If enacted, SB1695 would significantly alter public financing for infrastructure by allowing state and local governments to issue bonds under favorable conditions. The tax credit should encourage more issuers to opt for these infrastructure bonds, thus potentially leading to a greater number of infrastructure projects being funded across the United States. As the interest from these bonds is intended to be excluded from gross income for federal tax purposes, it is designed to enhance its appeal among investors while also supporting vital public works initiatives.
Summary
SB1695, titled the 'American Infrastructure Bonds Act of 2023', aims to amend the Internal Revenue Code of 1986 by providing a credit to issuers of American infrastructure bonds. These bonds are designed to support public infrastructure projects by offering issuers a financial incentive in the form of a tax credit equivalent to 28% of the interest payable on these bonds. This initiative intends to stimulate investment in infrastructure, enhancing the ability of municipalities and other entities to fund necessary projects via tax-exempt debt.
Contention
Discussion surrounding SB1695 may arise particularly regarding its implications for state tax laws and fiscal policy. The transitional coordination with state law provision suggests that while interest paid on these bonds would be exempt from federal income tax, states will have the final say on whether to exempt such interest from their own tax codes. This aspect could lead to varied application of the legislation depending on state-level decisions, with some states possibly opting not to provide this tax exemption, thereby affecting the attractiveness of these bonds. Additionally, there may be concerns about the impact on existing local funding mechanisms and whether this could lead to increased competition for public resources.