Rewrite the Tax Code to Help Hardworking Taxpayers and Reduce Economic Inequality

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.

Restore Full Federal Deductibility of State and Local Taxes (SALT)

Cities of all sizes across the country are experiencing significant revenue shortfalls as a result of the COVID-19 pandemic and are in dire need of immediate and near-term infusions of direct, flexible federal aid.

Thus, mayors call for direct and significant federal aid to cities on the order of at least $250 billion of fiscal assistance, over and above state aid, which must be provided immediately to get cities through budgeting for the next fiscal year (FY 2021). The funds must be distributed by formula to all municipalities – not just those with populations exceeding 500,000 people.

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, which 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 the COVID-19 Pandemic continues, 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:

  • 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.
  • Increase access to credit and expand funding for Community Development Financial Institutions.
  • Pass legislation to reform and improve Opportunity Zones, a new tool to incentivize private capital into low-income, high poverty, and investment deprived neighborhoods.  Reforms should be made to strengthen reporting requirements, extend the timeframe for investments, and provide mayors the technical assistance and capacity needed to help enable more communities to attract high impact investments and economic activities.
  • Enact policy that will enable the Federal Home Loan Bank system to help community lenders better support the economic and credit needs of cities by providing additional liquidity for small business, agricultural, and economic development lending; and assist cities by making critical forms of credit support available for municipal borrowing to lower the cost of infrastructure projects.
  • Fully fund (defined as inflation-adjusted dollars over the last decade) urban domestic programs such as Community Development Block Grants, HOME Block Grants, Community Service Block Grants, and workforce development programs that assist low and moderate-income communities.
  • Change the tax code to provide a more fair and progressive federal tax system that generates sufficient resources for urban programs, that have suffered decade-long disinvestment, as opposed to providing tax expenditures that favor the wealthy. Increase support for Disadvantaged Business Enterprises and minority-owned businesses.

Promoting Economic Mobility and Reducing the Wage and Income Gap

The COVID-19 Pandemic has had an enormous impact on low-income Americans.  According to a recent report from the Federal Reserve Board, thirty-nine percent of people working in February 2020 with a household income below $40,000, reported a job loss in March due to COVID-19. Further, racism and gender-based discrimination, dating back to the founding of our Nation, continue to make it difficult for minorities and women to secure well-paying jobs. Many feel trapped in poverty, receiving governmental assistance, and/or working multiple minimum wage or low-paying jobs that barely enable them to support their families.

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:

  • Increase the minimum wage and allow adjustments for inflation to enable workers to earn sufficient income to take care of themselves and their families without having to work multiple low-paying jobs.
  • Support Universal Basic Income policies and funding to eliminate poverty and income inequality to help ensure sufficient earnings for low-income workers.
  • Pass legislation increasing the Earned Income Tax Credit for existing recipients, so that the tax code promotes economic fairness.
  • Enact legislation to make permanent the Child Tax Credit to support working families.
  • Establish a national child savings account matching program or a “Baby Bonds” program to build financial wealth for low- and moderate-income families.
  • Increase funding for financial education programs.
  • Cities are urged to review their fines and fees to assess the impact on low and moderate-income individuals and families; eliminate punitive fines and fees; and work with appropriate state and local authorities to restore drivers licenses (if they are suspended for failure to pay certain fines and fees), where appropriate, to individuals in order to encourage entry into the job market.
  • 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.