In the United States we have a rule that income from local and state government bonds are not taxable. This is so the same people that are paying out interest are not taking in certain percentage points as tax right back from the bond holders. This also allows state governments to borrow money cheaper than the market would allow because the tax benefit makes the real rate of return higher. The problem with this policy is best explained with an example. Lets' say you have a family of great wealth that has a large enough store of wealth that it can make do living off of interest payments alone from these tax exempt bonds. In this situation regular income tax payers are paying the taxes that are being used to raise money needed to pay for the interest payments to the wealthy. So while the state has programs to ensure the poor benefit from lower taxes and social assistance programs (makes sense), and in this situation the rich have to pay no taxes on the interest they are receiving from the state for allowing them to borrow such a large amount of money (makes sense). The class, in this situation, that will be stuck with most of the tax bill than would be the middle class. (Doesn't make sense)
Just a thought...
Just a thought...
