Rewrite the Tax Code to Help Hardworking Taxpayers and Reduce Economic Inequality
Since the adoption of the federal income tax in the early 20th century, it has been recognized that independent state and local government tax structures should be respected. The deduction of state and local taxes has contributed to the stability of state and local revenues that are essential for providing public services. Because state and local governments must balance their budgets every year, any change that disrupts the stability of their tax structure will harm their ability to fund essential services that their citizens have come to depend upon.
The principle of fiscal federalism underpins the necessity of ensuring that any federal tax reform allows state and local governments to retain authority over their own tax policies. It is essential that state and local governments retain the full deductibility of personal state and local property, sales, and income taxes on federal tax returns. Also, it is critical that the deductibility of municipal bonds be maintained, and that state and local governments are allowed to refinance those bonds, which will help ensure cities have financial support for critical infrastructure when they need it. Further, it is essential to increase tax incentives that promote investment in cities and support working families, so that our communities will continue to enjoy the economic progress they have made over the past decade.
Restore Full Federal Deductibility of State and Local Taxes (SALT)
Mayors call for the President and Congress to:
- Restore the full deductibility of state and local property, sales, and income taxes. States like California and New York should not be punished for providing critical services for their constituents. Recognizing the partnership that exists among federal, state, and local governments ensures that taxpayers are not double-taxed and helps maintain essential public services on which Americans rely.
Tax-Exempt Municipal Bonds
For more than 100 years, tax-exempt municipal bonds have been the principal means used by state and local governments to finance critical infrastructure: schools, hospitals, water and sewer facilities, roads, mass transit systems, and public power projects. Together, state and local governments are responsible for building and maintaining 75 percent of the nation’s infrastructure, which is mostly financed by tax-exempt municipal bonds. This federal, state, and local partnership represents a fair allocation of the cost between the different levels of government for infrastructure used by the general public.
In 2017, Congress and the President approved tax reform legislation that eliminated tax-exempt advance refunding. As a result, local and state governments can no longer save significant amounts through refinancing and thereby lower their borrowing costs when there is a drop in interest rates. That makes these necessary infrastructure improvements more expensive, and that makes taxes go up.
Mayors call on the President and Congress to:
- Reinstate tax-exempt advance refunding, which has enabled state and local governments to save significant amounts in taxpayer dollars and invest more in critical infrastructure projects to better serve the public.
- Make permanent the Build America Bonds Program, not as a replacement, but as a supplement, to tax-exempt municipal bonds. State and local governments that issued these taxable bonds were paid a direct federal subsidy under the 2009 stimulus bill equal to 35 percent of the interest cost, which enabled them to save significant amounts in borrowing costs.
Community Revitalization Incentives
As local communities continue to recover from the Great Recession, our cities need more support to stimulate investment in underserved, distressed communities. Low-income urban neighborhoods and rural communities do not have access to capital needed to support and grow businesses, create jobs, and sustain a healthy local economy, and local residents are deprived of the quality of life components available to most others. Mayors call for the President and Congress to:
- Pass legislation to raise the federal minimum wage from $7.25 per hour to $10.10 per hour in order to increase the buying power of low-income working families and ensure that all full-time workers can at least pay for the food, clothing and shelter they need to survive.
- Enact a permanent extension of the New Market Tax Credit, which has a proven track record of stimulating economic growth. Between 2003 and 2012, the program generated $31 billion in direct investments to businesses, leveraged another $60 billion in total capital investment in distressed neighborhoods, and created 750,000 jobs.
- Enact legislation to make permanent the Child Tax Credit to support working families.
Wage and Income Gap Reduction
The nation’s mayors believe the economic security of their residents is essential to the future prosperity and stability of their cities. Unfortunately, the gap between high-income and low-income households continues to grow. Between 2008 and 2018, average inflation-adjusted income increased by 21 percent for the top 5 percent of households by income, while it grew only 1.1 percent for the bottom 20 percent. Mayors call for the President and Congress to:
- Pass legislation increasing the Earned Income Tax Credit for existing recipients, so that the tax code promotes economic fairness.
- Reduce student debt through a mixture of scholarship, repayment, and debt forgiveness programs, so that more young adults can start their professional lives without an impossible financial burden.
- Provide incentives to increase homeownership by increasing assistance for down payment and closing costs through increased funding of the Community Development Block Grant program.