Series 50: Tax Credit BABs

Tax Credit BABs

Tax Credit BABs may be issued for any public purpose that a normal tax-exempt bond can fund. In this case, the 35% subsidy comes to investors in the form of a tax credit on their interest income. Because the holder of this type of bond sees his interest income tax liability reduced, investors will often agree to Tax Credit BABs with lower coupon rates than they would otherwise accept.