NLC: federal tax reform must not harm local governments.

• Position: News & Numbers

Officials from the National League of Cities in April urged caution when overhauling any aspect of the tax code that would eliminate deductions for state and local taxes and exemptions for municipal bonds. Testifying at the first hearing of the President's Advisory Panel on Federal Tax Reform, municipal officials expressed support for tax simplification but said there could be significant revenue implications for cities, towns, and states.

"The elimination of deductions for state and local taxes and exemptions for municipal bonds could actually become a tax increase for millions of Americans who itemize," said Timothy Firestine, director of finance for Montgomery County and vice chair of GFOA's Committee on Governmental Debt Management. "The economic stability of the United States begins at the local level, and we want to make sure we support Congressional activities to protect our constituents and their needs.

"The need for local government services will never diminish. In any tax reform proposal, municipal officials must retain the flexibility they need and the diversity of options to collect revenue that will enable them to continue to provide important services. Access to the debt market must also be continued so we can provide our citizens with critical infrastructure improvements at the lowest cost possible."

Earlier this year, President Bush identified tax reform as a top priority and created the bipartisan Advisory Panel on Federal Tax Reform. The panel is charged with reviewing the existing federal tax system and recommending improvements.

NLC's Finance, Administration, and Intergovernmental Relations Committee and CityFutures Panel on Public Finance are working to develop a proposal for reforming the federal tax system in a manner that does no harm to local governments. A blueprint for reform is expected in July.

"After years of tight budgets and significant cuts from state and federal funding for basic services like public safety, tax changes are clearly going to impact cities across the country," said Michael B. Coleman, mayor of Columbus, Ohio, and chair of the CityFutures Panel.

States Ranked by Total Taxes and Total Taxes Per Capita: 2004 (Amounts are in thousands. Per capita amounts are in dollars.) Total Tax Revenues Rank State Amount 1 California $85,721,483 2 New York 45,833,652 3 Florida 30,767,561 4 Texas 30,751,860 5 Illinois 25,490,593 6 Pennsylvania 25,346,869 7 Michigan 24,061,065 8 Ohio 22,475,528 9 New Jersey...