(DowJones) A top U.S. Treasury official said the market’s ambivalence toward tax-credit bonds shows they might not be an adequate replacement for tax-exempt municipal bonds.

“It would be helpful to have more experience with Build America Bonds before one is confident enough that tax-exempt municipal bonds are no longer necessary, ” Alan Krueger, Treasury’s assistant secretary for economic policy said in an interview.

Krueger’s comments come as Sens. Ron Wyden, (D. Ore.) and Judd Gregg, (R., N.H.) have proposed a rewrite to the U.S. tax code that would effectively end tax-exempt municipal bond issuance. Investors in tax-exempt munis don’t have to pay federal and most home-state income taxes on their bond earnings.

Wyden and Gregg are pushing to replace tax-exempt muni bonds with tax-credit bonds. The bonds compensate investors with federal income tax credits. The Build America Bonds aren’t technically tax credit bonds, but provide a direct subsidy to the issuers, and have provided an alternative to traditional tax-exempt issues for municipal fundraising.

Muni bond dealers and analysts are concerned about the senators’ proposal.

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