THE INCOME RECEIVED as interest from securities issued by states and local governments, known in financial circles as "municipals," is not subject to taxation under the federal individual and corporation income tax laws. Because purchasers of such securities value this exemption from taxation, they will accept a lower rate of interest for a bond that is tax-exempt than for one that is fully taxable. The proposal that the federal government tax the income from municipals has been considered intermittently for the last fifty years. The arguments pro and con have usually been stated in legal and political terms, and on a few occasions they have been reduced to economic terms. Were the income from municipals subject to federal income taxation, how much revenue would the United States Treasury realize? What proportion would come from states and local governments in the form of higher interest rates? What proportion would come from investors in such securities?