Five Things City Leaders Should Know About Tax Reform

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This week, the “Big 6” tax negotiators comprised of leadership from the House, Senate and Administration, released its highly anticipated tax framework. The plan was a slightly updated version of the outline we saw in April. While the new document does provide some answers for cities, many unknowns still remain.

  1. Little has changed since the first tax reform proposal in April.

While some details were announced — such as the proposed personal and corporate rates — the plan continues to lack a fully thought-out explanation of how the majority leaders plan to pay for these lower rates. The release also focused primarily on corporate reform paid for by a trimming of deductions, including some personal deductions.

  1. The State and Local Tax (SALT) deduction is still on the table.

While the State and Local Tax (SALT) deduction was not directly mentioned in the plan, its conspicuous absence is still cause for worry. The proposal’s authors claim it “eliminates most itemized deductions, but retains tax incentives for home mortgage interest and charitable contributions.” While this does not explicitly state an intention to eliminate SALT, it certainly leads us to believe that SALT is very much at risk.

Bipartisan opposition to eliminating SALT is growing every day, but we still need help. This vital provision of the tax code prevents Americans from being double-taxed — and allows cities to raise the revenues needed to fund schools, infrastructure, economic development and public safety.

You can learn more about why SALT matters to cities and what you can do to help protect it at www.nlc.org/SALT.

  1. Municipal Bonds are M.I.A.

Based on this proposal, tax-exempt municipal bonds seem like an afterthought to the Big 6.  Little has been said about bonds since the public-private-partnership debate during last year’s presidential campaign.  But what does this mean?

The House Municipal Finance Caucus has successfully rebutted any efforts to cap or eliminate the tax-exempt status of municipal bonds. With 155 members of Congress signing onto a support letter in March, House Leadership received the message loud and clear that municipal bonds are nonnegotiable.

For now, NLC is continuing to monitor the tax debate to make sure municipal bonds stay safe.

  1. Next comes budget reconciliation — then debate.

Before a tax package can move in Congress, the FT2018 budget reconciliation bill must pass. This is the vehicle for tax reform to move forward — and needs only a simple majority vote.

Reconciliation passage is expected by the end of October — meaning a full-throated tax debate to kick off November. Expect a lot of rancor in Congress over the outline during the next few weeks.

  1. What can city leaders do to help?

One big thing: Write your Member of Congress.

The time to act is now. With so many essential programs at stake, October is a crucial month for city priorities. Write your Member of Congress and remind them of the importance that SALT and municipal bonds play for your city.

NLC will tirelessly fight to protect local control of taxation with SALT and the ability for municipalities to provide infrastructure with tax exempt municipal bonds, but we need your help at the grassroots level for this effort to fully succeed.

Join us on October 5, 3:00 – 4:00pm, for a webinar to learn how federal tax reform and the elimination of SALT may impact your city. Register now!

About the author: Brett Bolton is the principal associate for Federal Advocacy (Finance, Administration and Intergovernmental Affairs) at NLC.

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