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JCT Estimates $191.3B for Public Muni Debt Over Five Years, 2013-2017

FEB 4, 2013 4:08pm ET
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WASHINGTON — The Joint Committee on Taxation has released its annual tax expenditure estimates showing $191.3 billion for public purpose municipal bonds over five-years from 2013 through 2017.

That estimate is $13.7 billion or 7.7% higher than JCT’s $177.6 billion projection last year for 2011-2017.

JCT’s 48-page report, released Friday, shows estimates for two five-year periods, 2013-2017 and 2012-2016, while its report last year only contained estimates for the five-year period from 2011 to 2015.

The committee’s 2013-2017 estimated tax expenditures for private activity bonds were $55.2 billion, an increase of $700 million or 1.28% from last year’s estimate of $54.5 billion, according to the report.

Direct-pay bonds including Build America Bonds and recovery zone bonds were $20 billion, with BABs accounting for $19 billion of that overall amount. That compares to last year’s JCT estimate of $18.1 billion for BABs and $24.4 billion for all direct-pay bonds, including BABs, for 2011-2015.

Tax-credit bonds, including clean renewable energy bonds and qualified energy conservation bonds, totaled $800 million over the five-year period ending in 2017 — $1.0 billion or 55.6% below JCT’s $800 million estimate last year for the 2011- 2015.

Tax credits for low-income housing were estimated at $35.5 billion.

Direct-pay and tax-credit bonds were the only categories that had decreases in the five-year estimates.

One reason some of the estimates increased is because they were based on tax rate increases in the American Taxpayer Relief Act also known as the “fiscal cliff” agreement enacted on Jan. 2, a JCT staffer said.

The “fiscal cliff” agreement delayed the automatic, across-the-board federal budget cuts until March 1 and made permanent the Bush-era tax cuts for all households except those earning more than $450,000. The alternative minimum tax was also permanently indexed to inflation.

Expired or repealed provisions are not listed unless they have continuing revenue effects that are associated with ongoing taxpayer activity, according to the report.

In its report, JCT explained that a tax expenditure is not the same as a revenue estimate for the repeal of a tax expenditure. Unlike for revenue estimates, tax expenditure calculations do not take into account the behavioral changes anticipated to occur in response to the repeal of a tax expenditure, JCT said. Tax expenditure calculations are concerned with changes in the reported tax liabilities of taxpayers. Some exclusions from income also apply to the Federal Insurance Contributions Act tax base and repeal of any of those would automatically increase FICA tax revenues as well as income tax revenues, the report said.

The report comes as President Obama said in a televised interview with CBS News Sunday that any future budget deal with Congress should focus on closing loopholes and tax deductions instead of increasing tax rates further.

“Can we close some loopholes and deductions that folks who are well connected and have a lot of accountants and lawyers can take advantage of so they end up paying lower rates than a bus driver or a cop?” Obama said. “If you combine those things together, then we can not only reduce our deficit but we can continue to invest in things like education and research and development that will help us grow without raising rates again.” 

Sen. Carl Levin, D-Mich., last week proposed the Cut Unjustified Tax (CUT) Loopholes Act, which takes direct aim at closing corporate loopholes, carried interest and profits from certain derivatives among other provisions.

Separately, the Congressional Budget Office is expected to release its annual budget and economic outlook on Tuesday.

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A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

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