Statement by the American Public Power Association on House Ways and Means Chairman David Camp Tax Reform Proposal
February 26, 2014
Washington, D.C., February 26, 2014 - House Ways and Means Committee Chairman David Camp (R-MI) announced today his plan to impose an unprecedented 10-percent tax on state and local municipal bond interest, block the issuance of advanced refunding bonds, block the issuance of New Clean Renewable Energy Bonds, and fully tax private activity bonds. These changes are part of a sweeping reform of federal income taxes and would be used to lower marginal income tax rates on some types of income to 35 percent and reduce the capital gains and dividends tax rates to 15 percent. (The 35 percent bracket has also been described as a 25 percent tax with an additional 10 percent surtax.)
At no time in the history of the income tax has municipal bond interest been subject to an outright federal income tax -- precisely because such a tax would interfere with the legitimate governing decisions of bond issuers. Such a tax would upend the system of reciprocal immunity -- leaving federal bonds, bills, and notes exempt from state and local tax, but shifting the cost of federal tax rate cuts onto the backs of state and local governments. APPA recognizes that the federal government is currently in a fragile financial position but it should not shift the burden and responsibility onto state and local governments. Ostensibly a tax on upper-income investors, such a tax would result in investors demanding a higher rate of return on any municipal bonds purchased to compensate for the new tax. This would increase costs for state and local borrowing, a cost which would be passed on to taxpayers and public power utility customers of all income classes.
Municipal bonds finance three-quarters of the nation’s core infrastructure. A new federal tax would make these investments in highways, bridges, schools, hospitals, housing, airports, electric power generation, water treatment, and the like more expensive and more difficult.
APPA believes Chairman Camp has good intentions, but this approach is the wrong one.