GSEs: Implications of Removing State and Local Tax Exemption (Testimony,
07/14/94, GAO/T-GGD-94-182).

Except for real property taxes, government-sponsored enterprises are
exempt from state and local taxes. Removing the exemption to local
income taxation in the District of Columbia would reduce federal
corporate tax revenues. Unlike an increase in direct spending or federal
tax expenditures, no requirement exists to make up such a revenue loss.
If the exemption were not to be removed, equivalent revenue could be
raised from some other tax with similar effects on federal receipts.
Because this latter tax increase has no budget implications, neither
does removing the exemption. If the exemption is removed for D.C. alone,
the main effect would be on Fannie Mae. Because of its competition with
Freddie Mac, Fannie Mae will have an incentive to reduce its tax bill by
shifting activity out of D.C. The tax bill it pays will come from two
primary sources: customers and shareholders. To the extent that it can,
Fannie Mae will try to pass the tax on to financial institutions and the
final borrowers. If Fannie Mae cannot pass on these higher costs to
borrowers, it may be forced to cut dividends to shareholders and Fannie
Mae stock prices may fall.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-GGD-94-182
     TITLE:  GSEs: Implications of Removing State and Local Tax Exemption
      DATE:  07/14/94
   SUBJECT:  Federal corporations
             Tax exempt organizations
             State taxes
             Municipal taxes
             Proposed legislation
             Income taxes
             Mortgage programs
             Student loans
             Government sponsored enterprises
             Tax exempt status

             
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