Tax Bill Heads to President’s Desk

A tax reform bill is headed to the president’s desk, but will not receive his signature until early January to avoid mandatory spending cuts from the PAYGO law. Waiting until January pushes the spending cuts that the bill triggers to 2019, including a $25 billion cut to Medicare among other federal programs.

While some transportation-related provisions were preserved in the final bill, the loss of advanced refunding could be very costly for local infrastructure programs. The tax-exempt status of Private Activity Bonds (PABs) was preserved, though rumors are already spreading that this issue could be raised again during the infrastructure debate next year. Despite some early confusion in media reports, commuter benefits were also largely preserved. The key change is that employers who provide parking or transit benefits will no longer be able to write them off. The Association for Commuter Transportation (ACT) does not expect major impacts from this change because most benefits are provided as a pre-tax program and employers will continue to receive payroll tax benefits. ACT also sees that many employers who subsidize these benefits do so to retain their workforce and not to receive a tax write-off.

Other changes are likely to have more significant impacts. The bill eliminates advance refunding bonds, which allow cities and others to refinance existing debt to capture lower interest rates. This will not directly impact borrowing for projects, but it will prevent cities from saving funds for additional infrastructure projects. Additionally, the cap on local property and income tax deductions could put additional pressure on tax rates or make future increases more difficult to achieve. This could have negative consequences on the ability of cities to fund future infrastructure projects.

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