Action 84– Say NO to taxing municipal bonds!

Background:  You may recall that we warned that Trump slashing the federal budget would mean increased costs to our towns and cities.  Well, here it comes – the disruption is just beginning. 

The Trump Administration is thinking of removing the tax exemption on municipal bonds. (For a super-simple primer on understanding tax exempt municipal bonds, see Extra Credit.  Skip if you already know about it.)

In their thirst for other revenues to pay for the extended tax cuts to billionaires, the Trump administration is now thinking about removing the tax exemption from municipal bonds.  They obviously don’t care what would happen to the towns if their borrowing cost were to increase significantly, making essential projects unaffordable.  Trump et al are only interested in obtaining more tax revenue for their dastardly deeds such as lining the pockets of the already wealthy.  

Action:  Call our Congress people. When you call, ask to speak to the person handling tax policy, or be put through to their voicemail. (Make a note of the name of that person.)  Ask them to say NO to any scheme to eliminate the tax exemption on municipal bonds.

Then, if you have time and inclination, collect at least one story about how your town or district (such as a school district) was able to finance a project successfully using tax-exempt municipal bonds.  Remember, congressional critters love stories – it’s how they make sense of the impacts of legislation on their constituents. Ask your town manager, school superintendent or county administrator if they have a story for you.  Especially useful would be their estimation of how much the tax exemption feature might have reduced the overall cost of that particular borrowing to the local taxpayers. (“Back of the envelope” it looks like the borrowing cost could increase 50% or so under the Trump scheme). Write up your story and send it as a letter or an email with the details.  Send it to the Maine Municipal Association, 60 Community Dr. Augusta ME 04430, attn Director, Advocacy and Communications.  Phone 1-800-452-8786 to obtain an email address.

Contacts:
Senator Susan Collins: Email: www.collins.senate.gov/contact/email-senator-collins/form

            Phone: (202) 224-2523 (DC office), (207) 945-0417 (Bangor office)

Senator Angus King: Email www.king.senate.gov/contact

            Phone: (202) 224-5344 (DC office), (207) 945-8000 (Bangor office) 

Representative Jared Golden: Email: golden.house.gov/contact

            Phone: (202) 224-3121 (DC office), (207) 249-7400 (Bangor office) 

Representative Chellie Pingree: Email: https://pingree.house.gov/contact/

            Phone: (202) 225-6116 (DC office), (207) 774-5019 (Portland office)

Urgency:  Unknown.  In your conversations with the congressional representatives, ask them to let you know if a bill addressing this subject comes to their attention, either as stand-alone legislation or part of a tax bill. Let us know what you find out.

Extra credit:
https://www.parametricportfolio.com/blog/is-eliminating-the-tax-exemption-on-municipal-bonds-worth-the-cost#:~:text=Tax%2Dexempt%20bonds%20are%20a,quarters%20of%20our%20nation's%20infrastructure.  

(Extra-simple explanation of tax exempt municipal bonds). Towns often need to do important projects that cost more than their taxpayers can shell out immediately, so the towns need to borrow money. Working through a brokerage such as the Maine Municipal Bond Bank (https://www.mmbb.com), they raise the needed money through issuing bonds, which allow the towns to pay back the money over a period of years.  Because the town is the debtor, these bonds are called municipal bonds.  The people who buy the bonds, the creditors, obviously expect not only to recoup their money, but also some interest (return on their investment).  The amount of interest is calculated as a percent, called the interest rate.  But if the creditors have to pay some of their interest earnings to the federal government when they do their tax returns, they will want more money back than if they didn’t owe some of it to the feds.  By long-standing policy, towns have been able to issue tax-exempt municipal bonds. Tax exempt means the creditor doesn’t have to pay taxes on their interest earnings to the feds. Because the creditors don’t owe any of their interest earnings to the feds, they can give the town the benefit of a lower interest rate. The lower interest rate benefits the town, and often the creditor as well.