The U.S. House of Representatives passed a $1.5 trillion tax cut bill and the Senate Finance Committee approved a similar plan. Provisions having a high impact on local governments include:
- Deduction for state and local taxes (SALT) – eliminated in the Senate bill and restricted to $10,000 in property taxes in the House bill; corporations will still be allowed to use the deduction in both bills.
- Advanced refundings of municipal bonds eliminated (both bills).
- Eliminates Private Activity Bonds (PABS) (House bill only).
Because there are differences in the treatment of PABs and the SALT deduction, those two issues will be addressed in conference committee after the full Senate votes. Advanced refundings can only be restored if they are included in the Senate Finance Chair’s amendment before the full Senate votes. Contacting Senators while they are at home for Thanksgiving may be the only opportunity to gain attention on the advanced refunding of municipal bonds.
Advanced refunding can be used only once. Last year advanced refunding of $120 billion represented 30 percent of the municipal bond market activity and saved at least $38 billion for taxpayers.
The fiscal implications of the two bills are significant. According to the Congressional Budget Office, the annual deficit is expected to grow to $1 trillion by 2022, and the national debt will double in the next decade to close to 100% of gross domestic product.
The Senate bill also includes a provision to repeal the Affordable Care Act’s requirement to have health insurance or pay a penalty. The Congressional Budget Office (CBO) estimates that the repeal would save the federal government $300 billion over the next 10 years and result in 13 million Americans no longer being covered by health insurance. Premiums are predicted to rise by 10%, according to the CBO.
The Congressional Joint Committee on Taxation reported that the legislation would increase taxes for those earning $10,000 to $30,000 in 2021; in 2027 after the individual tax cuts expire, those earning $75,000 or less would face higher taxes. Should Congress eliminate or restrict the SALT deduction, an analysis by the Americans Against Double Taxation estimates that many middle-class homeowners will see their taxes go up as much as $6,167 next year, and rise by another $600 once the family flexibility credit expires at the end of 2022