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Maintaining the Tax Exemption on Municipal Bonds

The 119th Congress will be weighing the option of extending tax cuts to corporations and individuals provided by the 2017 Tax Cuts and Jobs Act, the provisions of which are set to expire at the end of 2025. This means that lawmakers will be searching for sources of revenue to offset the anticipated extension as well as anticipated reductions in federal government spending nearly across the board.

One of those revenue sources, or "pay-fors," under consideration is the tax exemption on municipal bonds, which makes the interest income earned on these bonds tax-deductible for investors. Protecting this tax-exempt status has been a long-standing policy priority of GMA as these bonds equip local governments with a financing tool to fund capital projects at lower interest rates and without having to burden taxpayers.

Why Should the Tax Exemption Be Protected?

  • Over the last 100 years, tax-exempt municipal bonds have financed more than three-quarters of our nation's infrastructure — everything from roads, airports, highways, bridges and other modes of transportation, to water and wastewater systems, schools, affordable housing, libraries, town halls, nonprofit hospitals and universities, electric power and gas facilities, among other public projects. (GFOA)
  • Their tax-exempt nature makes municipal bonds an attractive investment, allowing cities to lower their borrowing costs; unlock myriad opportunities for job creation and economic growth; and demonstrate good local stewardship of public dollars since debt issuance must receive voter approval in Georgia.
  • Municipal bonds are a well-established debt financing tool that allow cities to embark on larger scale infrastructure and community development initiatives that often require substantial upfront costs beyond the immediate budgetary capacity of the city. Nearly $400 billion in municipal bonds were issued in 2023.
  • Protecting and modernizing tax-exempt municipal bonds demonstrates strong intergovernmental partnership at the local, state and federal levels.
  • Eliminating the tax exemption would raise borrowing costs by $824 billion between 2026 and 2035, burdening taxpayers and making it nearly impossible to fund community-wide capital projects.
  • Our federal lawmakers in Congress have done right to protect tax-exempt municipal bonds over the last 100 years, with their impact positive, far-reaching and visible nationwide. We urge the next Congress to continue protecting this critical tool to enable infrastructure investments that might not otherwise take place. We oppose any intention of eliminating the tax exemption as a pay-for to offset other proposed tax cuts.

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