JCT: Revenue Loss From Tax-Exempt Governmental Bonds is $179.6B/5Yrs

WASHINGTON — The Joint Committee on Taxation estimates that tax-exempt governmental bonds will result in revenue losses to the federal government of $179.6 billion from fiscal years 2014 through 2018.

The estimate is smaller than the $191.3 billion of revenue losses that JCT estimated last year for those bonds from fiscal 2013 to fiscal 2017. The federal government's 2014 fiscal year began Oct. 1, 2013.

The most recent estimate was included in JCT's report on tax expenditures released Tuesday.

Tax expenditures are revenue losses attributable to tax preferences such as exclusions, exemptions, deductions and credits, according to the report. The tax-exemption for municipal bonds is an exclusion in that tax-exempt interest is excluded from income.

JCT prepared its annual tax-expenditure report for the House Ways and Means Committee and the Senate Finance Committee, and the report was also sent to the House and Senate budget committees. The analysis can help lawmakers understand "the tax and economic policy consequences that follow from the implicit or explicit choices made in fashioning legislation," JCT said.

Calculations of tax expenditures differ from JCT's revenue estimates of the repeal of expenditure provisions. "Unlike revenue estimates, tax expenditure calculations do not incorporate the effects of the behavioral changes that are anticipated to occur in response to the repeal of a tax expenditure provision," JCT said in its report. Also, tax-expenditure calculations concern changes in taxpayers' reported tax liabilities, while revenue estimates deal with changes in federal tax receipts that are affected by the timing of payments.

George Friedlander, chief municipal strategist at Citi, and other muni market participants, have criticized the JCT's estimates for making some misassumptions and for not reflecting market behavior.

President Obama and key lawmakers have proposed curbing or eliminating tax expenditures, expecially as part of comprehensive tax reform. President Obama's fiscal budget for 2015 would cap the value of tax-exemption at 28%. House Ways and Means Committee chairman Rep. Dave Camp, R-Mich., released a tax reform discussion draft in February that would essentially cap the value of the muni exemption at 25% and prohibit tax-exempt private-activity bonds from being issued after 2014.

Senate Budget Committee Chairman Patty Murray, D-Wash., released an online report earlier this year that called for tax reform to raise revenue by cutting tax expenditures that mostly benefit the wealthy. The muni exemption is often seen as disproportionately benefiting the richest Americans.

According to JCT, the revenue loss attributable to tax-exempt private-activity bonds in the five-year period beginning with fiscal 2014 is estimated to be $55.6 billion, roughly the same as the $55.2 billion estimated for the five-year period beginning with fiscal 2013.

JCT estimated revenue losses for PABs used for various projects. These include: $12.5 billion for nonprofit hospital facilities; $18.3 billion for nonprofit and public educational facilities; $2.2 billion for water, sewer and hazardous waste facilities; $4.7 billion for airports, docks and mass commuting facilities; and $100 million for high-speed intercity rail facilities.

They also include estimates of; $500 million for highway projects and rail-truck transfer facilities; $100 million for green buildings and sustainable design projects; $5.2 billion for PABs for rental housing; $6.6 billion for owner-occupied housing; $200 million for energy-production facilities; and $300 million for veterans' housing.

In addition, JCT said there would be revenue losses of $2 billion for "small-issue" bonds and $2.9 billion for student-loan bonds.

Build America Bonds are estimated to result in $15.8 billion of revenue loss from 2014 to 2018, down from $19 billion for fiscal 2013 to 2017. Recovery zone economic development bonds are estimated to lead to a loss of $900 million for fiscal 2014-2018, compared to $1 billion for fiscal 2013-2017, JCT said.

JCT also estimated revenue losses of $1.3 billion for qualified zone academy bonds, $5.5 billion for qualified school construction bonds, $200 million for qualified energy conservation bonds, and $500 million for clean renewable energy bonds.

Estimated revenue losses due to tribal economic development bonds is less than $50 million for each five-year period.

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