Baucus Says Tax Reform Can Help Improve Federal, State and Local Budgets

Finance Chairman: We Need to Make Sure our Federal, State and Local Tax Systems Are Working Together

Washington, DC – At a Senate Finance Committee hearing held today, Chairman Max Baucus (D-Mont.) said tax reform could help improve the finances and tax policies of state and local governments.  Baucus also considered what improvements to the current tax code could help spur growth, reduce complexity, promote investment in local communities and improve coordination between the federal, state and local governments.

“We need to reform the tax code to encourage growth and make our country more competitive.  Through tax reform, we can look at new ways to help state and local governments invest in their communities and infrastructures to create new jobs and attract businesses,” Baucus said.  “And by encouraging standard rules, we can help protect taxpayers from duplicative taxes and needless complexity.  We must make sure our federal, state and local tax systems are working together to drive our economy forward and spur growth.”

The federal government has long played an indirect role in boosting state and local governments through the tax code.  Since the modern income tax was enacted, Congress has exempted interest on state and local bonds.  This exemption helps cover part of the borrowing cost of projects by state and local governments.  Congress has also allowed some or all state and local taxes to be deducted from income for federal income tax purposes.  During hard economic times, this federal support helps cushion the blow on state and local finances and on families’ budgets. 

Baucus said that through tax reform, Congress should consider how and whether it can improve the current exclusions, deductions and credits in the code.  He said Congress should look at other efficient ways to help state and local governments maintain sustainable budgets and collect taxes owed.  Baucus asked whether uniform subsidies for tax-exempt bonds could more effectively spur investments in communities and infrastructure.  And Baucus said working with states to simplify tax systems can reduce complexity and protect taxpayers from having the same income taxed multiple times.

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