On March 19, the House Ways and Means Committee held a hearing entitled, “Tax Reform and Tax Provisions Affecting State and Local Governments.”  The hearing was part of the Committee’s ongoing evaluation of tax reform, including its recent announcement of eleven tax reform working groups.  The witness panel included: David Parkhurst of the National Governors Association (NGA); Scott Hodge, President of the Tax Foundation; Christopher Taylor, Former Executive Director of the Municipal Securities Rulemaking Board; and John Buckley, Professor of Law at Georgetown University Law School’s Tax Graduate Program. The discussion among the panelists and committee members centered around state and local bond exemptions, private activity bonds and the deductibility of state and local taxes. Most panelists expressed support for maintaining the tax-exempt status of municipal bonds, and many lawmakers noted how the exemption has been beneficial in their districts. However, regarding private activity bonds (PABs) – tax-exempt bonds issued by state or local governments on behalf of private businesses for qualified projects – panelists’ responses ranged from limiting their usage to eliminating them entirely, and most lawmakers appeared to be in agreement on the need to examine PABs. Lawmakers were most divided on the issue of state and local tax deductibility, with some noting that the benefits of this deduction go disproportionately to certain higher-tax, higher-income states, while others noted that these states generally pay more federal income taxes overall.  

Link(s): Hearing Materials