Obama's tax break plan not directed at munis-Treasury nominee

Wed Feb 13, 2013 7:46pm EST

Feb 13 (Reuters) - President Barack Obama is not aiming his proposal to cap the value of tax breaks at the exemption for municipal debt, but he is looking into ways to generate revenue and revamp the tax code, U.S. Treasury Secretary nominee Jack Lew said on Wednesday.

"The administration's proposal which would have limited the value of deductions in the ... top tax bracket to 28 percent was designed to try and restore some equity in the tax code and to generate revenue that we need for meeting our fiscal targets," Lew told the U.S. Senate Finance Committee.

"It wasn't specifically directed at municipal bonds or at other specific areas of tax activity."

Concerns that policymakers in Washington could change the tax-exempt status of municipal debt has been hanging over the $3.7 trillion U.S. municipal debt market for months.

State and local officials have been lobbying to leave the exemption untouched as the muni market provides them with cheap loans from investors who earn income on debt payments free from federal taxes.

At the confirmation hearing, Senator Maria Cantwell, a Democrat from Washington, asked about Obama's intention to cap municipal bonds' exemptions. Lew said that the President's primary commitment was tax reform.

"It was also meant to be a placeholder that we really should have tax reform and we should make specific policies deciding what's in and what's out and what the proper tax rates are," he said. "But we put it in as a fall-back, saying that if tax reform doesn't happen, this is something that would help us to get to the revenue targets we need.

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