The federal tax code would be simplified and individual income tax brackets would be consolidated under a tax reform blueprint released by House Ways and Means Committee Republicans last week. And while the document only provides broad outlines of potential changes to the tax code, parts of the blueprint suggest committee leaders envision imposing taxes on some municipal bond interest that is currently tax-exempt.
Titled “A Better Way: A Pro-Growth Tax Code for All Americans,” the 35-page blueprint aims to move the federal tax code toward a consumption-based system that Republicans say will promote economic growth, rather than an income-based system that discourages savings and investment. The plan will “simplify, flatten, and lower tax rates for families and individuals,” according to the document, while repealing “special-interest provisions [that] require higher tax rates to compensate for the lost revenue.”
Specific policy changes highlighted in the bill include reducing the number of individual tax brackets from the current seven to three, cutting taxes on investment income and maintaining existing individual deductions for mortgage interest, charitable giving and retirement savings.
However, the blueprint’s silence on the existing tax exemption for municipal bond interest suggests it could be viewed as one of the many “special-interest provisions” targeted for elimination. In fact, at various points the plan suggests that interest income would generally be taxed at the same rate as investment income, as a means to “significantly reduce the complexity and compliance burdens of the current system.”
The Ways and Means Committee is expected to use the blueprint as the basis for future discussions on the specifics of tax reform, which could result in a legislative proposal by next year. In the past AMWA has defended tax-exempt municipal bond interest as critical to ensuring communities’ access to affordable infrastructure financing, and the association will continue to make this case on Capitol Hill in the months ahead.
More information about the Ways and Means Committee’s tax reform blueprint is available online.