Tax Reform: What It Means For Cities
Top-Line Concerns for Cities
— Last updated December 20, 2017
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.
Later that month, the Senate released, its own version of a tax bill. Unlike the House version it does not propose new tax brackets, but does similarly double the standard deduction and lowers certain tax rates. The measure narrowly passed the Senate early in the morning of December 2.
The measure then headed to the reconciliation process where a conference committee ironed out the differences between the versions of the bills. While the chambers' bills had major differences, both featured grave threats to city governments. Findings of the final conference report are listed below under tabs corresponding to key interest areas.
Congress is hoping to offset the cost of lower corporate taxes by limiting deductions for state and local taxes as well as some of the tools that help finance local infrastructure and build strong, vibrant and economically sound communities.
- 11/2/17 – House leadership introduces its first version of the Tax Cuts and Jobs Act (H.R. 1) bill.
- 11/10/17 – Senate introduces its full bill.
- 11/15/17 – Senate Finance Committee Chair Orrin Hatch (R-UT) introduces major revisions its version.
- 11/16/17 – House of Representatives passes it's version of a tax bill.
- 11/28/17 – Senate Finance Committee passes its version to move it to a floor vote.
- 12/2/17 – Senate passes the tax bill with a series of amendments.
- 12/4/17 – House leadership appoints members of conference committee.
- 12/7/17 – Senate leadership appoints members of conference committee.
- 12/13/17 – Conference Committee holds its only public meeting.
- 12/15/17 – Conference report published.
- 12/19/17 – House passes H.R. 1.
- 12/20/17 – Senate amends and passes H.R. 1 with minor changes.
- 12/20/17 – House re-votes and passes modifications to H.R. 1.
- Chairman Kevin Brady (R-TX-8)
- Devin Nunes (R-CA-22)
- Peter Roskam (R-IL-6)
- Diane Black (R-TN-6)
- Krisiti Noem (R-SD-1)
- Chairman Rob Bishop (R-UT-1)
- Don Young (R-AK-1)
- Chairman Greg Walden (R-OR-2)
- John Shimkus (R-IL-15)
- Kathy Castor (D-FL-14)
- Richard Neal (D-MA-1)
- Sander Levin (D-MI-9)
- Lloyd Doggett (D-TX-35)
- Raul Grivalva (D-AZ-3)
- Chairman Orrin Hatch (R-UT)
- Mike Enzi (R-WY)
- Lisa Murkowski (R-AK)
- John Cornyn (R-TX)
- John Thune (R-SD)
- Rob Portman (R-OH)
- Tim Scott (R-SC)
- Pat Toomey (R-PA)
- Ron Wyden (D-OR)
- Bernie Sanders (D-VT)
- Patty Murray (D-WA)
- Maria Cantwell (D-WA)
- Debbie Stabenow (D-MI)
- Bob Menendez (D-NJ)
- Tom Carper (D-DE)
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. Fully preserved in the conference report.
- Advance Refunding 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.
STATUS: Fully eliminated in both the House and Senate bills. The conference report also fully eliminates.
- 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.
STATUS: The tax exemption is fully eliminated in the House bill, but preserved in the Senate bill. The conference report also preserves the tax exemption for PABs.
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.
- 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.
- Status (Conference Report)
While both the House and Senate versions of the bill originally proposed limiting the deduction to $10k of property taxes ONLY, sources indicate that the conference report expands the original proposal to be a $10k cap on a combination of property taxes and either income OR sales taxes.
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.
STATUS: Fully eliminated in the House bill. Expense eligibility is reduced from 20 to 10 percent in the Senate bill. The conference report preserved the credit for costs of rehabilitation to certified historic structures, but repeals the 10% credit for non-certified buildings built before 1936.
- 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.
STATUS: Fully eliminated in the Brady bill. Retained until authorization expires in 2 years in the Senate plan. The conference report sides with the Senate version and retains the credit until authorization expires.
Under current law, federal taxes are not levied on city governments or their public pension system. This blanket rule affords city public systems broad flexibility and helps maintain stable public pension systems.
- UBIT Exemptions for Public Pension Systems
Investments of public pension systems are exempt from the unrelated business income tax (UBIT), which allows them to diversify assets and stay fiscally healthy.
STATUS: Language included in the House version of the bill could have exposed certain investments held by public pension systems to UBIT, which would have placed an unnecessary and potentially dangerous stress on local pension systems and budgets. The Senate amendment contained no changes to local UBIT exemptions. The final conference report sided with the Senate bill and does not change UBIT exemptions for public pension systems.