In his budget in April, Obama proposed selling taxable America Fast Forward bonds that would offer federal rebates equal to 50 percent of their interest costs when sold for capital works at public schools and universities and equal to 28 percent of interest costs when issued for other projects.
The program is based on the wildly popular Build America Bonds, which paid rebates equal to 35 percent of interest costs and were part of the 2009 economic stimulus plan. They expired when the plan ended. Under the federal budget cuts that began in March, their rebates have been lowered and the unexpected reductions have made states, cities and counties cool to Fast Forward and other ideas for rebate bonds.
Mayors, governors, state lawmakers and county commissioners have stood shoulder-to-shoulder with bond investors and dealers to support the bond exemption since the cap was first broached three years ago. They warn that a limit would raise borrowing costs for governments, forcing them to shrink the number of infrastructure projects and slow down the economy. Meanwhile, they say a cap would threaten the tax-free income of many retirees.
The fate of the cap proposal is uncertain. It would have to be part of a larger overhaul the tax system currently working through the politically fractured Congress. Lawmakers from both parties have voiced support for maintaining the bond interest exemption.
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