By Dave Bauer, senior vice president of government relations, ARTBA
The Republican leadership of the U.S. House of Representatives Nov. 2 unveiled the specifics of its long-awaited tax reform proposal. The “Tax Cuts & Jobs Act” (TCJA) would see primary rate reductions for many individuals and all businesses. To help offset the loss in revenue from tax rate cuts, it would eliminate or limit a number of exemptions that benefit certain individuals and economic sectors.
While much of the proposal is consistent with summaries released in September and the summer of 2016, the proposal also includes a provision that would dramatically limit the effectiveness of private activity bonds (PABs). PABs have a variety of applications and, since 2005, have been a tool to advance highway and intermodal transportation projects. States and local governments are authorized by the Secretary of Transportation to issue PABs to lower the financing costs of private sector project sponsors. According to the Federal Highway Administration, 15 states have used PABs on 24 projects since 2005.
The House tax bill would eliminate the tax exempt status on the interest revenue earned off of PABs on any new projects, effectively terminating the incentive for the practice in the future. A summary of the TCJA explains it is intended to level the playing field among competitors and that the federal government should not subsidize borrowing costs of the private sector.
ARTBA has long supported PABs and other vehicles to incentivize private capital to support transportation improvement projects. It is interesting to note the Trump administration’s FY 2018 budget proposal took a very different approach to this issue, recommending lifting the cap on PABs and expanding their eligibility.
Highlights of the Republican tax plan include:
- Lowering the corporate tax rate to 20 percent from 35 percent;
- Reducing the tax rate on “pass through” businesses to 25 percent from as high as 39.6 percent;
- Allowing businesses to immediately write off the entire cost of new capital equipment;
- Doubling the estate tax earnings exemption and repealing the tax after six years; and
- Preserving the Research & Development Tax Credit.
Despite the substantial support among Republicans and Democrats in the House for including a long-term Highway Trust Fund revenue fix in the chamber’s tax package—253 members asked for such a provision in a June letter the leadership of the Ways & Means Committee—the TCJA does not currently address the trust fund.
Recognizing this outcome was likely, ARTBA and its transportation stakeholder allies met earlier this week and agreed to keep pushing for a Highway Trust Fund solution as the tax reform process goes forward. Stay tuned.