Camp Announces Hearing on Tax Reform Affecting State and Local Governments

In announcing this hearing, Chairman Camp said, "As we continue to work toward comprehensive tax reform that significantly lowers rates and makes the code fairer and simpler so that we can spur a climate for job creation, higher wages and better benefits, we must better understand how various aspects of the tax code affect stakeholders. To that end, it is important that the Committee hear directly from those who are familiar with the impact of Federal taxation on State and local governments before considering any proposals as part of comprehensive tax reform."

BACKGROUND:

A number of different Federal tax provisions directly affect State and local governments. By far the largest tax expenditure affecting State and local governments is the itemized deduction for State and local taxes. Individual taxpayers who itemize may generally deduct their State and local income and property taxes. For some taxpayers, this deduction is reduced by the recently reinstated "Pease" limitation on itemized deductions and it is disallowed for taxpayers subject to the Alternative Minimum Tax (AMT). In addition, taxpayers may elect to deduct general sales taxes in lieu of income taxes, although this deduction expires at the end of this year, is also subject to the Pease limitation, and is disallowed under the AMT.

State and local governments also benefit from favorable Federal tax treatment of certain types of bonds they issue, including tax-exempt bonds, tax-credit bonds, and "direct-pay" bonds. In addition, numerous other Internal Revenue Code provisions have a significant impact on State and local governments, including pension and retirement provisions and payroll tax provisions, among others.