Municipal bonds have been the principal engine for building and modernizing America’s infrastructure for more than 150 years. They have supported the development of roads, bridges, airports, water systems, schools, hospitals, public transportation and energy grid upgrades across the country. So why are some suggesting that Congress should end their tax-exempt status and make them harder to use?
That’s the question on the minds of a growing chorus of experts, local officials and at least one group of powerful House leaders. They are warning Congress that removing the tax-exempt status of municipal bonds would set back local communities and big cities alike, forcing tough choices, rising prices and stalling both investments and growth.
House Financial Services Committee Chairman French Hill, together with six of the panel’s most senior members, recently wrote that measures to undermine the municipal bonds could have “unintended consequences … for thousands of local governments and the constituents they serve.” They went on to note that these bonds are lifelines in local communities, and that eliminating or reducing the municipal bond exemption would disproportionately harm “smaller and rural issuers.”
That’s why local leaders are now speaking out. Given their limited budgets and smaller tax bases, these communities have few alternative tools to raise the large amounts of capital needed for infrastructure investment.
And yet, in the search for offsets in the coming tax bill now being considered in Congress, some Republicans, including Stephen Moore, an informal economic adviser to President Trump, have proposed eliminating or rolling back the tax exemption on municipal bonds. And the proposal even showed up on a list of potential pay-fors released by the House Budget Committee in January.