WASHINGTON — While municipal bond market participants oppose President Obama's proposal to limit the value of tax-expenditures, including the muni bond interest exclusion, to 28%, Republican proposals would be even harsher, the Center on Budget and Policy Priorities said in a recent paper.
The paper, "Critics of Obama Tax Subsidy Proposal Miss Key Points," notes that both House Budget Committee chairman Paul Ryan, R-Wis., and House Ways and Means Committee chairman Dave Camp, R-Mich., want the top marginal tax rate reduced to 25%. "That would put the top subsidy rate for charitable donations and municipal bond interest three percentage points below the Obama cap," the group said.
CBPP also points out that the Obama budget proposes using the revenue savings resulting from the cap to replace the across-the-board budget cuts imposed under sequestration, thereby helping charities and state and local governments. Sequestration, under which $85.4 billion in cuts was mandated for this fiscal year, is slated to impose even deeper cuts next year and to remain in effect through 2021.
Sequestration's "harsh cuts in a range of programs — including those that alleviate poverty or combat disease at home or abroad as well as programs in education, environmental protection, health research, the arts, and many other areas — will place heavy added burdens on both charities and state and local governments," CBPP wrote.
"Thus cancelling sequestration is of consideration importance to the charitable sector and to state and local governments," the group said. "While charities and state and local governments would lose some revenue from the proposed 28% limitation on tax deductions and exclusions, they would receive substantial revenue gains from repealing sequestration."
In contrast, the Ryan and Camp proposals not only would cause charities and state and local governments to suffer bigger losses from ... reductions in tax subsidy rates, but none of the resulting revenue would go to ease sequestration or other budget cuts," the paper noted.
Under the Republican proposals, the revenue from scaling back tax subsidies would go toward lowering tax rates and further deficit reduction would likely come entirely from cutting spending on top of the sequestration cuts.
CBPP faults critics of Obama's 28% cap for failing to put forth alternative proposals that would be politically viable.
"The task remains of raising revenues to replace sequestration and to serve as part of a balanced long-term deficit reduction package, and the 28% limit remains the most promising proposal that is not significant beyond the bounds of current political reality," the group said.
