CHICAGO – Market participants should be wary of threats to tax-exempt bonds, but the politically-charged atmosphere in Washington, D.C. raises doubts about the ability of Congress to pass comprehensive tax reform legislation, lobbyists and others said Friday.
Speaking at the Bond Dealers of America’s 2012 National Fixed Income Conference here, Ellen Marshall, principal at Washington-based government relations firm Marshall & Co., questioned whether Congress will be willing to consider the “solid policy arguments” needed to overhaul the nation’s tax laws.
“Everything is very politically-driven and motivated. It is going to make it very difficult for Congress to do a comprehensive overhaul of the tax code,” she said.
Congress may succeed in changing corporate tax rules, but will have trouble agreeing to changes that affect individuals’ taxes, Marshall said. That’s partly because, unlike during the tax reform debate in 1986, information today flows instantly to the public through the Internet and 24-hour cable news channels.
Debates among lawmakers that used to take place privately are now increasing made public. Marshall said details about tax discussions in the House Ways and Means Committee and Senate Finance Committee are bound to be leaked to the media.
“It’s hard to talk amongst each other and really reach an agreement,” she said.
Information and misinformation will quickly reach constituents, she suggested.
“The prospect of getting hundreds of thousands of emails and phone calls and postcards from your constituents … is not something that a lot of members of Congress want to face,” Marshall said.
President Obama and presidential candidate Mitt Romney have both floated tax and budget proposals that concern muni market participants.
While Obama has advocated re-establishing the Build America Bond program with lower subsidy rates, he has also proposed a 28% cap on the value of tax-exempt interest for wealthier taxpayers.
Romney has said he plans to close tax loopholes and eliminate certain tax preferences, but has not provided details. However, his critics think he cannot lower tax rates across the board by 20% and lower the federal deficit without making drastic cuts in tax expenditures.