The tax exempt status of municipal bonds is on the chopping block as Congress and the White House look for deficit reduction strategies.  ICMA has signed onto a letter with the Big 7 urging US Senate leaders to protect the tax-exempt status of municipal bonds as Congress debates action on a continuing resolution to fund government through September 2013 -- as well as the ongoing tax reform debate. Lawmakers have raised the possibility of a cap  on tax expenditures, including the exemption for interest earned on municipal bonds, as a way to raise revenues for deficit reduction.

The tax-exempt status of municipal bonds is under bipartisan scrutiny from the Senate Finance Committee and House Ways and Means Committee and by the White House. In 2010, the Simpson-Bowles Commission recommended the full elimination of the exemption.

Some members of Congress see the need to protect tax exempt financing. For example, the Neal-Terry resolution in the House of Representatives highlights the role of state and local governments in financing infrastructure projects along with promoting job creation economic growth. “Tax-exempt municipal bonds are the most important tool in the U.S. for financing investment in schools, roads, water and sewer systems, airports, bridges and other vital infrastructure...State and local governments financed more than $1.65 trillion of infrastructure investment over the last decade (2003-2012) through the tax-exempt bond market.”  (NLC, NACo, and USCM)

With no additional funding for infrastructure or transportation projects, reducing or eliminating the tax-exempt status of municipal bonds could put cities and counties in a tighter financial situation than they are already experiencing.