WASHINGTON — Senate Republicans have proposed an alternative bill to extend expiring tax-law provisions that would not include Build America Bonds, a major difference from pending legislation, which would extend the BAB program by two years while gradually reducing its subsidy rate to 30% from 35%.
The Republican bill also does not include another provision in the pending legislation that would extend the two recovery zone bond programs by one year and allocate an additional $25 billion of bond authority for them.
Sen. John Thune, R-S.D., introduced the Republican alternative last week, saying it would eliminate “harmful tax increases and wasteful spending included in the Democrats’ bill.”
“The best way for Congress to keep this nation moving forward is not by raising taxes, but cutting spending and reducing our $13 trillion national debt. It is time for Congress to set clear budget priorities and begin to cut wasteful spending programs,” he said in a statement.
Thune’s bill comes as Democrats must pick up support from at least one Republican to obtain the 60 votes needed to invoke cloture, to limit debate and proceed with the legislation. The measure was narrowly approved by a vote of 215 to 204 in the House on May 28 and sent to the Senate where Democrats had hoped it would be passed before the July 4 recess.
The pending legislation that had been approved by the House would extend the program for two years, but lower the subsidy rate to 32% for BABs sold in 2011 and 30% for BABs sold in 2012.
The Congressional Budget Office estimated the BAB extension would cost $4 billion over 10 years, and the recovery zone extension would cost $2.4 billion over that period.
The legislation has been bogged down in the Senate as Democrats are trying to cobble together enough revenue-raising provisions to offset the costs of the bill.
Democrats in the Senate, House, and within the Obama administration have repeatedly touted the BAB program as a huge success story, saving states and localities billions of dollars while creating jobs nationwide. However, several high-ranking Senate Republicans, including Senate Finance Committee ranking minority member Charles Grassley of Iowa, have criticized the program on a number of fronts.
Grassley has charged that Wall Street underwriters make more in fees on BABs as compared to tax-exempt debt — although that gap has been narrowing in recent months — and that the program actually rewards issuers with lower credit by giving them higher subsidy payments.
Although the GOP proposal would allow the popular BAB program to expire at the end of the year, it includes several other muni bond provisions in the pending legislation, including a pair of one-year extensions. One would exempt tax-exempt bonds from the alternative minimum tax, while the other would expand to $30 million from $10 million the small-issuer exception that allows banks to deduct 80% of the costs of buying and carrying tax-exempt debt sold by borrowers whose annual issuance does not exceed that amount.
Both of those provisions were enacted as part of the American Recovery and Reinvestment Act, and are currently slated to expire at the end of the year.