tax reform

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The Week in Public Finance: Trump's Tax Plan, the Tampon Tax and Calling Out the SEC

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BY  | APRIL 28, 2017

Trump Sort of Unveils His Tax Plan

President Trump unveiled his tax reform plan this week, and the massive cuts it proposes have left many wondering how the government would pay for the plan.

Much of the single-page, bullet-pointed statement, which The New York Times called “less a plan than a wish list,” contained promises Trump made on the campaign trail: a much lower corporate tax rate, the elimination of the U.S. tax on foreign profits, a reduction in the number of individual income tax brackets from seven to three, a lower tax rate, and the scrapping of most itemized deductions, including one that lets taxpayers deduct their state and local taxes from their declared federal income.

Treasury Secretary Steven Mnuchin said Wednesday that economic growth, combined with eliminating deductions, would pay for the cuts. Meanwhile, a Tax Foundation analysis of some of these key ideas shows that the plan would ultimately result in more tax revenue for state governments.

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The Week in Public Finance: Ballmer's Data Trove, Grading Pension Health and a New Muni Bond Threat

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BY  | APRIL 21, 2017

This Goes Way Beyond Open Data

You might not peg former Microsoft CEO and current owner of the NBA’s Los Angeles Clippers as a government data geek. But Steven Ballmer stepped into that role in a grand scale this week when he unveiled his privately funded, years-long project to help citizens easily track how government spends their money.

Called USAFacts, the website contains federal, state and local aggregated data on revenue and spending, as well as on debt, population, employment and pensions. Want to know about pension debt? Two quick searches reveal that unfunded liabilities in state and local retirement systems have more than quadrupled since 2000. At the same time, the median age in the country has increased by 2.5 years.

As a businessman used to the corporate world, Ballmer wants to make government financial reports more readable. To that end, the site has introduced the first government "10-K report" -- the private sector's version of an annual financial report. It aggregates data from all U.S. governments and gives progress reports on government programs, provides financial balance sheets and gives data on key economic indicators.

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This Infrastructure Program Ended Up Costing Governments Millions. Trump Might Bring It Back.

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States and localities are wary of the president's support for the Build America Bonds program.
BY  | APRIL 6, 2017

A popular Obama-era infrastructure financing program may get revived this year as President Trump moves forward on his pledge to invest $1 trillion in infrastructure. But this time around, state and local governments might not be as excited about it.

The program, Build America Bonds (BABs), was created in 2009 as one of many recession-era initiatives aimed at jump-starting the economy. Unlike tax-exempt municipal bonds, BABs are taxable, and, as a result, open up the municipal market to new investors, such as pension funds or those living abroad. But BABs are also more expensive for governments. So to defray the added cost, the federal government offered a direct subsidy of 35 percent of state and local governments' interest payments on BABs.

But the program became a casualty of sequestration: cutbacks in federal subsidies promised under the program left state and local governments scrambling to fill the void. A recent estimate by the Institute of Government and Public Affairs at the University of Illinois found that so far Illinois and its localities have had to pay out a collective $70 million to offset the higher costs of BABs.

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5 Hot Topics Hitting Public Finance in 2017

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BY  | DECEMBER 29, 2016

In what could be a tumultuous year for state and local finances, these five issues are likely to take center stage.

Tax Reform

Many Capitol Hill watchers expect federal tax reform to roll forward in some fashion in 2017 now that a Republican will be in the White House. There are two major proposals on the table that could directly result in higher costs for states.

For starters, many in Congress have been supportive of limiting the tax-exempt status of municipal bonds. Removing this tax perk for bond investors would force governments to offer higher interest rates on the debt, thus increasing their cost of paying off that debt.

It’s hard to overstate the potential impact of such a move. One estimate pegged the current tax perk savings for state and local governments at about $714 billion from 2000 to 2014. For its part, the federal government estimates it loses as much as $30 billion in potential income tax revenue each year as a result of the perk.

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The Week in Public Finance: Trump's Impact on Muni Bonds, Panning Social Investing and More

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BY  | NOVEMBER 18, 2016

2 Takes on Trump's Impact on Muni Bonds

 President-elect Donald Trump’s proposed policies could partially change the landscape of the municipal bond market for investors in two primary ways.

First, his election could put Build America Bonds (BABs) -- or a program like it -- back on the table for government issuers. BABs were introduced in 2009 and 2010 by the Obama administration as a way to stimulate the economy and create jobs. Republicans on Capitol Hill killed the program, but Trump has spoken favorably about it. He's interested in stimulating more investment in infrastructure.

Unlike regular municipal bonds, BABs aren’t tax exempt, making them more appealing to investors such as international bondholders or institutional investors who aren’t eligible to claim an exemption. Thus, they broaden the municipal bond market.

Second, an analysis by the Court Street Group Research (CSGR) says Trump’s income tax plan could affect the municipal market because it would eliminate or reduce the tax exemption for municipal bondholders. “The CSGR approaches the reality of a Trump administration with some trepidation as it applies to municipal bonds,” the analysis said.

What the Federal Tax Code Reveals About State Revenues

States often adopt the same tax policies as the feds, but should they?
BY  | FEBRUARY 18, 2016

Late last year, Congress approved a tax relief package that extended many credits and exemptions. For the sake of consistency, states typically adopt the same credits and exemptions.

But some states choose to be more connected to the federal tax code than others, meaning they have more policy decisions to make when Congress changes its rules.

Take Maine, for example. Lawmakers there are caught in a battle over whether to adopt Congress’ extension of the so-called bonus depreciation, which lets businesses deduct half of their equipment investment in a given tax year, rather than deduct the depreciated value over a period of time. The exemption was enacted for a specific, short-term purpose: to provide an economic stimulus during the recession. But Congress has extended it on a limited basis through 2019. Gov. Paul LePage and other Republicans want the state to follow the feds through 2019, but Democrats want to limit the program and use the savings to give $23 million to schools.