Camp Reform Proposal: Unintended Consequences Are Too Much

Washington, D.C. – The National League of Cities opposes aspects of Congressman Camp’s proposal. While the proposal is an honest attempt at solving the problems of our nation’s tax code, it will have unintended consequences in many areas of cities’ operations and will reduce the ability of cities to create jobs and expand the economy.

“This proposal has serious unintended consequences that will curtail the economic activity in our cities,” said Clarence Anthony, executive director of the National League of Cities. He continued, “It will reduce cities ability to promote construction jobs and build the foundations for future growth. Municipal and private activity bonds are used to build schools, roads, bridges, hospitals, and develop blighted areas of the community. They are vital to cities’ ability to drive innovation and opportunity.”

The proposal would increase the costs for cities to borrow and raise the cost of infrastructure investment in our cities by capping the tax exemption for municipal bond and eliminating private activity bonds. The surtax on tax-exempt municipal bonds will increase rates and may prevent some projects from going forward.

In addition to the municipal bonds, the proposal would rollback taxpayer protections against double-taxation by eliminating the federal deduction for local government tax payments.  Contrary to justifications circulated for this proposal, the state and local tax deduction helped local governments maintain revenues for essential services during the recent national economic downturn, created greater equity in the federal tax system, increased national productivity, and protected the autonomy of state and local governments.

We encourage Congress to carefully consider the unintended consequences of these and other untested proposals that would impact cities and towns, including modifications to the earned income credit and mortgage interest deduction.

This proposal tries to be fair to individuals, but unfortunately it ignores that these exemptions were created for a reason: to support local communities and their residents. In its current form, the unintended consequences are too much for communities to support this proposal.  We look forward to working directly with the Chairman as this process unfolds to make this a stronger proposal for cities, one that we can support.   

The National League of Cities (NLC) is dedicated to helping city leaders build better communities. NLC is a resource and advocate for 19,000 cities, towns and villages, representing more than 218 million Americans.