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What could be the rational for IRC exempting income from bonds issued by States and other...

What could be the rational for IRC exempting income from bonds issued by States and other municipalities from being taxable?

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Answer #1

Municipal Bonds- These are issued by local and state Government for financing a project. These bonds provide less but fixed return.

Rational behind exempting the income from municipal bonds from being taxable-

Municipal bonds are issued to finance for the Government projects. These provide very less return to the public and provide no addional income except the interest, that is the reason most of the municipal bonds' interest is tax exempt from all federal income taxes.

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