Proposed legislation from Republican Senator Judd Gregg, and Democrat Senator Ron Wyden includes a provision that would end the tax deferral on savings bond income. The overall goal of the legislation is to simplify the tax code and close tax loopholes, as is discussed in this NY Times article. Indeed, it's a rare sign of bi-partisan cooperation.
Today, interest earned on savings bonds is not taxed until the bond is redeemed. In addition, savings bonds are state and local tax-exempt, which would not be impacted by the legislation.
So, it this a big deal? First, the bill has to pass which is a long, long shot. Then, it has to pass with those provisions intact. And let's also remember this doesn't make a tax-exempt bond taxable, it simply removes the deferral on paying the tax.
It's not clear why they have decided to target this tax deferral. If anything, it seems like good policy to encourage savings and investments in government debt.
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