14-2 Century Bonds 2

14-2 Century Bonds 2 - Century Bonds May Face Final Days....

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Century Bonds May Face Final Days. Is the Party over for 100-Year Bonds? Source: Wall Street Journal Europe, 5 February 1997 In recent months, a number of U.S. companies have been tapping the market for so-called century bonds, taking advantage of low interest rates and the strong appetite among some institutional investors for such long-term debt. But the days may be numbered for this rather obscure part of the bond market. The U.S. Treasury Depart- ment is proposing to eliminate the corporate tax de- duction for interest paid on the past 60 years of cen- tury bonds, effectively killing the securities. The proposal is included in President Bill Clinton's fiscal 1998 budget, which will be unveiled Thursday. The Treasury argues that 100-year debt should be treated the same as equity because the bonds are more like permanent capital. Since stock dividend payments can't be deducted from taxable earnings, the Treasury says, interest payments on the past 60 years of 100-year debt shouldn't be deductible either. Corporate treasurers and Wall Street underwriters say they will fight the proposal. They contend that ending the tax break for 100-year bonds will put U.S. com- panies at a competitive disadvantage to foreign-bond issuers, which aren't subject to U.S. tax. For now, prospects for the tax change are unclear.
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This note was uploaded on 05/03/2010 for the course ACCT 202 taught by Professor Yang during the Spring '10 term at UPenn.

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14-2 Century Bonds 2 - Century Bonds May Face Final Days....

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