Congress finds it tough to limit tax-exempt bonds
Closing a tax loophole can be like trying to get toothpaste back into the tube, as the Reagan administration and some of the more deficit-minded members of Congress have been finding lately. They have been trying this summer to limit the issue of tax-exempt bonds.Skip to next paragraph
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It's a complex question. The concern is with two particular kinds of bonds issued by states and local government jurisdictions: industrial development bonds, or IDBs, and mortgage revenue bonds, or MRBs. The former are typically used to finance new factories and other job-creating projects; the latter are used to generate a pool of below-market-rate mortgage money within a community.
But moves to extend MRBs have gained considerable momentum in Congress, making the purse-string tighteners all the more eager to limit IDBs somehow.
The Senate has passed a bill, S 137, that would extend indefinitely the MRB program for single-family houses, which would otherwise expire at year's end. The bill has been attached as an amendment to the Senate's bill to repeal tax withholding on interest and dividends. A conference committee is expected to take up soon, perhaps this week, the reconciliation of this Senate bill with its House counterpart, which has no such extraneous amendments.
A House observer says he doubts that House leadership will let the Senate use the amendment route to repeal the sunset on mortgage bonds. He says he finds it more likely that the MRB bills, S 137 and its House counterpart, HR 1176, will be combined in committee with the bills to restrict IDBs, HR 1635 and S 1061 - politically difficult though that may be.
The bills to extend mortgage subsidy bonds have a majority of each house signed on as cosponsors, but committee aides suggest that the support may be rather shallow.
Both MRBs and IDBs have ''bred like cats,'' as one Capitol Hill aide puts it. They have proliferated more rapidly than traditional public-purpose bonds, such as those for schools and sewers. The Joint Committee on Taxation estimates that these ''private-purpose bonds'' - IDBs, MRBs, and their kin - will cost the federal Treasury $64 billion over the next five fiscal years. This figure has not gone unnoticed at a time of $200 billion federal budget deficits.
But many localities see these bonds as the cornerstone of their economic development strategy. As local officials see it, IDBs woo into town new factories which mop up unemployment, enhance the local tax base, and allow the officials approving them to bask in reflected glory as promoters of prosperity. Those local officials are less concerned about the tax expenditure these bonds represent to the federal Treasury.
''The county officials aren't the ones people call to complain to about the $ 200 billion federal deficit,'' says Reg Todd, an aide to Rep. J.J. Pickle (D) of Texas, who is sponsoring HR 1635, which would restrict these bonds. Mr. Todd cites a recent case in Norfolk, Va., which he says typifies the abuse of IDBs. The Norfolk Port and Industrial Authority granted preliminary approval for industrial development bonds to finance a $2.5 million jet for a local psychiatrist-entrepreneur who told officials that a private aircraft was ''indispensable'' in acquisitions of hospitals and clinics.
The same week that the port authority heard the case of the psychiatrist, the assistant Treasury secretary for tax policy, John E. Chapoton, was testifying before the House Ways and Means Committee in favor of Representative Pickle's bill, HR 1635, which would: