Municipal Bond Tax Exemption Still Under Attack

March 25, 2013

By Stephanie Crandall

Municipal bonds were front and center in both chambers of Congress last week. As Congress and the Administration continue to look for ways to find revenues to reduce the deficit or fund new programs, eliminating or capping the tax exemption on interest earned on municipal bonds remains a viable option to some in Washington.

The House Ways and Means Committee held a hearing on tax reform and tax provisions affecting state and local governments. The Committee examined the uses of tax-exempt municipal bonds and the local impacts if the bond exemption were capped or eliminated. Several Committee members who formerly served as local elected officials, including Reps. Kenny Marchant (R-TX; Carrolton mayor and city council), Richard Neal (D-MA; Springfield mayor and city council), Bill Pascrell, Jr. (D-NJ; Paterson mayor) and Tom Reed (R-NY; Corning mayor), underscored the importance of this financing tool to communities and argued that these proposals would unfairly shift costs to local residents through tax or rate increases. NLC issued a statement following the hearing, and also submitted testimony for the record.

In addition to the House hearing, the Senate began considering the FY 2014 Budget Resolution. The Resolution contains language that that could support either a 28 percent cap or the total elimination of tax exempt financing. In opposition to that language, NLC and a coalition of more than 50 groups representing local and state governments, housing, transportation, infrastructure and private industry sent a letter to Senate leadership urging support for the tax-exempt status of municipal bonds.

The Senate eventually passed the Resolution. However, it is non-binding, so there's still time to lobby your members of Congress to oppose changes to the exemption. For sample letters, resolutions and op-eds cities can use to lobby members, visit NLC's website.