Bonds: What You Don’t Know Can Hurt You

CLICK HERE to take action today! Tell the DC Council to stop protecting a tax shelter for millionaires!

The Fair Budget Coalition has put out another action alert through the progressive list serves. Apparently, the Mayor and many City Council members are fighting to protect tax exemptions on out-of-state bonds. Being not wealthy enough to own stocks and bonds, I don’t even know what a bond is. So, I looked it up.

A bond is a sum of money that an investor loans to a company or the government. For example, U.S. citizens were encouraged to buy war bonds from the Federal Government during World War II. In this way, the government was able to raise the money needed to pay for the added cost of The War. What did the citizens who bought these bonds get out of the deal? The same thing that a bank or your local payday lender gets out of you when you ask for a loan. Interest. The company you buy the bond from will agree to pay back the money you’ve loaned them with interest. Generally, bond holders get an interest payment twice a year and then get the full amount they loaned to the company or government entity on an agreed upon date (the maturity date), which is usually some years after the original purchase.

In short, like a bank, buying a bond allows an investor to loan out some money, get the money back and a bunch of interest to boot. This is one of the ways middle-class folks with extra money and really wealthy people with a lot of money, accumulate more money without actually having to work for it. But it gets better. Or worse generally depending on where your income falls.

The mayor and many on the city council are proposing that the income that investors “earn” from the bonds they buy from out-of-state companies should not be taxed. Why?! According to the Fair Budget Coalition’s Action Alert this will cost the city $30 million in revenue. Hm? What could the city do with $30 million dollars? Help get the families living in DC General into homes of their own perhaps? Fund DC’s subsidized child care program so that parents who want to work or go to school can afford to do so, maybe?

To be fair, there are some DC residents with low or moderate incomes who rely on the interest from their out-of-state bonds to help make ends meet. So the Fair Budget Coalition supports offering the tax exemptions to those residents with low or moderate incomes. But giving up $30 million, so that folks who are already wealthy can just get wealthier is beyond me. We should not have to foot the bill for a millionaire’s tax shelter, especially when it depletes the money available for social programs.

The Fair Budget Coalition’s Action Alert goes on to say:

The DC’s Office of Tax and Revenue revealed that over three-fourths of tax-exempt interest income earned by DC residents goes to households who have income of $200,000 or more beyond what they earn from tax-exempt bonds. In fact, 43% of all tax-exempt interest earned on these bonds are earned by a small percentage of DC households who in 2010 made an average of $2 million from that interest.

But right now ALL millionaires who owned Out-of-State bonds before the tax took effect in 2011 still don’t have to pay taxes on their bonds. When the tax was originally passed by the Council, they added a “grandfather clause” to only put the tax on any new bonds but not existing ones. As we tell the Council NOT to repeal the Out-of-State bond tax, we must also tell them to extend that tax to ALL millionaires.

So TAKE ACTION TODAY to demand that Council choose to fund human needs and NOT a millionaire’s tax shelter!

CLICK HERE to take action today! Tell the DC Council to stop protecting a tax shelter for millionaires!