Tax Reform: What It Means For Cities

Tax Cuts & Jobs Act
Tax Cuts & Jobs Act

Top-Line Concerns for Cities
On November 2, congressional leadership released its long-awaited Tax Cuts & Jobs Act, which passed the House on November 16. The House version, also know as the Brady Plan, aims to streamline the U.S. tax code and create some tax relief for middle and low income Americans by reducing the number of tax brackets, reducing marginal tax rates, and expanding family tax credits. Similarly, the Senate has released, but not yet passed, its own version of a tax bill. 

While the chambers' bills have major differences, both feature grave threats to city governments. Congress is hoping to offset the cost of lower corporate taxes by eliminating key deductions and tax credits that many Americans rely on, help finance local infrastructure and build strong, vibrant and economically sound communities. As Congress continues to negotiate details of a final bill, here are some nonnegotiables for American cities in any tax plan:

Sign our action letter on tax reform, and the budget and appropriations process by clicking below, or call the Congressional switchboard and ask to speak with your member of Congress' office: (202)-224-3121. 

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11/16: The House of Representatives passes it's version of a tax bill.

11/15/17: Senate Finance Committee Chair Orrin Hatch (R-UT) introduces major revisions to the Senate Tax Reform.

11/10/17: Senate introduces its full bill.

11/2/17: House leadership introduces its full bill.

Bonds
Municipal bonds remain the main financing tool for cities nationwide. While there are many different forms of bonds and they are not always issued directly by cities, the National League of Cities remains committed to preserving the tax exemption for all bonds that help cities build critical infrastructure.

  • Publicly-Issued Municipal Bonds
    These bonds are the primary way state and local governments finance the public infrastructure that supports everyday life. Their tax exemption allows cities to borrow and lower interest rates and save on costs. Learn more about NLC's stance on Municipal Bonds.
    CURRENT STATUS: The exemption is not mentioned in either the House (Brady Plan) or Senate bills.
  • Advance Refund Bonds
    These bonds allow do a one-time refinance on bonds to achieve lower rates and cost savings for taxpayers. This critical tool permits cities to change an otherwise fixed costs and respond to economic downturns. 
    CURRENT STATUS: Fully eliminated in both the House and Senate bills.
  • Private Activity Bonds (PABs)
    PABs are a critical source of financing for important qualified projects and programs, including infrastructure, affordable housing, economic development and much more.
    CURRENT STATUS: The tax exemption is fully eliminated in the House bill, but preserved in the Senate bill.

State and Local Tax Deduction
Currently, tax filers are allowed to deduct taxes paid to state and local governments from their income in order to prevent double taxation and preserve local decision making when it comes to local taxes. The plan proposes eliminating key elements of SALT that incentivize cities to diversify sources of revenue and set local tax rates that work for their local communities. Learn more about SALT.

  • Local Property Tax Deduction
    Property taxes are the largest source of local revenues. Preservation of their full deductibility is critical for cities' abilities to set local tax rates that work for their communities.
    CURRENT STATUS: House bill reduces the eligibility of this deduction by capping it at $10,000. The Senate bill totally eliminates this deduction except for business income, but now proposes a sunset of the elimination in  2025. It is unlikely the sunset would occur. 
  • Sales and Income Tax Deductions
    Fewer cities use sales and income taxes as a means of generating revenue, but many benefit from state sales and income taxes. Preservation of these deductions also allows cities in many states the ability to diversify their sources of revenue, so they are not solely dependent on property taxes, which are subject to rapid changes in hosing prices.
    CURRENT STATUS: House and Senate bills fully eliminate deductions for both sales and income taxes except for business income.
     

Key Tax Credits for Cities
In addition to deductions and exemptions, NLC remains committed to protecting key tax credits that help cities spur economic development and build healthy, strong and vibrant communities.

  • Historic Tax Credit (HTC)
    Encourages the redevelopment of historic and abandoned buildings in cities.
    CURRENT STATUS: Fully eliminated in the House bill. Expense eligibility is reduced from 20 to 10 percent in the Senate bill.
  • New Markets Tax Credit (NMTC)
    Increases the flow of capital to businesses and low income communities by providing a modest tax incentive to private investors.
    CURRENT STATUS: Fully eliminated in the Brady bill. Retained until authorization expires in 2 years.

Sign our action letter on tax reform, and the budget and appropriations process by clicking below, or call the Congressional switchboard and ask to speak with your member of Congress' office: (202)-224-3121. 

Take Action