Question

Arguements in favor of elimination of federal taxes on interest received from treasury debt obligations The biggest benefit of this is that it will increase the investment in treasury debt from general public. Treasury debts will be oversubscribed and fiduciary will have more funds to manage the economy. It will encorage savings habit of general public due to tax incentive. Authorities will have extra funds with which they can finance the infrastucture projects or any other projects which is of priority to the economy. Arguements against elimination of federal taxes on interest received from treasury debt obligations Federal taxes on interest on treasury debt represents income to the fiduciary. Eliminating the same will mean that authorities will lose such income. It will create a significant gap between private debt and public debt as private debt will continue to attract the federal taxes. Excess availability of funds might lead to state investing in a project which might not be of immediate priority. It will increase the disparity between rich and poor. Rich people with excess cash will invest in tax fee debts and will earn more income with no taxes and will become richer. Conclusion This proposal can not be a long term solution for the US treasury , however it can be used as a short term solution to increase the cash inflow. However, It needs to be implemented with utmost care.

Answer 1

Elimination of federal taxes on interest received from treasury debt obligations is not a systematic long term approach. Of course elimination of federal taxes on interest received from treasury debt obligations will come with its own set of advantages like increased level of investments in treasury debt but in the long run this measure will not work as a holistic measure or a systematic measure. This is because if federal taxes on interest received from treasury debt obligations is eliminated then a quantified gap will occur between private debt and public debt and this will have unwanted economic repercussions in the long run. Moreover, in the long run, the income divide between rich and poor will keep on increasing and rich will keep in getting richer by the virtue of being able to earn tax free interest. Hence elimination of federal taxes on interest received from treasury debt obligations is not a systematic long term approach. The federal authorities and the government authorities will have to consider various macro and micro economic factors and should devise an alternate strategy to achieve their objectives getting more investment in treasury debt from general public.