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Muni-Bond Tax Exemption Backed by 138 Members of Congress

July 10 (Bloomberg) -- More than a hundred members of the U.S. House of Representatives are pressing to keep the century-old tax exemption on income from state- and local-government bonds, saying measures to roll it back would push added costs to municipalities.

The letter, signed by 138 lawmakers from both parties and sent to two top House leaders yesterday, cited “serious concerns” about proposals to eliminate or limit the exemption, according to a copy released by Municipal Bonds for America, a group lobbying to protect the tax break.

“Eliminating or capping the current deduction on municipal bonds would severely curtail state and local governments’ ability to invest in themselves,” they said in the letter. “It would increase borrowing costs to public entities and shift costs to local residents through tax or rate increases.”

The letter was sent to Representative Nancy Pelosi of California, the Democratic leader, and House Speaker John Boehner, a Republican from Ohio.

State and local governments have been lobbying to keep the tax exemption for investors’ income from municipal debt, which holds down borrowing costs for schools, roads and mass-transit. President Barack Obama has proposed capping the tax break for high earners, though that proposal hasn’t advanced in Congress.

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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