Earlier this month, I blogged the launch (117 Tax Notes 1077 (12/10/07) of the ambitious new Shelf Project by Calvin H. Johnson (Texas) and Tax Analysts, along with the first proposal to Replace the Corporate Tax With a Market Capitalization Tax, 117 Tax Notes 1082 (12/10/07):.  Calvin has now advanced his second proposal:  Repeal Tax Exemption for Municipal Bonds, 117 Tax Notes 1259 (12/24/07):

This proposal would repeal section 103, which now exempts interest paid on state and local bonds. The exemption wastes most of its federal cost. The fraction of the cost delivered to borrowers induces them to undertake projects that would not be rational given the real cost of capital. The exemption would be replaced with a budgeted payment to current borrowers to reduce their debt. Current bonds would be taxable prospectively but with a credit for discount or implicit tax that was of help to the borrower.