2025 is shaping into a pivotal year for tax reform in Congress, as several major tax provisions are set to expire. The 2017 Tax Cuts and Jobs Act—representing the most significant overhaul of the tax code in three decades—is up for potential extension.
Advance refundings represented 27% of municipal bond market activity in 2016 and 19% in 2017. Additionally, the TCJA decreased the overall corporate tax rate from 35% to 21% and eliminated other tax incentives that could impact overall demand for municipal bonds.
There is no doubt that state and local governments powered through adversity the last two years, continuing to provide quality infrastructure, healthy communities and rally a strong bond market despite the crippling effects of the 2017 tax reform law.
Bank-qualified bonds were created in 1986 to encourage banks to invest in tax-exempt bonds from smaller, less-frequent municipal bond issuers, and to provide municipalities with access to the lower cost borrowing that they need in order to provide services and invest in schools, roads, bridges and other projects.
The SALT deduction reflects a partnership between the federal government and state and local governments. The deduction is fundamental to the way states and localities budget for and provide critical public services, and a cornerstone of the U.S. system of fiscal federalism. It reflects a collaborative relationship between levels of government that had existed for over 100 years.
