President Obama described a pro-growth tax reform and jobs package during a speech in Chattanooga, Tenn., on Tuesday, but many of the municipal bond-related measures proposed were ones he unveiled earlier.
Obama laid out a proposal to reform the business tax code and then use the one-time revenues raised by the transition to a new system for improving infrastructure and creating jobs. The infrastructure measures include direct-pay America Fast Forward Bonds that could be used to finance private-activity bond as well as other projects, a National Infrastructure Bank and a "Fix it First" program to repair the nation's infrastructure, according to a White House release.
Under the "Fix it First" plan, which Obama had previously mentioned in this year's State of the Union Address in February, money would be invested in infrastructure, focusing on reducing the backlog of maintenance projects. In his speech, Obama suggested that Congress should pass the "Fix It First" plan in order to get people working on repairs to infrastructure like the 100,000 bridges that are old enough to qualify for Medicare.
"We've got about $2 trillion of deferred maintenance here in this country," the president said. "So let's put more construction workers back on the job, doing the work America needs done."
The AFF bond program would be an expansion of the popular Build America Bond program that was created in 2009 and expired at the end of 2010. The White House said the bond program is designed to encourage private investment and provide support for bonds that finance school construction and renovations. Initiatives such as a National Infrastructure Bank and the expansion of the Transportation Infrastructure Finance and Innovation Act credit assistance program would also help attract private investment.
The reforms to the business tax code that Obama is proposing include reducing the top corporate tax rate to 28% from 35% and eliminating loopholes. Small businesses would also be allowed to expense up to $1 million in investments, which would give them an incentive to invest in new equipment. The effective rate on manufacturing would be reduced to no more than 25%, and there would be a minimum tax on foreign earnings.
Susan Collet, senior vice president of government relations for Bond Dealers of America, said BDA will be watching to see what Obama means when he suggests closing tax loopholes, though he appeared to be talking about corporate tax provisions.
The president's fiscal year 2014 budget proposed a 28% limit on the value of tax-exemption for municipal bonds.
"We are glad the president is focused on infrastructure. These proposals can be helpful, but the most important essence of preserving and maintaining our infrastructure is keeping the $3.7 trillion municipal bond market fully intact, including fully maintaining the tax exemption on municipal bonds," Collet said. "It remains to be seen whether that would be addressed in these proposals."
In addition to being used for improving infrastructure, the money from a change in the business tax code would be used to create up to 45 new manufacturing innovation institutes and to invest in community colleges to train people in high-growth and high-demand industries.
Obama also announced two executive actions. One is a call for the private sector and nonprofits to work with government to help the long-term unemployed build skills and find jobs. The other aims to increase the United State's competitive edge for foreign investment.
Rep. Sandy Levin, D-Mich., the top Democrat on the House Ways and Means Committee called Obama's plan "a constructive proposal" that "demonstrates the importance of proceeding with tax reform on a bipartisan basis in both the House and the Senate."
The committee chair, Rep. Dave Camp, R-Mich., and Senate Finance Committee chair Max Baucus, D-Mont., issued a joint statement: "We look forward to continuing to work with the administration as well as our colleagues in the House and Senate to simplify the tax code and lower rates for all families and businesses."
But House Transportation Committee chair Rep. Bill Shuster, R-Pa., criticized the plan for containing nothing new on infrastructure, saying, "continuously recycling old ideas offers little substance in moving forward to address our nation's infrastructure needs."
