Cantor Backs Municipal-Bond Tax Break as Needed for Projects

U.S. House Republican Leader Eric Cantor said curbing the tax exemption given to the $3.7 trillion municipal-bond market may undermine the ability of state and local governments to finance public-works projects.

Cantor told the National Association of State Treasurers today in Washington that he understands the need for the Congress to keep the tax break.

State and local governments have been lobbying to keep investors’ income from municipal debt exempt from taxes, which holds down their borrowing costs for schools, roads and mass-transit projects. President Barack Obama has proposed capping the tax-break for high earners, though that proposal has failed to advance in Congress.

“The message was received, at least in my office, about the importance of that benefit to states,” said Cantor, of Virginia. “We can’t be pulling back on that right now given the current state of our existing infrastructure.”

With the federal government under pressure to find ways to curb the deficit, the municipal-bond exemption has drawn fresh scrutiny. The president’s bipartisan deficit-cutting commission in 2010 proposed doing away with it as part of a package of tax code changes, a step that failed to gain traction.

Cantor’s comments follow a hearing yesterday of the House Ways and Means Committee, in which Republicans and Democrats said they were concerned that any changes to the tax treatment of municipal debt would increase costs to state and local governments.

Such changes also would affect investors by diminishing the tax-benefits of holding the securities, which help push up prices.

The Senate Finance Committee and the House Ways and Means Committee are both working on plans to reshape the U.S. tax code, a goal that has proved elusive amid competing priorities among Republicans who control the House and the Democratic majority in the Senate. Such tax changes have previously been set aside as immediate budget issues, including mandatory spending cuts that began this month, took priority.

State and local treasurers need to continue lobbying to preserve the tax-exemption in Congress, where lawmakers will be pressured to retain favorable tax breaks for charities and mortgage interest, Cantor said.

“You need to keep focused on this and relay the benefit that these bonds can provide to the people that you represent,” Cantor told the treasurers.

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