WASHINGTON - Repealing the tax exemption for private-activity bonds would provide revenue to help pay for lowering corporate tax rates, a Congressional Research Service specialist testified before the Senate Finance Committee on Tuesday.
"There are a number of smaller but significant provisions that favor certain types of investment such as the exemption of like-kind exchanges from the capital gains tax, exclusion of interest on private-activity bonds, and deferral of gain in non-dealer installment sales, where repeal would also yield revenue for corporate rate reduction," Jane Gravelle, a Congressional Research Service senior specialist in economic policy, stated in written testimony during a hearing on "tax reform, growth and efficiency."
Gravelle's comments follow a report released earlier this month by the Joint Committee on Taxation that found the tax exemption for general purpose state and local debt has consistently been one of the largest corporate tax expenditures over the past 40 years.
While much of the hearing focused on corporate tax reform, there were some comments about Build America Bonds and infrastructure.
Ranking minority member Ron Wyden, D-Ore., said at the hearing that Congress could boost private investment in infrastructure and reference the fact that more than $180 billion of Build America Bonds were issued in 2009 and 2010.
He asked the witnesses what the committee could do as a way to get communities interested in tax reform "on the question of making it attractive for the private sector to invest in infrastructure."
Laura D'Andrea Tyson, a business, administration and economics professor at the University of California-Berkeley, told committee members that she was "a huge fan" of the BAB program and wished it had not expired. She also said there is growing bipartisan support at the state and local level for a gasoline or carbon tax solution to funding infrastructure.
Several states have either increased or proposed increasing their gasoline taxes, including Maryland, Massachusetts, Virginia, Minnesota, South Carolina, Washington, Utah, Idaho and Iowa. Washington State Gov. Gov. Jay Inslee has proposed a carbon emissions tax on the state's top 130 polluters that he said would generate $400 million per year for transportation.
Michael Boskin, an economics professor at Stanford University, told the lawmakers that he supports infrastructure projects that pass a "rigorous cost-benefit test based on national criteria," but that involving issues like infrastructure and carbon in tax reform make it harder to cap and eliminate tax preferences to lower rates.
