Lawmakers urge support for infrastructure financing tool
A bipartisan group of more than 150 House members is expressing support for the municipal bond tax exemption as congressional Republicans and President Trump make tax reform one of their top priorities this year.
"For more than a century, states and local governments have depended on this reliable and efficient means of financing," the lawmakers wrote this week in a letter to House Ways and Means Committee Chairman Kevin Brady (R-Texas) and ranking Democrat Richard Neal (Mass.).
Municipal bonds are used by state and local governments to finance infrastructure projects such as roads, schools, and water and sewer facilities. Interest on municipal bonds is exempt from federal income taxes, allowing municipalities to borrow money at a lower cost.
Preserving the municipal bond tax exemption has been a top tax reform priority for state and local government officials. In December, Trump told a group of mayors that he supports the exemption, but it's unclear if the preference will ultimately be maintained in reform legislation. The House Republican tax blueprint does not explicitly mention municipal bonds.
In their letter, the House members highlighted the types of projects that are financed by municipal bonds.
"They are the roads we drive on, schools for our children, affordable family housing, water systems that supply safe drinking water, courthouses, hospitals and clinics to treat the sick, airports and ports that help move products domestically and overseas, and, in some cases, the utility plants that power our homes, businesses, and factories," the lawmakers wrote. "These are the pro-growth investments which spur job creation, help our economies grow, and strengthen our communities."
The lawmakers also said that bonds are "fiscal federalism at its finest," since they are approved by local officials or through referenda. And they said that people buy municipal bonds because they are low-risk investments.
"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," they said. "We believe the current tax-exempt status contributes to efficient economic growth that benefits all Americans."
Reps. Randy Hultgren (R-Ill.) and Dutch Ruppersberger (D-Md.) took the lead on the letter and have led similar letters in previous years. The letter was signed by 95 Democrats and 61 Republicans.
“Municipal bonds are a lifeline to local communities looking to expand a hospital or repair their infrastructure,” Hultgren said in a news release.
“If the federal income tax exemption is eliminated or limited, states and localities will pay more to finance projects, leading to less infrastructure investment and fewer jobs,” Ruppersberger said.