As tax reform discussions advance on Capitol Hill, proposals that would cap certain tax benefits continue to be offered as a way to help address the federal debt and deficit.
Specific elements within these proposals threaten the tax-exempt status of municipal bonds, including:
- Any and all interest earned on state and local municipal bonds would be fully taxable for newly issued tax exempt municipal bonds (2010 Simpson-Bowles Commission).
- A 28 percent cap on the deduction for municipal bond interest earned for new and outstanding state and local tax exempt bonds (President's FY2013 Budget Proposal and President's FY2014 Budget Proposal).
- An unspecified cap on the deduction for municipal bond interest earned on municipal bonds (Senate FY2014 Budget Resolution).
Estimated fiscal impact to Florida state and local governments
Over the past decade (2003-2012), Florida state and local governments combined have issued approximately $103.1 billion in municipal bonds to construct and improve public infrastructure. The National Association of Counties (NACo) estimates that eliminating the tax-exempt status of municipal bonds would have increased borrowing costs for infrastructure investment by Florida's state and local governments by $30.9 billion over the preceding decade. Similarly, adopting a 28 percent cap on the deduction for municipal bond interest would have cost Florida's governments an estimated $10.8 billion.
Capping or eliminating the deduction for interest earned on municipal bonds would increase borrowing costs for Florida's governments and would slow the growth of job-creating infrastructure projects.
Federal Legislative Update
During the week of June 3- 7, 2013, Reps. Dutch Ruppersberger (D-MD) and Randy Hultgren (R-IL) announced plans to circulate a "Dear Colleague" letter in support of tax-exempt municipal bonds. The letter, which will be sent to House Speaker John Boehner (R-OH) and House Democratic Leader Nancy Pelosi (D-CA), urges them to support municipal bonds and to oppose proposals that would cap or eliminate the deduction for municipal bond interest.
A copy of the letter can be viewed here.
In conjunction with NACo, the Florida Association of Counties urges its members to actively participate and support the following actions:
- Ask your U.S. House members to sign onto the letter to House Leadership urging the preservation of the tax-exemption for municipal bonds. Congressional delegation members wishing to sign onto the letter should have their staff contact either Walter Gonzales in Rep. Ruppersberger's office (email@example.com or 202.225.3061) or Scott Luginbill in Rep. Hultgren's office (firstname.lastname@example.org or 202.225.2976).
- Ask your U.S. House members to cosponsor House Resolution 112, which former local elected officials Reps. Lee Terry (R-NE) and Richard Neal (D-MA) introduced to reinforce the importance of municipal bonds. Members wishing to cosponsor the resolution should have their staff contact either A.T. Johnston in Rep. Terry's office (email@example.com or 202.225.4155) or Ann Jablon in Rep. Neal's office (firstname.lastname@example.org or 202.225.5601).
- Adopt a resolution and send it to your Congressional delegation members in support of preserving the current tax-exempt status of municipals bonds. A sample resolution can be viewed here.
FAC has sent a letter to Florida's Congressional Delegation in support of the preservation of the current tax-exempt status of municipal bonds. A copy of this letter can be viewed here.
The following links provide valuable additional resources regarding this important issue:
- NACo presentation on municipal bonds with charts and infographics
- NACo legislative fact sheet on municipal bonds
- NACo/USCM/NLC report on the impact of municipal bonds
- NACo Press Release: Protecting Bonds to Save Infrastructure and Jobs
- NACo state-by-state municipal bond analysis