Rep. Jason Smith, R-Mo., chairs the House Ways and Means Committee weighing the tax-exemption’s fate.
The House Ways and Means Committee is considering the whole elimination of tax-exempt bonds, in keeping with a 51-page list of targeted programs, policies and plans for a reconciliation bill obtained Friday by The Bond Buyer.
It is a wide-ranging and tentative wish list, but marks a nightmare-come-true for the municipal bond market, which has spent months worrying that its treasured tax exemption can be on the chopping block.
Sources on the Hill indicate that whatever gets cut will come from that list. But that doesn’t suggest that every little thing’s going to get cut.
“For this reason we proceed to advocate and educate on the Hill,” said Brett Bolton, vice chairman of federal legislative and regulatory policy on the Bond Dealers of America.
“I do know that they are on the lookout for any and all ways to pay for this expansive tax extension, but we’ll proceed to work with our champions on the Hill to make sure that the tax exemption for municipal and other bonds is taken off the table once discussions develop into more serious.”
The BDA and other muni lobbyists just like the Government Finance Officers Association are set to kick off a series of fly-ins to fulfill with lawmakers over the subsequent few weeks.
The document, which was circulated Friday amongst some muni participants, also raises the prospect of eliminating the non-profit status of hospitals — which make up a big chunk of the muni market — and several other scenarios for changes to the state and native tax deduction cap, one other agenda item that is necessary to issuers and investors.
Eliminating the exclusion of interest on state and native bonds would generate $250 billion in savings over the 10-year timeframe required by a reconciliation bill, in keeping with the list. “This feature would end the exclusion, making income from municipal bond interest taxable,” the document said.
Ending “tax preferences” for personal activity bonds, Construct America Bonds, and other non-municipal bonds would lead to $114 billion in 10-year savings.
Eliminating the nonprofit status for hospitals would generate $260 billion in 10-year savings. “Greater than half of all income by 501(c)(3) nonprofits is generated by nonprofit hospitals and healthcare firms,” the document notes.
On the state and native tax deduction front, the document floats a number of proposals starting from entirely eliminating the deduction for each individuals and businesses — for an estimated $1 trillion in 10-year savings — to more targeted changes.
The list appears to be the work product of the committee’s 10 tax teams and spans healthcare, energy, tax credits, international trade, social welfare programs, education, finance and IRA funding.
“We don’t need to overreact, since it is a really broad options list just because the CBO report was, but once more tax-exempt bonds are on the table,” said Charles Samuels, attorney at Mintz who’s counsel to the National Association of Health & Educational Facilities Finance Authorities.
“Unfortunately, nothing surprising in the choices list,” Samuels said. “Anybody who’s surprised hopefully has now received the proverbial two- by- 4 to the side of the top and is aware of the challenge ahead.”