Will Municipal Bonds Survive Tax Reform?

As reported in The Bond Buyer, as Congress takes a “blank slate” approach to tax reform, all options are on the table.

U.S. Senator Max Baucus

Leadership in the Senate Senate Finance Committee has set forth priorities, however, including bi-partisan proposals, and proposals that help the economy, make the code fairer or promote other important objectives. Committee chairman Max Baucus, and ranking minority member Orrin Hatch set out the objectives in a “dear colleague” letter.

Finance experts like Mike Nicholas, chief executive officer of the Bond Dealers of America argues that maintaining the tax exemption on municipal bonds fit within at least two of these three stated priorities, according to The Bond Buyer.

“You think about infrastructure, jobs, or capital improvement growth, Nicholas said. “That’s been done for 100 years by issuing tax exempt debt.” Nicholas added that if the goal is to simplify or make the tax code more fair, “the muni bond tax exemption is not one of the extra layers that has made the code more complicated. It has been in the tax code since there was a tax code.”

According to the The Bond Buyer, Senators have until July 26 to submit their proposals.  For more information, see the full story.

U.S. Representative Ruppersberger

Meanwhile, in the House of Representatives, Representative Dutch Ruppersberger, has written a “dear colleague” letter to John Boehner, Speaker of the House, and Nancy Pelosi, Democratic Leader, signed by 138 members of Congress.  The letter urges Congressional leadership to reject proposals to alter the tax-exempt status of municipal bonds.  MACo contacted Representative Ruppersberger about the municipal bonds issue in April.  The Congressman is a former Baltimore County Executive and past President of MACo.  Read the letter here.

With regard to the impact to Maryland of a change in the tax exemption on municipal bonds, the National Association of Counties found that the estimated costs of a 28% cap of the tax-exemption on municipal bonds for the largest infrastructure purposes would be between $1.6 and $2.2 billion in Maryland.  The map below shows the estimated costs of a 28% cap throughout the nation.

muni bonds
Courtesy of the National Association of Counties

For more information, see the full report, Municipal Bonds Build America, from the National Association of Counties.