Might the increased demand for bonds resulting from this legislation encourage municipalities to take on more debt than they can pay back?
There would only be one argument, the super rich will try to hide from taxes by buying municipal bonds...
Both interesting points.
Shua, I'd say you have somewhat of a point there, but I think the benefits outweigh that negative in such a case. Most municipalities will issue bonds for spending projects which were already approved, which means all this would do is lower the cost of that already-approved spending. There will certainly be municipalities which take on too much debt, but it's better for that debt to be "cheaper", which in this case it would.
Superique, I do think the rich own a large portion of the financial assets in the country, so, naturally, more rich people will be affected by this legislation. That's the same case as legislation on the stock market, for example.
The reason I think this is justified is not that rich people can "hide" their money. Instead, rich people can basically use their disposable income to fund public works projects. It's a win-win; they get a competitive return, and smaller municipalities are better off. Rich people are better equipped to take advantage of this tax structure, but I would note that the financial markets run to equilibrium fairly quickly, in that interest rates dropping would essentially make this investment on par with other forms of financial assets, which may be taxable and also see a higher return.
