Tax bill hearing expected Tuesday

Kent Nishimura/Bloomberg

The House Ways and Means Committee is eying Tuesday afternoon for a hearing on a tax bill that forms the centerpiece of the Republican's sweeping reconciliation legislation.

That means the municipal bond market may catch its first glimpse of the hotly anticipated tax language within the next few days.

A framework for the tax bill, outlining general policies and topline numbers, could come as early as Friday afternoon.

"It's go time," said Emily Brock, federal liaison for the Government Finance Officers Association, which has been a top advocate for saving the municipal bond tax exemption over the last several months.

If Ways and Means sticks to its Tuesday schedule, more specific language would be released ahead of the hearing, as early as this weekend or Monday.

"We're hearing that Ways and Means wants to proceed next week with the markup of the chairman's tax draft," said Brett Bolton, vice president of federal legislative and regulatory policy at the Bond Dealers of America.  "We remain on high alert and are having conversations with key Hill offices to make sure munis are not used as an offset for this sprawling package."

The municipal bond market has been speculating for months that lawmakers may tap the tax exemption — in full or in part — to help cover the cost of the tax and spending plan. In late January, a House menu outlining potential pay-fors included tax-exempt municipal bonds and private activity bonds, deepening the market's fears.

The size of the tax bill will help determine the number of offsets. Roll Call reported Friday that the committee may rely on instructions that allow for $4 trillion of cuts, down from the original $4.5 trillion target — meaning lawmakers would need more revenue to cover the costs.

The timing of Tuesday's hearing may still change as Republicans debate key pieces in the filibuster-proof reconciliation bill. Committee Chair Rep. Jason Smith, R-Mo., was set to meet with President Donald Trump Friday afternoon, according to Politico.

A compromise over the state and local tax deduction cap marks a top hurdle that needs to be ironed out to win sufficient Republican support to pass the tax bill. A proposal to lift the cap to $30,000 from the current $10,000 ceiling was shot down late Thursday by the so-called SALT Caucus, a group of lawmakers from high-tax states who say they won't support a reconciliation bill that does not meaningfully lift or eliminate the SALT cap.

"We've negotiated in good faith on SALT from the start," said New York Reps. Elise Stefanik, Andrew Garbarino, Nick LaLota, and Mike Lawler in a joint statement Thursday. "Yet with no notice or agreement, [House Speaker Rep. Mike Johnson, R-La.] and the House Ways and Means Committee unilaterally proposed a flat $30,000 SALT cap — an amount they already knew would fall short of earning our support," they said. "It's not just insulting—it risks derailing President Trump's One Big Beautiful Bill."

The Energy and Commerce Committee is also set to hold a Tuesday markup on its portion of the bill, which calls for slashing at least $880 billion, including potential cuts to Medicaid, another flashpoint between moderate and hard-right Republicans.

Assuming all the committees approve their various pieces of the reconciliation bill, Republicans will assemble them into one bill for a full floor vote. Johnson said he wants the package passed by the end of May, while other GOP leaders have targeted the July 4th holiday.

In 2017, the muni market was caught by surprise when Congress eliminated tax-exempt private activity bonds and tax-exempt advance refundings in an early draft of the Tax Cuts and Jobs Act. The former was later restored by the Senate, but tax-exempt advance refundings were permanently axed.

"We have no excuses to be caught flat-footed this time," Brock said. "We anticipate a full market response if we find munis in the crosshairs."