Tax-exempt bonds escape the axe and the scalpel in House tax bill

The fate of the municipal bond tax exemption appears secure ? at least for now ? under the first detailed glimpse of a tax bill released Monday afternoon by the House Ways and Means Committee.

It's the document that the municipal market has been anticipating and worrying about for months. A late January House menu targeted the tax exemption as a potential way to help cover the costs of the sweeping tax package. The possibility set the muni market on edge.

"We are thrilled" that the committee "left the tax exemption untouched in its initial tax draft," said Brett Bolton, vice president of federal legislative and regulatory policy at the Bond Dealers of America.

"However, now is not the time to take the foot off the gas as this is just the starting point to the broader debate with sticky and expensive issues such as SALT yet to be really worked out," Bolton said. "We plan to continue conversations on both sides of the capitol to work to ensure the tax exemption remains untouched throughout this process."

The 389-page legislation will likely change as it moves through the legislative process and over to the Senate. Ways and Means will begin marking up the bill Tuesday afternoon.

In 2017, the Ways and Means Committee print of the Tax Cuts and Jobs Act "contained several threats to the municipal market that did not make it into the final bill," noted JPMorgan (JPM) in a Monday morning note. That included the elimination of tax-exempt private activity bonds and tax-exempt stadium bonds, both of which were saved in the Senate version, unlike tax-exempt advance refundings, which were permanently eliminated.

The bill would lift the state and local tax deduction cap, which proved to be among the bill's biggest sticking points, to $30,000 from the current $10,000, phased-down for those making more than $400,000. The so-called SALT caucus already said its members would not support the reconciliation bill unless it lifted the cap more than the $30,000 proposal.

The bill calls raising the endowment tax rates for certain universities, boosting it to 7% and up to 21% from 1.4%.

It would increase the debt limit by $4 trillion and features President Donald Trump's campaign promises of no taxes on tips or overtime. It eliminates several tax credits authorized under the Inflation Reduction Act, including the investment and production tax credit programs.

Under budget instructions, the House bill cannot raise the deficit by more than $4 trillion over 10 years unless there are additional cuts.

Ways and Means released its preliminary tax draft Friday night. The bill carries a price tag of around $5 trillion, according to the Joint Committee on Taxation. That's more than the $4.5 trillion allowed under the budget resolution passed in April.