Roads are crumbling, airports are dilapidated, mass transit is lacking – and there’s a risk of over-investing in infrastructure?
So says a think tank.
As you may have heard, some are again taking aim at the tax exemption on municipal bond interest.
The Obama administration has floated the idea of limiting the exemption since 2011. Earlier this summer, House Speaker Paul Ryan’s blueprint for tax reform didn’t explicitly mention munis, but going after the exemption was widely seen as a distinct possibility as the plan called for corralling deductions, exclusions and credits in the tax code.
Think Tank: Muni exemption ‘unideal’
Now the Tax Foundation has followed up with a report titled, “Reexamining the Tax Exemption of Municipal Bond Interest.” In it, the group said the exemption is an “unideal policy design for subsidizing state and local debt.” In fact the exemption, according to the group, could cause cities to “over-invest in infrastructure, particularly if states and localities are also able to shift their tax burdens onto nonresidents.”
Over-investing in infrastructure? It’s a curious notion.
According to the American Society of Civil Engineers – and the vast majority of average citizens – the country’s infrastructure needs an overhaul. Roads, bridges, waterways, levees and the like are in disrepair and will require massive funds to fix. It’s hard to imagine meeting that need by eliminating the financial tool that for more than 100 years has funded these types of investments.
Indeed, as we reported previously, most politicians and local leaders aren’t keen on jeopardizing it, either (“The One Issue Politicians Aren’t Fighting About”). Earlier this year, a bipartisan House committee was formed to protect the muni exemption, and another tax reform plan, announced by an Ohio congressman last month, would, among other things, maintain the exemption.
Tax-free bonds finance $1.9 trillion in infrastructure
During just the last decade, tax-free municipal bonds have financed more than $1.9 trillion of infrastructure development, the Bond Dealers of America said. If the tax exemption was repealed altogether, state and local governments would pay an estimated $500 billion more in interest over 10 years.
Of course, it doesn’t take just industry groups to reinforce the value of the exemption. A common-sense look at tax-free munis shows an effective and efficient means that has helped build – and will assist in rebuilding – the fundamental aspects of our economy.
While we appreciate legitimate efforts to improve the tax code, we remain confident, though vigilant, that the value of the exemption will continue to be recognized and retained.