In the early hours of Friday, July 28, Senate Republicans failed to pass health care reform legislation on a 49 to 51 vote. President Trump and Senate Majority Leader Mitch McConnell (R-Ky.) have both signaled an interest in pursuing other strategies to repeal the Affordable Care Act (ACA), but next steps remain uncertain.
In the meantime, the administration and congressional Republicans are turning their focus to tax reform, which they hope to hold up as a major legislative accomplishment.
On July 27, the administration and House and Senate leadership issued a joint statement on the importance of and next steps for tax reform. The much-anticipated statement was light on details, with one exception: the authors agreed to set aside the controversial border adjustment tax (BAT), an idea that would have raised a significant amount of revenue but was panned by many members of the Republican conference.
In their statement, the “Big Six” – House Speaker Paul Ryan (R-Wis.), House Ways and Means Chairman Kevin Brady (R-Texas), Leader McConnell, Senate Finance Committee Chairman Orrin Hatch (R-Utah), Treasury Secretary Steven Mnuchin and National Economic Council Chairman Gary Cohn – said the “time has arrived for the two tax-writing committees to develop and draft legislation that will result in the first comprehensive tax reform in a generation.” The statement also acknowledges the process will move through “regular order” – a departure from health care reform efforts that the group suggests could bring Democrats to the table and that President Trump has said he “fully supports…and is committed to this approach.”
Counties have a significant stake in tax reform discussions, as simplification and lowering of rates could significantly boost economic development and help constituents around the country. However, key county priorities remain in the crosshairs of tax reform discussions: the tax-exempt status of municipal bonds and the deductibility of state and local taxes.
Tax-exempt municipal bonds are a critical county financing tool for major infrastructure purposes, including roads, bridges, hospitals and schools. Additionally, eliminating deductibility of state and local taxes would be a double tax on constituents, significantly impacting local middle class tax payers and asking them to shoulder an increased burden for key local priorities.
While the Big Six statement is a positive indication of cooperation between Congress and the administration, the lack of details indicates much work remains to be done. Tax reform is complicated, and each member of Congress and the coalition will bring different ideas and concerns to the table. Congressional leaders have aimed for initial drafts to be released in September after the August recess, though that month will also now be consumed by federal budget and appropriations debates and potentially additional health care reform efforts.
NACo will continue to monitor tax reform efforts and advocate for key county priorities as the process moves forward.
- NACo’s State and Local Tax Deduction one-pager: click here
- Government Finance Officers Association report on State and Local Tax Deduction: click here
- NACo’s Municipal Bonds Toolkit: click here