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 sold in periods when tax receipts did not cover the cost of short-term government spending.
The Treasury last issued TABs in 1974, and none are planned in the near future. Instead, the Treasury typically issues cash management bills today to raise any necessary 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 end of the term. The full full faith and credit of the U.S. government backed these securities.
Understanding the Tax Anticipation Bill (TAB)
Tax anticipation bills (TABs) were sold at a discount and matured in 23 to 273 days, or roughly in line 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 own tax anticipation bills. Denominations often were $10,000.
Tax anticipation bills let investors set aside and earn interest on excess short-term funds. Meanwhile, they secured funding for the Treasury ahead of large outflows. Over time, issuance of TABs and other short-term securities allowed the Treasury to carry lower cash balances and issue fewer long-term notes.
Like today’s cash-management bills, tax anticipation bills usually found investor demand, even when issued on very little notice, partly because they tended to pay higher interest than T-bills.
Tax anticipation bills typically worked like this: Say it’s October 15, 1970, six months from then the U.S. government next expects a significant cash inflow from corporate tax payments in April 1971. However, it has short-term expenses it can’t meet. The Treasury issues tax anticipation bills maturing one month from the April 15 tax deadline. Then when the government is paid, it uses the tax receipts to pay back the bill, as well as the interest.
Tax anticipation bill issuance occurred both irregularly and every so often, as opposed to every single tax season.
Tax Anticipation Bill (TAB) vs. Tax Anticipation Note (TAN)
Do not confuse a Tax Anticipation Bill (TAB) with a Tax Anticipation Note (TAN). The latter is somewhat similar, but it’s issued by a municipal government to finance immediate projects and is repaid with future tax collections. State and local governments use TANs to borrow in the short term, usually at a fairly low interest rate, to finance capital expenditures such as new roads or buildings.