Industrial Development bonds, securities, tax


Approximately sixteen years after Congress purportedly divested industrial development bonds (IDB) of the general tax exemption accorded interest on state and local obligations, President Reagan signed into law the Deficit Reduction Act of 1984 (1984 Act) which contains a substantial number of provisions affecting IDB financing. Title VII of the 1984 Act places a ceiling on the total dollar amount of IDBs that each state can issue per calendar year, further restricts the use of tax-exempt IDB proceeds, and eliminates various loopholes in the Internal Revenue Code pertaining to IDBs. Coincidentally, on November 27, 1984, the Treasury Department, in its plan to simplify the tax laws, proposed that virtually all tax-exempt bonds be eliminated. This Note explores the development and financial and tax ramifications of IDB financing. It then examines the extent to which the 1984 Act affects traditional uses of IDBs and the future of tax exempt industrial development bond financing in light of the Treasury's proposal. This Note concludes that IDBs should remain a viable mechanism for financing industrial expansion and essential public facilities.

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