in tax-favored (explicitly taxed) assets. While evidence supporting the tax-clientele theory exists, research on tax-induced dividend clienteles for common stocks is mixed. This study examines trading activity, measured using daily transaction data, following dividend increases for evidence of shareholder clientele changes. Consistent with implications of the tax-induced dividend clientele theory, I document a strong positive association between dividend increase magnitude and post-dividend-increase trading activity. This result provides evidence that tax clienteles for dividend policies exists and that their effect is strong enough to influence investors' decisions. Further, consistent with dividend clienteles existing, I find that the relation between dividend-increase magnitude and postdividend-increase trading activity decreases with higher pre-dividend-increase dividend levels.

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