Securities Law Commons^™

Taxation Without Premeditation: An Economic Analysis Of The Structure, Regulation And Strangulation Of The Private Activity Bond Market, Kevin Outterson

Faculty Scholarship

Private Activity Bonds (PABs) are private debt issued under the auspices of state governments. The states issued $119.4 billion dollars of long-term PABs in 1985. Utilizing the state government conduit transforms the bond interest into federally tax exempt income. As a result, PABs bear lower interest rates than comparable taxable bonds. PAB financing significantly reduces private capital costs at the expense of the Federal Treasury. The structure of the PAB subsidy is fundamentally flawed. State governments subsidize local businesses and investments with PABs, often in competition with sister states. The states receive significant local benefits, but bear no direct costs …