House OKs Tax Package; No BABs

WASHINGTON — House members on Thursday night voted 277 to 148 to approve an $858 billion tax package that contains few bond-related provisions and no extensions of the Build America Bond program or the increased small issuer limit for bank-qualified bonds, both of which expire Dec. 31.

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, which garnered a surprising number of votes from Democrats, many of whom had complained about the tax benefits the bill would provide the wealthy, now goes to President Obama to be signed into law.

Treasury Secretary Timothy Geithner issued this statement on the bill, which was a compromise between Republicans, the Obama administration and some Democrats: “We had a responsibility to protect middle class families from a tax increase that would have hit their paychecks and harmed the recovery.  And while we do not agree on everything in this legislation, I applaud members of both parties in the House and Senate for coming together to pass a bill that includes tax relief for working families, extends unemployment insurance for Americans looking for work and provides a powerful boost to job creation. This legislation is good for growth, good for jobs, good for working and middle class families, and good for businesses looking to invest and expand their workforce.”

The vote came after House Ways and Means Committee chairman Rep. Sander Levin, D-Mich., said that the bill fails to include some important provisions aimed at increasing economic growth and jobs, such as one that would have extended the Build America Bond program for one year at a 32% subsidy rate.

“Unfortunately, in their zeal to undo the Recovery Act, Republicans have insisted that we not extend the successful 48C credit for advanced energy manufacturing or the Build America Bond program - programs working to re-build our economy,” he said.

But Rep. Dave Camp, R-Mich., the incoming chairman of the committee, said the BAB program, which was created by the “failed stimulus” law, “simply subsidized state and local governments going deeper into debt.”

The bill would extend the Bush administration tax cuts for two years and unemployment benefits for 13 months, as well as reinstate the inheritance tax for estates of $5 million or more for individuals.

It would not extend other muni bond-related tax incentives that were provided through the end of this year by the American Recovery and Reinvestment Act, which was enacted in February 2009. These include the alternative minimum tax exemption for private-activity bonds, recovery zone bonds, or the authority for federal home loan banks to issue letters of credit for tax-exempt debt.

The legislation would extend qualified zone academy bonds through 2011 and authorize $400 million more for them, but only as tax-credit bonds without any direct-pay option similar to BABs.

However, it would not prevent muni issuers from continuing to sell qualified school construction bonds, qualified energy conservation bonds, and clean renewable energy bonds already allocated with the direct-pay option, even after 2010.

QSCB issuers get payments from the federal government equal to the lesser of the bonds’ actual interest rate or the tax credit rate. QECB and CREB issuers get payments equal to 70% of their interest cost.

The bill also contains extensions for two expiring school bond provisions. One would increase the exemption from arbitrage rebate requirements to $15 million from $10 million for issuers who issue $15 million or less of bonds in a year and use $10 million of them to finance public school construction expenditures.

The other provision would allow tax-exempt private-activity bonds to be issued in states in amounts up to $10 per capita for elementary and secondary public school facilities owned by private, for-profit corporations but operated by public educational agencies under public-private partnership agreements that meet certain criteria.

The authority to issue New York Liberty Zone bonds and Gulf Opportunity Zone bonds would be extended through 2011, along with certain tax incentives associated with them. The ability to deduct state and local sales taxes in lieu of state and local income taxes also would be extended through 2011.

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