There are a number of proposals floating around Congress on potential tax reform to be included in tax extender discussions during the lame duck session of Congress. One issue that has been included in nearly all of these proposals is repealing the tax-exempt status of municipal bonds. This could have a devastating impact on economic development in communities. Municipal bonds were created to attract public investment and provide a low-cost financing tool for local and state governmental infrastructure projects, as interest income from these bonds is exempt from federal income tax. Not only would these proposals destroy this widely used public financing tool, but none of them would allow state and local governments to tax federal bond interest (currently exempt from state income tax) to make up for the loss of municipal bonds, making infrastructure investments more costly.
Efforts to find a compromise on deficit reduction will be intertwined with the tax debate during this brief lame duck session, so now is the time to let your congressional delegation hear from you about how tax-exempt financing benefits your community and the devastating impact a repeal of this financing tool would have on your community’s public infrastructure and local economy.
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