State and local governments often exempt their own taxes when issuing bonds, so they could still contain some advantages. Issuers may have to offer higher interest rates to attract investors. Americans For Fair Taxation argue that, after the fair tax goes into effect, corporate bond rates would drop; that new tax free yields will roughly equal their previous after tax value under the income tax; and that state and municipal bond holders would not need to change their rates.
State and local governments often exempt themselves from paying taxes when issuing bonds, which could still provide them with advantages. Issuers may have to offer higher interest rates to attract investors. Americans For Fair Taxation argue that after the fair tax is implemented, corporate bond rates would decrease; new tax-free yields would equal their previous after-tax value under the income tax; and state and municipal bond holders wouldn't need to adjust their rates.