Understanding the comprehensive tax reform proposals before Congress.

• Author: Brock, Emily S.
• Position: Federal Focus

On November 8, 2016, voters across the United States will not only elect a new president, but also fill 34 Senate seats and all 435 House seats. On the brink of a tumultuous election season, Congress has begun preparing for the next president's term. Moving into the 115th Congress, elected officials are thinking about which proposals will make a significant impact in the post-election season.

Now is the time for state and local governments to make sure Congress understands the issues that are of crucial importance to their communities --such as preserving the tax exemption on municipal bonds. The exemption is an essential tool for jurisdictions across the United States for the creation and maintenance of infrastructure. Despite its importance, however, this tool has frequently been tied to Congressional efforts for comprehensive tax reform. This article describes the comprehensive tax reform proposals before Congress and assesses the possible effects of each proposed reform on the preservation of the municipal bond tax exemption.

PRESERVING THE MUNICIPAL BOND TAX EXEMPTION

Congress and the White House continue to discuss federal tax reform and budget deficit reduction proposals, some of which would repeal the tax exemption. For more than 100 years, GFOA has consistently communicated with congressional leadership about the importance of preserving the municipal bond tax exemption--and in the midst of an uncertain election season, this message has remained consistent. Along with GFOA's sister organizations, we continue to provide comments to key committee members and leadership that highlight two specific areas:

1) preserving this critical public financing tool to promote job creation and improve the nation's infrastructure; and

2) ensuring that state and local governments retain the authority to set their own tax policies.

Under the federal tax code, investors are not required to pay federal income tax on interest earned on most bonds issued by state and local governments. The municipal bond exemption has existed since 1913. It neither a loophole nor a special interest tag-a-long provision, but rather a fundamental component of our nation's intergovernmental cooperation. Municipal bonds, the most important tool in the United States for financing investments in schools, roads, and other vital infrastructure, are a safe and reliable investment. Threatening the tax exemption threatens the ability of state and local governments to provide vital resources and finance the nation's infrastructure needs. That's because muni bonds allow state and local governments to save approximately two percentage points on borrowing costs, which translates into a substantial savings to local taxpayers.

HOUSE COMMITTEES

The House of...