As the federal government’s tax reform debate teeters along, counties and state treasurers remind Congress of the importance of municipal bonds.
MACo has joined the National Association of State Treasurers, (NAST) in asking Congress to protect the tax exemption on municipal bonds throughout any discussion of tax reform. MACo, NAST, and other organizations are watching as Congress considers comprehensive tax reform.
Several analysts predict that Congress will not move a comprehensive tax reform package in 2016. At the same time, the possibility exists for 2016 and may be even more likely for 2017, according to stakeholders.
The Bond Buyer asked several experts to comment on the prospect of tax reform in 2016,
“There will be no important tax legislation next year, nothing’s going to get to the finish line,” said Howard Gleckman, senior fellow at the Tax Policy Center.
“Congress has basically completed its to-do list,” said John Godfrey, senior director of government relations at the American Public Power Association. “The pressure to act has been lifted.” But tax policy is driven by headlines as well as deadlines, he said.
For more opinions, see The Bond Buyer’s Outlook for Tax Reform Legislation in 2016.
As reported by The Hill, a recently-passed tax package could help prepare Congress for broader tax reform in the coming years,
The just-passed $680 billion tax package will also help by clearing the tables for the Senate Finance and House Ways and Means committees.
By making several big-ticket tax breaks long-term, the tax-writing panels will be less distracted by the annual or biannual task of putting together a package to extend expiring tax provisions.
“The things that people focused on before, ‘Just pass my little piece, pass my little piece,’ have pretty much been done or rejected and now we can move forward on the big picture,” said Sen. Charles Schumer (N.Y.), a senior member of the Finance Committee, who is expected to become the Senate Democratic leader in 2017.
“This will set the stage. We’re going to have a lower baseline. We’ll have a better chance to do comprehensive tax reform,” Senate Finance Committee Chairman Orrin Hatch (R-Utah) said.
For more information see the full story from The Hill.
The prospect of comprehensive tax reforms puts state and local governments on alert. Local governments have concerns that municipal bonds, a tax-exempt financing tool used to support local infrastructure projects, could be a victim of tax reform.
Changing the tax-exempt status of municipal bonds has been a part of prior tax reform proposals. The National Association of State Treasurers states the issue,
Simply put, any change to the tax treatment of municipal bonds will have a serious impact on the cost to state and local governments of financing critical infrastructure projects. Yet proposals have been offered by both parties to limit the long-lived tax exemption for these bonds.
NAST has drafted a letter to members of the House Committee on Ways and Means and the Senate Committee on Finance on the issue of tax exempt municipal bonds. The letter states,
Three quarters of all public infrastructure projects in the United States are built by the states and local governmental entities and tax-exempt bonds are the primary financing mechanism for these essential projects. Municipal bonds have a very strong repayment record – much higher than corporate bonds – allowing state and local governments to borrow responsibly for capital projects, and providing a safe and reliable investment option for our citizens.
Tax-exempt municipal bonds finance highways, bridges, transit systems, airports, water and wastewater systems, schools, higher education facilities, and many other basic infrastructure projects. Tax-exempt bonds bring affordable capital to these projects, saving an average of 25 to 30 percent on interest costs compared to taxable bonds. In an age of constrained federal and state budgets, the ability to save billions of dollars on infrastructure financing is critical for state and local governments and their taxpayers. If issuing affordable debt is no longer an option and unfunded projects begin to further mount, state and local governments will have to seek additional infrastructure support at the federal level through federal highway legislation and other sources.
Many state treasurers and other organizations, including MACo, have joined on NAST’s letter. NAST is continuing to collect signatures.
MACo has also issued its own letter to the Maryland Congressional Delegation. For more information, read MACo’s letter to Maryland Senator Ben Cardin.
Senator Cardin is a member of the Senate Committee on Finance and his tax counsel is in receipt of MACo’s letter. In the House, Congressman Delaney’s office recently contacted MACo to let us know that he will continue to support tax-exempt municipal bonds. In years past, Congressman Ruppersberger authored a dear colleague letter on the topic of municipal bonds.
For background on the municipal bond issue and Maryland’s involvement, see our previous posts on Conduit Street: