WASHINGTON — House members are expected Saturday to hold procedural votes on tax bills sponsored by two Democrats that would extend middle-class tax cuts and, in at least one case, also extend Build America Bonds and other expiring bond-related tax provisions.
But sources do not expect Senate Majority Leader Harry Reid, D-Nev., will get the 60 votes needed to limit debate on the bills, which are sponsored by Senate Finance Committee chairman Max Baucus, D-Mont., and Sen. Chuck Schumer, D-N.Y., because of opposition from Republicans who want all of the Bush administration tax cuts extended, including those affecting the wealthy.
"I think it's highly probable that neither of these will pass," said Charles Samuels of Mintz Levin Cohn Ferris Glovsky and Popeo PC, referring to the partisan fight over tax cuts. "But we are grateful to Baucus for the bond provisions."
Susan Gaffney, director of the Government Finance Officers Association's federal liaison center, also applauded the bill. "We are pleased that this bill addresses and preserves many of the bond issues important to state and local governments, especially the bank-qualified debt provision," she said. "The school arbitrage provisions are also immensely helpful for smaller districts."
Samuels said the two big risks for the muni market going forward are that Congress either fails to pass any tax legislation, or passes some version of the tax cuts without including the extenders.
Twenty-five muni market groups — including the Government Finance Officers Association, the Bond Dealers of America, the Council of Federal Home Loan Banks and National Association of Bond Lawyers — sent the heads of the tax-writing committees in the House and Senate as well as Rep. Dave Camp, R-Mich., the incoming chairman of the House Ways and Means Committee, a letter Friday.
It urged them to extend the Build America Bond program, the $30 million bank-qualified debt limit, the private-activity bond exemption from the alternative minimum tax, and a provision allowing federal home loan banks to offer letters of credit for tax-exempt bonds.
Baucus introduced his bill, SA 4727, the Middle Class Tax Cut Act of 2010, late Thursday, just after the House passed a similar measure that extended only two school-related provisions in the bond area. Like the House measure, Baucus' bill would permanently cut taxes for individuals making up to $200,000 per year and families earning up to $250,000 per year.
It contains the same school-related bond provisions that the House passed, but also extensions of expiring BABs and other bond programs. The bill would extend the BAB program, which is set to expire Dec. 31, through 2011 at a 32% subsidy payment rate.
Currently, the federal government makes subsidy payments to BAB issuers at 35% of their interest cost. BABs also could be current refunded under the bill.
One of the school bond provisions, adopted in 2001 but set to expire, 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 Baucus bill also would extend for another year the greater small-issuer exemption for bank-qualified bonds so that banks could deduct 80% of the cost of buying and carrying tax-exempt debt sold by issuers whose annual issuance is no greater than $30 million, up from $10 million.
The legislation would exclude water and sewer exempt-facility bonds from state private-activity bond volume caps as well as from certain limitations placed on tribal government bond issues. It also would exempt PABs issued in 2011 from the alternative minimum tax as well as PABs refunding bonds issued after 2003.
The bill would extend for another year the recovery zone bond programs, which are designed to rejuvenate areas hit hard by the recession. It would make an additional allocation of bond authority to localities under a new formula that guarantees that each would receive a minimum allocation equal to at least their share of national unemployment as of December 2009.
Some issuers and their lawmakers had complained that the formula used to allocate the $25 billion of recovery zone bonds had overlooked their hard-hit areas. In addition, the bill would allow the federal home loan banks to guarantee tax-exempt bonds through 2011.
The legislation would reinstate some provisions that expired at the beginning of 2010.
New York City issuers would be able to sell Liberty bonds through the end of 2011 and states could waive certain rules that limit their ability to use tax-exempt housing bonds to provide loans to taxpayers that want to acquire residences in federally declared disaster areas.
In addition, itemized deductions for state and local general sales taxes could be taken in lieu of deductions for state and local income taxes.
Schumer was writing a bill at press time that would extend tax cuts to individuals earning $1 million or less, according to his staff, but it was unclear to what extent, if any, that measure would include provisions to extend expiring tax provisions.
