April 5, 2013
Re: Federal Income Tax Exemption for Municipal Bonds Still Under Attack
Both the U.S. Senate and the House of Representatives have returned to work in our Nation’s Capitol. Just prior to the recess, municipal bonds were front and center in both chambers of Congress. As Congress and the Administration continue to look for ways to find revenues to reduce the deficit or fund new programs, eliminating or capping the tax exemption on interest earned on municipal bonds remains a viable option to some in Washington. (See my March 18 letter on this matter at http://www.njslom.org/letters/2013-0318-ETR.html.)
The House Ways and Means Committee held a hearing on tax reform and tax provisions affecting state and local governments. The Committee examined the uses of tax-exempt municipal bonds and the local impacts if the bond exemption were capped or eliminated. Several Committee members who formerly served as local elected officials, including Congressman (and former Paterson Mayor) Bill Pascrell, Jr., underscored the importance of this financing tool to communities and argued that these proposals would unfairly shift costs to local residents through tax or rate increases.
Besides the House hearing, the Senate began considering the FY 2014 Budget Resolution. The Resolution contains language that that could support either a 28 percent cap or the total elimination of tax exempt financing. In opposition to that language, the National League of Cities (NLC) and a coalition of more than 50 groups representing local and state governments, housing, transportation, infrastructure and private industry sent a letter to Senate leadership urging support for the tax-exempt status of municipal bonds.
The Senate eventually passed the Resolution. However, it is non-binding, so there is still time to lobby our members of Congress to oppose changes to the exemption. Please contact Senators Lautenberg and Menendez and your Congressman and urge them to oppose any effort to eliminate or limit the ability of municipalities to issue tax exempt bonds.
Very truly yours,
Janice S. Mironov
President, New Jersey League of Municipalities
Mayor, East Windsor Township