Feb. 13, 2016 SIGN IN | REGISTER

Local Governments Fear Plan to Tax Bond Interest Threatens Road Funding

Bill Clark/CQ Roll Call
Part of Camp’s tax overhaul proposal puts $126 billion derived from corporate tax changes toward improving roads, bridges and highways, while at the same time taxing the interest from municipal bonds that state and local governments use for such infrastructure projects.

“Eliminating or capping the current deduction on municipal bonds would severely curtail state and local governments’ ability to invest in themselves,” the lawmakers wrote.

The American Public Power Association, which represents electricity generators, transmitters and providers, said higher borrowing costs would ultimately be “passed onto state and local residents and, in the case of public power utilities, to public power utility customers in the form of higher rates.”

Tom Cochran, executive director and chief executive of the U.S. Conference of Mayors, warned last week that Camp’s proposal to apply the surtax to municipal bond interest earnings would affect interest earned on current bond holdings — not just new purchases.

“This move is economically ill-informed and we believe Chairman Camp is being misadvised on the potential impact of his proposal,” Cochran said. “And worse, the surtax applies to interest earned on both new issues and outstanding bonds.”

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