Eliminate the Tax Exemption for New Qualified Private Activity Bonds

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2023–
Decrease (-) in the Deficit -0.1 -0.6 -1.4 -2.1 -3.0 -3.8 -4.7 -5.5 -6.4 -7.2 -7.2 -34.9

Data source: Staff of the Joint Committee on Taxation.

This option would take effect in January 2023.

These estimates do not include any potential interaction between private activity bonds and the low-income housing tax credit.

The U.S. tax code permits state and local governments to finance certain projects by issuing bonds whose interest payments are exempt from federal income taxes. For the most part, proceeds from tax-exempt bonds are used to finance public projects, such as the construction of highways and schools. In some cases, however, state and local governments issue tax-exempt bonds to finance private-sector projects. Such bonds—known as qualified private activity bonds—may be used to fund private projects that provide at least some public benefits. Eligible projects include the construction of infrastructure, such as roads, airports, broadband networks, and carbon dioxide capture facilities, as well as certain activities undertaken by nonprofit organizations, such as building schools and hospitals.

This option would eliminate the tax exemption for new qualified private activity bonds.