156 Congressional Lawmakers Sign Letter in Defense of Muni Bond Tax Exemption
Shutterstock
“Changes to the tax-code should recognize the vital role of tax-exempt municipal bonds,” says the letter, which was sent to leaders on the House Ways and Means Committee.
WASHINGTON — A bipartisan group of 156 congressional lawmakers sent a letter this week to leaders of the chief tax-writing committee in the U.S. House of Representatives to voice support for a long-standing tax exemption for municipal bonds.
The federal income tax exemption for interest earned on municipal bonds is believed to keep borrowing costs lower for states and localities. There’s been hand-wringing by state and local government groups over the possibility that proposals could emerge to kill or scale back the exemption as part of broader tax reform efforts that are expected to unfold in Congress.
“We should preserve this Main Street financing tool for municipalities,” U.S. Rep. Randy Hultgren, an Illinois Republican, said in a statement Thursday about the letter.
Hultgren and Rep. Dutch Ruppersberger, a Maryland Democrat, are the co-chairs the Congressional Municipal Finance Caucus.
A total of 95 Democrats and 61 Republicans signed the letter, which was sent to Rep. Kevin Brady, the Texas Republican who chairs the House Ways and Means Committee and U.S. Rep. Richard Neal, a Massachusetts Democrat who is the panel’s ranking member.
“As Congress considers tax reform and infrastructure financing, we, the undersigned, write to express our strong support for an already potent tool already in hand—the tax-exempt municipal bond,” the letter, dated March 8, says.
It adds: “Changes to the tax-code should recognize the vital role of tax-exempt municipal bonds. Any changes under consideration to the tax exempt status that would increase the cost of financing for states and local government should be provided very careful consideration.”
Organizations such as the U.S. Conference of Mayors, the National Association of Counties and the National League of Cities have identified preserving the tax exemption as a priority.
The National Association of State Treasurers applauded the letter the lawmakers sent.
“Tax-exempt municipal bonds are the single most important tool we have to finance critical infrastructure projects, so state treasurers are encouraged that a growing, bipartisan Congressional delegation have recognized the need to preserve this vital funding mechanism,” Oklahoma State Treasurer Ken Miller, the group’s current president, said in a statement.
State and local governments regularly borrow through the municipal bond market to finance projects such as roads, schools and water systems.
There were about $423 billion in new municipal bond and note sales in 2016.
“If simply left alone” the bonds likely will finance $3 trillion in new infrastructure investments by 2026, the lawmakers said in their letter.
President Trump has called for $1 trillion of infrastructure spending that would involve both public and private investment.
Trump indicated his support for the municipal bond tax break during a meeting with the leadership of the U.S. Conference of Mayors in December. But that has not quelled fears that it could be targeted during tax reform debates that are on the horizon.
Common criticisms of the exemption are that it costs the federal government money in foregone tax revenue and that there are more efficient ways to subsidize infrastructure spending.
Bill Lucia is a Senior Reporter for Government Executive’s Route Fifty and is based in Washington, D.C.
NEXT STORY: Connecticut’s Perpetual Fiscal Crisis