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On October 26 the House of Representatives narrowly approved Republicans’ FY18 budget resolution, thus giving lawmakers an opportunity to quickly approve a tax code overhaul that could affect the tax status of interest earned on municipal bonds.

The budget resolution (H.Con.Res. 71) is a blueprint that sets overall spending parameters as Congress completes the task of finalizing individual FY18 appropriations bills covering various departments and agencies.  But congressional rules also allow budget resolutions to include “reconciliation instructions” – essentially orders for specified congressional committees to develop legislation that either increases or decreases the federal budget deficit by a certain amount.  Then, any subsequent legislation that meets these objectives may be considered in the Senate under rules that bar the use of the filibuster, thereby allowing it to pass with a simple majority vote.

The budget resolution approved by the House last week is identical to a measure passed by the Senate earlier in the month, and includes reconciliation instructions for the House and Senate tax writing committees to develop legislation that increases the federal budget deficit by as much as $1.5 trillion over the next ten years.  This provision will allow congressional Republicans to pursue a major tax reform bill in the coming months, and with the threat of a Democratic filibuster off the table a tax bill could pass the Senate with a the support of as little as 50 senators plus the vice president’s tie-breaking vote.  Republicans currently hold 52 Senate seats.

Republican leaders framed the budget resolution vote as a victory that clears the way for the party to piece together a tax code overhaul relatively quickly.  Even though no draft tax bills have circulated publicly, some have suggested that Republicans are aiming to hold votes on a tax reform bill as early as Thanksgiving.  But the task could still be challenging, as the GOP’s tax plan could reduce or eliminate scores of popular tax breaks, including those for 401(k) contributions, state and local tax payments and interest earned on municipal bonds.  AMWA has engaged in extensive advocacy on Capitol Hill urging lawmakers to preserve the municipal bond tax exemption, arguing that it helps communities affordably finance billions of dollars worth of water and wastewater infrastructure projects each year.

While approval of the budget resolution increases the chances of a tax reform bill passing Congress in the coming months, many challenges remain.  For example, last year Congress approved a budget resolution that would have allowed the repeal of the Affordable Care Act with a simple majority vote, but Republicans failed to get the support of enough of their members and such a bill was never put before the House or Senate.