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Washington, D.C., considers taxing municipal bond interest

The nation's capital is the only U.S. jurisdiction that does not tax the interest earned on out-of-state municipal bonds.

That tax break could be coming to an end.

The Washington Business Journal reports that D.C. Council Chairman Kwame Brown appears to have the votes to remove the District's muni bond interest exemption.

That tax could allow the District of Columbia to avoid instead a proposed new 8.9 income tax rate on the city's residents who make more than $200,000 a year.

The income tax hike is projected to bring in more than $18 million a year. Taxing muni bonds is estimated to generate $14 million. Close enough.

But it's not a done deal.

The WBJ reports that the last time the bond tax exemption repeal was broached, back in 2002, public outrage forced city lawmakers to back off.

In addition to the WBJ coverage, the Washington Post also reports on the tax proposal.

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Mike M.

I think it is kind of cool for DC not to tax municipal interest. DC could probably save money by having more local control of the local budget. -Mike M.

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