State, Local Financing Benefits in Tax Code as Part of Tax Reform Review

Tax reform could have an impact on the way many states and local governments finance themselves because of the broad benefits that can come from the use of bonds that exempt interest from federal income taxes and bonds that provide federal tax credits, according to a Joint Committee on Taxation report issued April 23.

The report (JXC-36-12), prepared ahead of an April 24 Senate Finance Committee hearing on the issue, noted that the use of tax-favored bonds offers key benefits to state and local governments because it allows them to obtain financing for their projects at a lower cost.

JCT also provided background material on the state and local tax deduction allowed by the federal government, saying it estimates that 44.8 million tax returns will include $174 billion in deductions for real property taxes in 2012.

It also said that 42.5 million returns will include state and local income tax deductions worth $291.5 billion.