Tax Anticipation Bill (TAB)

What Was a Tax Anticipation Bill (TAB)?

A tax anticipation bill (TAB) was a short-term debt obligation backed by the U.S. Department of the Treasury. It was sold in periods when tax receipts didn't cover the cost of short-term government spending.

The Treasury last issued TABs in 1974, and none are arranged sooner rather than later. Instead, the Treasury typically issues cash management bills today to raise any fundamental short-term funding.

Like other T-bills, tax anticipation bills were interest-bearing securities, promising periodic interest payments for the duration of the bond's life, as well as principal repayment at the finish of the term. The full faith and credit of the U.S. government backed these securities.

Understanding Tax Anticipation Bills (TABs)

Tax anticipation bills (TABs) were sold at a discount and matured in 23 to 273 days, or generally in accordance with the schedule of when corporate tax payments came due. The government typically accepted the bills in exchange for tax payments at the bills' respective face values. Large corporations and other institutional investors tended to possess tax anticipation bills. Denominations often were $10,000.

Tax anticipation bills let investors set to the side and earn interest on excess short-term funds. In the mean time, they secured funding for the Treasury ahead of large outflows. Over the long run, the issuance of TABs and other short-term securities permitted the Treasury to carry lower cash balances and issue less long-term notes.

Like today's cash-management bills, tax anticipation bills normally found investor demand, even when issued on next to no notice, partly in light of the fact that they tended to pay higher interest than T-bills.

Tax anticipation bills typically worked this way: Say it's October 15, 1970, six months from that point the U.S. government next expects a significant cash inflow from corporate tax payments in April 1971. Notwithstanding, it has short-term expenses it can't meet. The Treasury issues tax anticipation bills maturing one month from the April 15 tax cutoff time. Then when the government is paid, it utilizes the tax receipts to pay back the bill, as well as the interest.

Tax anticipation bill issuance happened both unpredictably and now and then, instead of each and every tax season.

A Tax Anticipation Bill (TAB) isn't equivalent to a comparably named Tax Anticipation Note (TAN) — the latter is somewhat comparative but is issued by a municipal government to finance immediate projects and is repaid with future taxes.

Tax Anticipation Bill (TAB) versus Tax Anticipation Note (TAN)

Try not to befuddle a Tax Anticipation Bill (TAB) with a Tax Anticipation Note (TAN). The latter is somewhat comparable, but it is issued by a municipal government to finance immediate projects and is repaid with future tax collections.

State and nearby governments use TANs to borrow in the short term, normally at a genuinely low-interest rate, to finance capital expenditures like new streets or structures.

Highlights

• Instead of TABs, the Treasury typically issues cash management bills today to raise any important short-term funding.
• A tax anticipation bill (TAB) was a short-term debt obligation backed by the U.S. Department of the Treasury.
• TABs were sold in periods when tax receipts didn't cover the cost of short-term government spending.
• The Treasury last issued TABs in 1974, and none are arranged sooner rather than later.