Governors urge Congress to spare municipal bonds from federal taxation in tax overhaul

Governors urge Congress to spare municipal bonds from federal taxation in tax overhaul

July 23rd, 2013 by Staff Report in Local - Breaking News

Staff Report

NASHVILLE - The nation's governors today weighed in a possible comprehensive federal tax overhaul, telling two top U.S. Senate Finance Committee members that "federal tax reforms should not simply shift costs or impose unfunded mandates onto the states."

In their letter, governors urged Senate Finance Chairman Max Baucus, D-Mont., and ranking Republican, Sen. Orrin Hatch of Utah, to preserve current exemptions from federal taxation on interest on bonds issued by state and local governments.

They also urged lawmakers to maintain the current deductibility for payments of state and local taxes on federal tax returns.

The letter was signed by the National Governors Association's Economic Development and Commerce Chairman, Pennsylvania Gov. Tom Corbett, and the vice chairman, Kentucky Gov. Steven Beshear.

In their missive, the governors said federal statutory and regulatory policies should "neither increase bond issuance costs to states and local governments, directly or indirectly, nor diminish retail and institutional demand for bonds issued by states and local governments."

Doing so "would have the unintended consequence of chilling supply and demand for municipal bonds," the letter warned, adding, state's use of tax-exempt bonds "is the primary method for states to raise capital for a wide range of infrastructure and public projects."

Baucus and other reformers say the issue is a tax system that's often to complex for ordinary citizens and too burdensome for businesses. Their goal is to winnow down tax breaks and lower rates.