The Tax Cuts and Jobs Act (TCJA) expires in 2025. In connection with that expiration, Congress could reconsider the TCJA’s various provisions, and an election falling in the middle of this reconsideration could cause new competing policies to surface. What might it mean for tax-exempt bonds? It could mean tax-exemption is on the chopping block as a way to pay for the TCJA’s personal tax cut provisions that are set to expire.

Recent history serves as a stark reminder of the risk to tax-exemption. In 2017, tax-exempt qualified private activity bonds (PABs) were eliminated in the House’s version of the TCJA bill that went to the Senate. PABs are commonly used to finance projects for 501(c)(3) organizations (including colleges, hospitals, senior living providers and cultural & academic institutions), exempt facility borrowers (including airports, docks and wharves, mass commuting facilities, and qualified hazardous waste facilities) and single-family housing developers, to name a few. Thanks to the extensive advocacy of the Bond Dealers of America (BDA) and a broad coalition of issuer advocacy groups, the Senate’s version of the TCJA bill ultimately saved PABs at the eleventh hour. However, tax-exempt advance refundings were successfully cut with the passage of the TCJA.

Now may be the time to renew a legislative effort to educate and inform lawmakers regarding the importance of tax-exempt bonds in the communities where you live and do business. The Congressional Budget Office established that a ten-year extension of the TCJA would raise the overall deficit by roughly $3.6 trillion. In the wake of COVID and infrastructure spending, both Democrats and Republicans are scrambling to find offsets. The tax free interest provided to investors from owning tax-exempt bonds is estimated to cost the federal government upwards of $40 billion annually, putting tax exemption at risk when Congress looks for revenue to cover new spending (much like the 2017 elimination of the SALT deduction and advance refundings).

Action now may be critical. Various organizations are getting in front of the debate early this year as Congress reconsiders the TCJA provisions in an effort to keep the looming threat to tax-exempt bonds at bay.

For questions regarding this alert, please contact a member of Ice Miller’s Public Finance or Government Affairs and Regulatory Law Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.