In an effort to prevent the Federal Reserve from bailing out state and local governments in fiscal distress, Rep. Randy Neugebauer, R-Tex., has introduced a bill that would prevent the Fed from buying or selling their municipal bonds.
Senate and House lawmakers also recently introduced other bills that would bar firms and individuals from patenting tax strategies and allow tax-exempt small-issue bonds to be sold to finance land used primarily for the processing of agricultural products.
Neugebauer’s bill, HR 344, the Fiscal Responsibility Effective Enforcement, or FREE, Act, was introduced on Jan. 19 and has been referred to the House Financial Services Committee, on which he sits.
The central bank currently has authority, under Section 14 of the Federal Reserve Act, to buy or sell municipal bills, notes, revenue bonds and warrants with maturities of six months or less that are issued in anticipation of the collection of taxes or the receipt of revenue by the issuer, including irrigation, drainage and reclamation districts.
Neugebauer’s measure would eliminate that authority, but would allow Fed banks that already hold munis, as of the date of enactment of the legislation, to sell them.
The legislation was introduced 10 days after Fed chairman Ben Bernanke was asked by members of the Senate Banking Committee, at a hearing that delved into municipal fiscal problems, whether the Fed would ever consider buying state or local debt.
“We do have the authority to buy very short-term municipal debt that is within certain categories,” the Fed chairman said.
But he added: “We have no expectation or intention to get involved in state and local finance. I think to the extent that there’s anyone to look at that, it would have to be Congress.”
Congressional sources said Neugebauer believes his bill would provide Bernanke with tools to help him follow through on that promise. The congressman is worried that if his bill is not enacted, the Federal Reserve Act provisions could be used as a safety valve for states that have mismanaged their finances, sources said.
Instead of looking to the federal government, Neugebauer’s bill would force states to make the tough decisions necessary to put them on a path toward fiscal sustainability. States would have to close funding gaps and do a better job of addressing their pension and health care liabilities, sources said.
Senate Finance Committee chairman Max Baucus, D-Mont., and ranking minority member, Chuck Grassley, R-Iowa, introduced the patent bill, called the Equal Access to Tax Planning Act, on Jan. 20, but the language was not available as of Friday.
“Patenting common tax strategies undermines the fairness of our tax system” Baucus said in a release. “Taxpayers shouldn’t have to pay royalties to others just to file their tax returns and comply with the tax code.”
Under the bill, a strategy to reduce, avoid, or defer tax liability could not be considered a new or “non-obvious” idea, making it ineligible for a patent.
Currently, in order to obtain a patent, an inventor must show, among other things, that the invention is novel, non-obvious and has a practical application.
The bill comes after the Supreme Court ruled last year, in Bilski v. Kappos, that abstract ideas cannot be patented.
Rep. Jeff Fortenberry, R-Neb., introduced an untitled bill, HR 279, on Jan. 12 that would amend the federal tax code to allow tax-exempt small-issue bonds to be used to finance agricultural processing property.
