President-elect Donald Trump's promise to rebuild the nation's infrastructure is resonating with Republican and Democratic lawmakers, but could spell trouble for municipal bonds.
Trump has proposed a $1 trillion, 10-year infrastructure plan, which he touted during his victory speech.
"We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals," he said. "We're going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it."
House Minority Leader Nancy Pelosi said Wednesday that infrastructure is one area on which she and Trump can agree.
But Trump's plan relies on $137 billion of tax credits that he would ask Congress to authorize and that has drawn concerns from some muni market participants.
"The little we know about Trump's plan is that it focuses on tax credits," said Jessica Giroux, BDA's general counsel. "Our concern is that it says nothing about munis."
Trump wants to pay for infrastructure through repatriation pf companies' overseas earnings.
Companies would be able to bring overseas earnings back to the U.S. at Trump's proposed reduced tax rate of 10% rather than the current 35%. With the credits, companies could avoid any tax liability by investing $122 million of the repatriated profits in infrastructure projects, Ross and Navarro said.
Repatriation would take away a significant amount of tax revenue available for tax reform, thereby increasing the pressure on Congress to look even harder at cutting tax deductions and exemptions.
Transportation groups also have some concerns about Trump's infrastructure plan. Bud Wright, executive director of the American Association of State Highway and Transportation Officials, said tax credits are not a long-term solution.
"We're sort of agnostic about the tax credits," Wright said. "We're not opposed to the idea, but it is not the long-term funding solution that we need to repair the deficit in the Highway Trust Fund."
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