A bill to amend the Internal Revenue Code of 1986 to provide that a State or local bond shall not be a tax-exempt bond if its issuance costs exceed certain limits, to reduce the amount of issuance costs which may be financed by tax-exempt private activity bonds, and for other purposes.

Amends the Internal Revenue Code to deny tax-exempt status to any bond if the issuance costs associated with it and published for public notification exceed specified percentages based on the proceeds of the issue, from a minimum of one percent (proceeds over $75,000,000) to a maximum of three and one-half percent (proceeds of $5,000,000 or less).

Declares inapplicable any Treasury regulation that treats insurance premiums paid to insure a government bond, as well as other credit enhancement devices, as interest for purposes of arbitrage restrictions.

Reduces from two percent to one percent the portion of issuance costs that may be financed by private activity bonds.