Tax-exempt municipal bonds must be preserved as part of any future tax code reform effort, AMWA said in a June 28 letter to the top congressional representative in charge of federal tax policy.
AMWA’s letter to House Ways and Means Committee Chairman Kevin Brady (R-Tex.) was sent just days after Brady’s panel released a 35-page blueprint that outlines the House GOP’s goals for overhauling the federal tax code. Titled “A Better Way: A Pro-Growth Tax Code for All Americans,” the document does not make explicit reference to tax-exempt municipal bonds but suggests policy changes that could lead to taxing all individual interest income at the same rates as other investments. While this would represent a tax reduction for some interest income, it would also mean that taxes would be collected for the first time on other interest, such as interest earned on municipal bonds, which has been tax-free since the inception of the federal tax code.
AMWA and others have previously warned that any imposition of federal taxes on municipal bond interest income will cause investors to raise interest rates and lead to higher infrastructure financing costs for communities nationwide.
“Imposing a de facto tax hike on water utility ratepayers, removing badly needed capital from local economies and leaving individuals with less money available for savings and investment,” would be the result of new municipal bond interest taxes, AMWA’s letter explained. The association also noted that this outcome would conflict with an overarching goal of the Better Way plan, which is to spur additional economic activity across the country.
The Ways and Means Committee is currently collecting stakeholder feedback on tax reform ideas, so AMWA members are encouraged to weigh in with their own requests to preserve access to tax-exempt municipal bonds.
Congress is not expected to vote on a comprehensive tax reform plan this year, but the Better Way blueprint will likely form the foundation of future Ways and Means Committee activities on this issue. Tax reform is expected to be high on the Republican congressional agenda next year if the party maintains its hold on the House majority following the November elections.