The election, the national debt, and the key legislative accomplishment of the Trump administration has lawmakers and lobbyists taking stock of their positions and reassessing which hills to die on.
“If Congress must tackle the expiration of Tax Cuts and Jobs Act provisions through bipartisan compromise, the process will likely move slower and allow more time to properly assess the pros and cons of individual policy proposals,” said Brian Egan, Director of Government Affairs National Association of Bond Lawyers.
“If one side has a sweep, then we are likely looking at everything through the lens of reconciliation rules.”
NABL
Eliminating the tax exemption for municipal bonds provides a tempting target for lawmakers trying to balance an out of whack budget as lobbyists on the Hill continue to shore up defenses.
“We’re up there promoting the tax exemption making sure folks are aware about the positive aspects,” said Brett Bolton SVP, Bond Dealers of America. “Educating if you will, but it remains a concern of ours.”
The outcome of such a drastic measure is in dispute.
According to the National Association of Counties, “Over the past half century, state and local governments have increasingly borne the cost of infrastructure and public improvements.”
NaCo quotes the Congressional Budget Office, saying that “about 75% of public funding for transportation and water infrastructure alone is supplied by state and local governments.”
NaCo believes that any savings on the federal level from eliminating the deduction “will not offset the economic strain that will burden state and local governments and their taxpayers because those investments will become more expensive.”
Muni investors would also take a hit by losing the exemption, making their investments less valuable.
Major players in the ongoing debate about raising revenue spending cuts includes the House Ways and Means Committee which in the past has resisted making any changes to the TCJA.
To puzzle out possible solutions Chairman Jayson Smith has created ten, Republican-only, working groups within the Committee.
Working groups are hyper-focused on specific economic areas including the supply chain, global competitiveness, community development, and rural America.
“This is a pet project of Chairman Smith,” said Bolton. “I don’t think this is the first time they’ve been used but they’re being utilized to really drive this train.”
On the Senate side, the Democratically controlled Finance Committee is working on a list of remedies for debt relief that includes requiring a billionaire’s tax requiring those making $100 million in income for three consecutive years to pay taxes on unrealized gains.
The policy would raise $557 billion over 10 years, according to a 2021 analysis by the Joint Committee on Taxation.
President Biden has his own version of a billionaire’s tax that would impose 25% minimum tax on unrealized gains.
Closing tax loopholes remains a popular way to balance things up. Earlier this week the Internal Revenue Service signaled its intention to deny billions of dollars in claims for the Employee Retention Credit program, a move that some in Congress opposed.
According to the IRS the $230 billion program is riddled with fraud and has exceeded its budget by 300%. Some claims are still in the process of being paid out.
On the judicial side, the Supreme Court this week settled a TCJA question upholding a one-time tax on offshore earnings that helped pay for the legislation. The divided decision carried large implications about Congresses basic power of taxation.
“Those tax provisions, if suddenly eliminated, would deprive the U.S. Government and the American people of trillions in lost tax revenue,” wrote Justice Brett M. Kavanaugh.
Eliminating the cap on state and local taxes was a product of the TCJA and remains a contentious issue for muni issuers. According to sources on Capitol Hill a full repeal seems like a stretch but doubling the cap to $20,000 might be on the table.