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On the Hill

Around 8:00 a.m. (ET) this morning, the House Ways and Means Committee voted to approve its tax reform legislation. While there were spirited discussions on several issues during the almost 17-hour session, the tax-exempt status of bonds did not come up. All proposed amendments were rejected in favor of maintaining the language as initially released on Monday.

The legislation as just passed by Ways and Means: 

• Provides a 12.5% allocation increase for 9% LIHTC transactions for 2026-2029
• Lowers the bond financing requirement from 50% to 25% for 4% LIHTC deals for 2026-2029
• Designates Indian areas and rural areas as “Difficult Development Areas” and adds 30% boost in basis for 2026-2029
• Permanently extends increased individual alternative minimum tax exemption amounts and phase-out thresholds
• Permits the full expensing for domestic manufacturing structures during year placed in service
• Renews, extends and modifies eligibility for another round of Opportunity Zones
• Allows the Treasury Secretary to suspend the tax-exempt status of any organization that the Department of Treasury determines has provided more than a minor amount of support to a listed terrorist organization

What This Means for Tax-Exempt Bond Issuers

According to analysis released yesterday by the nonpartisan Joint Committee on Taxation, the current version of the bill includes approximately $5.6 trillion in tax cuts. Offsets like the elimination of certain renewable energy incentives and increasing the enforcement of international tax law would provide about $1.9 trillion in revenue raisers. Together, the legislation would add close to $3.7 trillion to the deficit over the next 10 years, which is less than the $4.5 trillion permitted by the original House framework. 

Critically, this means that Republicans still have some room to negotiate additional tax cuts (or fewer budget cuts elsewhere) without necessarily having to find additional revenue offsets such as municipal bonds. While so far this is good news for the tax-exempt bond community, it is just the first step in a multi-step process. We will continue to monitor and provide updates as appropriate.

What is Next

The Ways and Means tax reform legislation will be sent to the House Budget Committee, where it will be assembled into a single bill along with the companion legislation from each of the other House committees. After passing Budget, it will head to Rules Committee, where it can be amended. We estimate this will occur next week, and after passage from Rules it will head to the Floor. Leadership is still targeting passage out of the House by the end of May, and insiders continue to think that while possible, this schedule is very ambitious, particularly given the ongoing and heated discussions on the SALT cap and Medicaid cuts. After the bill is passed by the House, it will then be sent over to the Senate, which may accept the bill in full or, more likely, propose its own version of the bill. 

We will continue to keep you informed as the legislation moves forward.