What the ‘Tax Cuts and Jobs Act’ Will Mean for Cities

After a last-minute procedural delay forced the House of Representatives into a re-vote, the Tax Cuts and Jobs Act (H.R. 1) this morning passed both houses of Congress. The bill  will now head to President Trump, who is expected to sign it into law.

The Senate had to make several last minute changes to the bill early this morning, which prompted the second House vote. While the procedural concerns delayed the process by a day, it did nothing to change the final outcome.

Over the last two weeks, Members of Congress and staffers from both chambers have raced to produce and pass a final bill onto the President’s desk before Christmas. We’ve been tracking tax reform for several months, so here’s a quick snapshot of what city leaders need to know about the final bill.

1) Publicly Issued Tax Exempt Municipal Bonds Continue to Be Safe

As a result of the efforts of thousands of local leaders, Congress heard the message that the tax exemption on publicly issued municipal bonds was not negotiable. While all versions of the bill protected this vital tool, Congress did take aim at other forms of bonds that help build stronger, healthier and more economically vibrant cities.

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2) Local Leaders Helped Save Private Activity Bonds (PABs) in Final Bill

The House version of the bill proposed eliminating the exemption for interest earned on PABs, but the Senate bill spared this tool that helps finance city infrastructure like hospitals, water-sewage systems, transit systems and university campuses.

Local leaders helped stress the importance of PABs to their members of Congress, while NLC staff helped rally signatures from members of Congress for a letter of support out of Congressman Sam Graves’ (R-MO-6) office. A nationwide advocacy effort pushed the needle and resulted in a final bill that preserves the tax exemption for PABs.

3) Advance Refunding Bonds Lose their Preferential Tax Treatment

The final bill slashes the tax exemption for interest earned on one-time refunding bonds. Local leaders continue to stress the utility of these bonds that have the potential to save cities millions, and we remain hopeful that technical corrections in the future may reinstate this tool.

4) State and Local Tax Deduction (SALT) Continues to Be Restricted

One of the main city concerns of tax reform is how SALT would fare. The final bill maintains the deduction for up to $10k in property taxes combined with either income or sales tax. While this is real progress from where we started, it still puts the deduction beyond the reach of the millions of middle class families who currently deduct their local taxes.

5) Key Tax Credits Survive with Some Restrictions

Cities initially faced possible elimination of the Historic Tax Credit (HTC), New Markets Tax Credit (NMTC) and Low Income Housing Tax Credits (LIHTC). While the HTC and LIHTC were slightly limited, local leaders were mostly able to successfully advocate for and preserve important tax credits for cities.

6) Local Leaders Have Helped Make the Bill Better, But It’s Still a Step Back for Cities

In a time of increasing preemption and declining federal investment in cities, the state and local tax (SALT) deduction has been a lasting tool for protecting local decision-making when setting local tax rates. Coupled with the elimination of advance refunding bonds, we cannot afford further attempts to push cities to do more with less.

City leaders nationwide have worked hard to send clear messages to Congress and have succeeded in making a bad bill better, but the fact remains: this final tax bill continues to target some of the tools that help millions of middle class families and the cities in which they live.

Visit www.nlc.org/TaxReform to learn more about city priorities in tax reform.

brian-headshot About the author: Brian Egan is NLC’s Principal Associate for Finance, Administration and Intergovernmental Relations. Follow him on Twitter @BeegleME