Proposed Accounting Rule Could Highlight Fed Tax Treatment of State & Local Govts

A proposed new accounting rule may alter the presentation and description of “tax expenditures” affecting state and local governments under federal tax policy.

From a recent Governing article:

The new rule, proposed by the Federal Accounting Standards Advisory Board (FASAB), would require the feds to include in annual financial reports the “revenue impact” (but not a precise calculation) of all Washington’s lost revenue from tax breaks. The U.S. Treasury Department already estimates the cost of these expenditures, but they aren’t included in federal annual financial reports.

Justin Marlowe, a Governing contributor and public finance professor at the University of Washington, says the change “would draw more attention to the particularly big areas of deductions and exemptions,” and help critics of those expenditures make a case for getting rid of them.

Both Congress and President Obama have proposed limiting or repealing the tax exemption for muni bonds, but state and local government groups have lobbied hard to keep it. That’s because the benefit allows states and municipalities to offer a lower interest rate on those bonds, meaning it costs less for them to finance infrastructure projects. A study last year found that the tax-exempt status of muni bonds has saved governments an estimated $714 billion in extra interest payments from 2000 to 2014.

Read the full proposed rule, open for public comment, online at the Federal Financial Accounting Standards Board website.

Michael Sanderson

Executive Director Maryland Association of Counties
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