Cities Urge Caution on Tax Reform: Look before You Leap, Witnesses Warn Congress

By Fletcher, Jeff | Nation's Cities Weekly, May 6, 1996 | Go to article overview

Cities Urge Caution on Tax Reform: Look before You Leap, Witnesses Warn Congress


Fletcher, Jeff, Nation's Cities Weekly


The subject was federal tax reform. The message to Congress from state and local governments was, "First, do no harm."

At a House Ways and Means committee hearing convened last week by chairman Bill Archer (R-Tex.), a parade of speakers warned Congress to carefully consider the negative impacts of proposed tax reform plans on state and local governments and their taxpayers.

"Federal tax reform could do significant damage to state and local governments and wreak havoc with state and local services. said Harley Dullcan of the Federation of State Tax Administrators. "Moreover, by shifting major power away from states and cities to the federal government, Congress would achieve the exact opposite of its repeated commitments to turn over power, authority, and responsibility to the levels of government closest to the people," Duncan added.

Peter Powers, deputy mayor of New York City, said, "New federal tax policies should not create problems for cities or reduce their attractiveness as places to do business for national and international firms, as well as local businesses. ,

Frank Shafroth, NLC director of policy and federal relations. expressed similar concerns. "Because of the interrelated nature of federal, state, and local tax systems, any changes at the federal level are certain to have major impacts at the local level," Shafroth said.

Shafroth urged Congress to take a hard look at the impact of tax reform on local revenues, local capital budgets, and local economies, stressing the potentially negative effects of tax reform on the municipal bond market. "Outside of defense, the main source of public capital investment today is municipal bonds," he said. "Any proposal to disrupt or eliminate the incentives for this $1.2 trillion market could have severe and long-lasting adverse impacts on the nation's economy, and it could increase the cost of borrowing to states and local governments by as much as 30 percent."

"With the General Accounting Office projecting that states and local governments currently need to spend in excess of $100 billion just on the rehabilitation and construction of public schools," Shafroth continued, "an abrupt Congressional change affecting state and local borrowing authority could cost state and local taxpayers $30 billion-but result in no net additional benefit in an investment critical to the future of the nation." Archer acknowledged the witnesses, points, saying, "We need and want input from state and local governments, because we understand changes could have substantial impacts on state and local governments and the citizens they serve. I assure you we will be sensitive to your concerns. Whatever we do, it will represent a major change in the federal system. And major change should not be taken lightly."

The hearing marked the first effort by Congress to consider the potential impact of federal tax reform on local revenues and economies.

NLC's Board of Directors voted last month to make federal tax reform one of the organization's five highest federal legislative priorities for 1996, and NLC's Election '96 Task Force selected federal tax reform as one of the highest priority issues for the 1996 Congressional and Presidential election campaigns as well.

NLC policy supports the continued use of personal and corporate income as the primary federal tax base and a progressive rate structure that reflects a taxpayer's ability to pay. …

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