Two groups representing dealers, issuers, and the nation’s governors have sent letters to Senate Finance Committee leaders urging them to preserve the federal tax exemption for municipal bonds.

The separate letters by Municipal Bonds for America Coalition and National Governors Association, addressed to Sens. Max Baucus, D-Mont. and Orrin Hatch, R-Utah, come just before a Friday deadline for Senators to submit their tax reform proposals. They emphasize the importance of muni bonds to funding America’s most important infrastructure projects.

Baucus, the committee chairman, and Hatch, its ranking minority member, will have considerable say in crafting tax reform legislation. Some proposals include eliminating or capping the tax exemption for munis.

The NGA letter, signed by Pennsylvania Gov. Tom Corbett and Kentucky Gov. Steven Beshear, reminds lawmakers that muni bonds are a key method of state and local finance and argues against any new tax on them or regulatory policies that restrict them would increase costs to state and local governments.

“We do not believe it is the intent of Congress through comprehensive tax reform to undermine the ability of state and local governments to meet the needs of citizens we all serve,” the letter states.

The MBFA letter urges the lawmakers to respect the long history of that exemption, a part of the original 1913 tax code. The group has been lobbying hard against any changes to the muni tax exemption since the coalition came together last fall. In January, it issued a paper warning that the value of outstanding municipal bonds could plummet by at least $185 billion because of uncertainty if a retroactively effective cap were adopted.

“The Municipal Bonds for America coalition urges Congress to recognize that the 100-year old, permanent federal tax exemption for municipal bonds is vital to infrastructure development and competitiveness in the United States, and is a part of the ‘blank slate’ that many members of Congress will use as the starting point for its deliberations,” the letter says.

“The principle of reciprocal immunity — the federal government doesn’t tax state and local governments, and vice versa — was considered imperative to the original tax code,” it continues. “It is a principle that should be preserved and protected now, and for the next 100 years. The principle of reciprocal immunity — the federal government doesn’t tax state and local governments, and vice versa — was considered imperative to the original tax code.  It is a principle that should be preserved and protected now, and for the next 100 years. On behalf of all of the members of the MBFA, we strongly urge you to preserve the federal tax exemption for municipal bonds.”

MBFA members will be visiting Senators and their staffs throughout the week, the group said.

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