A bill to amend the Internal Revenue Code of 1954, as amended.

Stipulates that with regard to any obligation which is issued by, or in behalf of, any State or possession of the United States, any political subdivision of the foregoing, or the District of Columbia, the interest paid on such obligation and received by the purchase thereof shall be included in gross income, under the Internal Revenue Code.

Directs the Secretary of the Treasury to pay to the issuer of such obligation such portion of the interest as is deemed appropriate taking into account current market yields on obligations of the issuer and on similar obligations.