Congress begins to act-and take notice. While formal negotiations between the House and Senate on tax reform remain months away, both chambers (and individual Members of Congress) have begun to take steps to act on and react to proposals to repeal or limit the tax exemption for interest earned on municipal bonds. Briefly, these actions include:

• House Ways & Means Committee.  On March 19, the House Ways & Means Committee held a hearing on tax reform and tax provisions affecting state and local governments. MBFA submitted a statement for the record of the hearing which can be accessed [here]. The hearing focused heavily on the use of municipal and private activity bonds-with the municipal exemption receiving both critiques and support from the Committee. Reps. Marchant (R-TX), Reed (R-NY), Neal (D-MA), and McDermott (D-WA) all expressed support for retaining the exemption, noting its key role in state and local government finance and infrastructure development.  Some Members of the Committee, including Chairman Dave Camp (R-MI), suggested the exemption should be on the table for a review of its merits in light of the goals of tax reform to limit tax preferences while bringing individual and corporate rates down.  A panelist representing the Tax Foundation pressed for elimination of the exemption due to its cost in terms of federal revenues and the perceived "moral hazard" the exemption creates to entice governments to over-invest in infrastructure.

• Tax-Writing Committee Working Groups.  Members of the House Ways and Means Committee have divided themselves into 11 working groups to analyze issues that are expected to attract attention during the tax reform debate.  MBFA will be submitting a packet of information to this task force prior to the April 15 deadline and will also be meeting with task force leaders and staff to re-inforce the need to retain the tax-exemption for municipal bonds.

• Resolution Introduced.  On March 14, Reps. Richard Neal (D-MA) and Lee Terry (R-NE) jointly introduced a Resolution (H. Res. 112) to honor the 100th anniversary of municipal bonds.  A copy of the resolution as well as a listing of current co-sponsors can be accessed [here].  MBFA has launched a grassroots effort to generate co-sponsorship of this resolution.  To access draft text of a letter that anyone can use to contact Congress urging co-sponsorship, please click [here].

• Budget Resolutions.  Sen. Patty Murray (D-WA), Chair of the Senate Budget Committee, included a provision in the recently adopted Senate Budget Resolution that suggests imposing a cap on deductions and exemptions for high earners that could encompass municipal bonds.  The Resolution is a non-binding blueprint that sets forth priorities for potential negotiations between the House and Senate on the FY 2014 federal budget.  On the House side, Rep. Paul Ryan (R-WI), Chair of the House Budget Committee, included no revenue raising provisions in the House Budget Resolution and did not address the tax treatment of municipal bonds.   Defense of the exemption received a boost, however, in comments by Majority Leader Eric Cantor (R-VA), who discussed their importance in a presentation before the National Association of State Treasurers.

MBFA in the News.  The fight for the municipal exemption and the formation of the MBFA continue to generate significant interest in the press.  Click [here] for an update on press reports that have appeared in recent days. 

MBFA Welcomes New Members.  MBFA would like to welcome the following organizations to the coalition-and we look forward to working with you!

-  Large Public Power Council

-  International Economic Development Council

If you need further information on MBFA or issues raised in this update, please contact info@munibondsforamerica.org.