WASHINGTON – Republicans on the House Ways and Means Committee on Tuesday defeated an amendment that would have maintained the current federal deduction for state and local taxes, while they continued an internal debate over keeping tax-exempt private activity bonds.

Rep. Bill Pascrell, D-N.J., offered the unsuccessful amendment, which was defeated in a 23-16 party line vote after Republicans defended their proposal to allow the deduction of up to $10,000 in annual property taxes. The House GOP tax reform bill would terminate the deduction for state and local income taxes and sales taxes.

Rep. Tom Reed, R-N.Y.
Rep. Tom Reed, R-N.Y. Rep. Tom Reed, R-N.Y.

State and local government officials who have fought for the full restoration of the SALT deduction are expected to continue their fight when tax legislation reaches the House floor next week. A Senate version of the tax reform legislation is expected to be unveiled Thursday with votes by the Senate Finance Committee next week.

Rep. Tom Reed, R-N.Y., defended the SALT compromise during the committee's deliberations, saying it would cover most homeowners.

Reed, meanwhile, is among a group of committee Republicans lobbying behind the scenes for maintaining tax-exempt private activity bonds, which under the bill would be terminated after the end of the year. Reed said he will continue to advocate for PABs even if a change isn't made to the tax bill in the committee.

“It’s not as if Ways and Means is going to disband once tax reform gets to the finish line,” Reed said. “There’s always going to be a need to make technical corrections. You’ve heard us talk about natural disasters. There are a lot of issues there.”

Reed is a supporter of PABs and the 20% tax credit for restoring historic, income-producing buildings, which is also scheduled for termination. He is the lead sponsor of the National Disaster Tax Relief Act. That bill would create a new class of PABs -- qualified disaster area recovery bonds -- for disasters that occurred between 2012 and 2015.

Republicans who support PABs said they have reminded Chairman Kevin Brady, R-Texas, of these uses of the bonds in their so far unsuccessful attempt to maintain them before the tax bill moves out of committee later this week.

“If you are going down the P3 approach and get to $1 trillion in infrastructure, you are going to need every tool in the toolbox to get this done,” Reed said.

Rep. Kenny Marchant, R-Texas, another committee member, agrees on the importance of keeping PABs to finance P3s. “I think that’s something many people are trying to convince the chairman, how integral they are,” he said. “But as the bill stands now they are not in there.”

Brady has taken the position that keeping the overall tax exemption for municipal bonds is enough to preserve the muni market.

The $38.9 billion over 10 years that would be raised by terminating tax-exempt PABs would help Republicans finance lower tax rates, especially the 20% rate for corporations. Another $17.3 billion would be generated by terminating advance refundings. Terminating tax credit bonds would actually lose $500 million in revenue because they are taxable bonds. Ending the tax exemption for sports stadiums and arenas as of Nov. 2 would raise $200 million.

Marchant said he agrees with the chairman’s emphasis on lowering tax rates.

“I’m going to have to stick with the chairman at this point,” he said. “My overarching interest is that my homeowners and my citizens get lower tax rates. I also represent a very extensive corporate headquarters district with Exxon, Fluor, Kimberley Clarke, AT&T and Toyota. And I can go on. I have 5 million square feet of Amazon fulfillment space in my district. My constituents can correlate that if their corporate employer does better, they are going to do better.”

Rep. Mike Kelley, R-Pa., lead sponsor of a bipartisan bill (H.R. 960) to expand the use of PABs to certain governmentally owned public buildings, said he was under the impression the Trump administration supported PABs for infrastructure investment.

“But I’m not included in a lot of those conversations,” he said.

Kelley said he has not given up on his bill. “We’re having discussions with the chairman right now to see that we can do,” he said. “I think it’s a great jobs bill so we’re trying to work with him to see that we can do.”

Rep. Erik Paulsen, R-Minn., observed, “Some of these provisions are still a work in progress.”

“Some of us who recognize the value that exists under private activity bonds, I think we are going to look at opportunities to move forward,” Paulsen said. “I can’t handicap it. You have the House process. You also have the Senate process. I think as more people become aware of the value it has for senior housing, for colleges, for charter schools, there’s going to be an interest in fine tuning or paying attention to that.”

Democrats are considering offering separate amendments to the tax plan to maintain tax-exempt PABs and advance refundings.

That would put at least 14 of the 24 Republicans on the panel on the spot because they are sponsors of legislation to either expand the use of PABs or to shore-up the low-income tax credit that’s often paired with PABs in multifamily housing projects.

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