In a letter dated March 29, 53 organizations joined together to urge congressional leaders to maintain the tax-exemption of municipal bonds as they consider tax reform legislation. The United States Conference of Mayors and other organizations signing the letter explained that for over 100 years, tax-exempt municipal bonds have been used to finance the vast majority of the nation’s critical infrastructure: schools, hospitals, airports, affordable housing, water and sewer facilities, public power and gas utilities, roads and public transit systems. This federal tax exemption has enabled state and local governments to pay for these infrastructure projects at a savings. Between 2000 and 2014, the federal tax exemption saved state and local governments an estimated $714 billion in additional interest expenses. And in 2015 alone, the federal exemption saved state and local governments an estimated $8 billion. The letter points out that eliminating the federal exemption will increase the costs borne by taxpayers for critical infrastructure because bondholders will demand higher interest rates to offset the taxes imposed on these bonds, and this will undoubtedly drive up state and local borrowing costs.
Treasury Secretary Steven Mnunchin and National Economic Council Director Gary Cohn are reviewing options to present to President Trump for inclusion in a comprehensive tax reform package that is expected to reduce both corporate and individual taxes. To offset the cost of these tax reductions, administration officials and congressional leaders are expected to consider eliminating many if not most tax deductions and tax credits. Although the Administration would like to pass a tax reform package by August, they recently acknowledged the process is likely to take longer. Click here for a copy of the coalition letter.