As the new U.S. president settles in, we now enter the hectic time where the new administration lays out its key goals and looks for opportunities to find traction for these initiatives in a politically friendly Republican Congress. GFOA priority items for the new administration and Congress include: consideration of legislation dealing with an overhaul of the federal tax code through comprehensive tax reform; collection of state and local taxes on remote sales; legislation to classify investment-grade municipal bonds as high-quality liquid assets (HQLA); efforts to repeal or significantly reform the Affordable Care Act (ACA); and attempts to revise the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).What follows is an overview of expected federal activity in 2017, including discussion of GFOA's related advocacy campaigns.
While there has been a great deal of discussion both pre- and post-election about fixing and building new public infrastructure--and how to pay for it--tax writers in the House of Representatives are already drafting legislation that could have a significant impact on the preservation of the tax exemption on municipal bond interest. This is interesting timing, given that the most fundamental building block of our nation's infrastructure is, in fact, the municipal bond market. Ways and Means Chairman Tom Brady (R-TX) and Speaker of the House Paul Ryan (R-WI) are expected to pick up where they left off in 2016 on this matter.
In June 2017, after soliciting recommendations on restructuring the tax code in order to lower corporate and income tax rates and to simplify it, Brady and Ryan released a Blueprint for Tax Reform that is a guide for comprehensive tax reform. The strategy includes several significant reforms to the current tax code, including: reducing the corporate income tax rate to 20 percent; reducing the current seven-bracket individual income tax rate to three brackets, with a top rate of 33 percent; and repealing the alternative minimum tax for both corporations and individuals.
While the blueprint preserves the mortgage interest deduction and the charitable giving deduction, it does not directly address the tax exemption of municipal bonds. The blueprint does mention repealing so-called "special interest" provisions. At the time of this publication, the plan does not include a discussion draft with legislative language, but top Congressional tax writers expect this legislation to be introduced in early 2017. GFOA will continue to communicate with and educate members of Congress about the importance of the maintaining the federal tax exemption to improve the nation's infrastructure and help promote job creation.
The House Municipal Finance Caucus has been engaged throughout the process and has communicated with the House Ways and Means leadership in support of preserving the tax exemption on municipal bonds. Representatives C.A. Dutch Ruppersberger (R-MD) and Randy Hultgren (D-IL) chair the caucus of 25 bipartisan members. GFOA's Federal Liaison Center will work to boost bipartisan membership in this caucus throughout 2017.
Brady's tax staff has indicated that the blueprint will be shared with the Trump administration, and his input has been solicited. While President-elect Trump did not made municipal bonds a centerpiece of his campaign messaging, GFOA will work with the new administration to ensure that any new types of infrastructure plans recognize the importance of this century-long partnership, and that the tax exemption remains intact throughout the tax reform discussion.
GFOA will also continue to promote its policies to ensure that governments have an additional advanced refunding and that the bank qualified limit is increased, permanently, from $10 million to $30 million, and indexed to inflation thereafter. Draft letters and informational material is available on the GFOA's Federal Government Relations webpage at gfoa.org/flc.
GFOA will also work to defeat any proposals to limit or eliminate the federal deduction of state and local taxes. GFOA continues to support legislation that would permanently allow taxpayers to deduct state and local sales taxes on their federal tax return.
OTHER MUNICIPAL BONDS INITIATIVES
GFOA will also monitor other important debt-related initiatives throughout the year.
Disclosure Standards. In July 2012, the Securities and Exchange Commission (SEC) released a report citing the need for greater issuer disclosure standards for governments that issue municipal securities. In 2014, the SEC Enforcement Division...