WASHINGTON -- Nine months into the year, with no tax bill in sight, the outlook is darkening for an extension of the tax exemptions for mortgage revenue bonds and small-industrial development bonds, which are set to expire Dec. 31, congressional aides and municipal lobbyists said last week.
A few Capitol Hill watchers remain optimistic, saying it is still possible lawmakers could suddenly pull a bill together just before Congress adjourns toward the end of the year. But at this point, they say there is no hard evidence that will happen.
"There's a bleaker outlook for a tax bill [now] than there has been for several years," said Milton Wells, the director of federal relations for the National Association of State Treasurers. "I don't get a sense from people on the Hill that much of anything is happening."
"Members are beginning to get a little more concerned about the reability of the expiring tax provisions not passing, but it's a real question whether that level of concern has raised itself up enough to create a great deal of pressure for there to be a tax bill for that purpose," said Micah Green, the executive vice president of the Public Securities Association. "We're still in a wait-and-see mode."
The uncertainty at this point is unusual because, by September, Congress is normally about halfway through the process of drafting a tax bill. By law, the House Ways and Means Committee must act first, and it usually passes a tax measure in June or July. Often, the full House acts on the bill before the traditional August congressional recess. That leaves the fall for the Senate to act and for the two houses to reconcile differences in their bills.
But this year has been different. Congress is returning from its August recess this week with none of that having taken place, and the Ways and Means panel still has not announced any plans to begin drafting a bill.
Much of the inertia stems from the fact that no deficit reduction bill is being drafted this year. Over the past few years, the tax committees were required to put together revenue-raising bills to help lower the deficit, and they tacked onto those measures the extensions of expiring provisions. But last year, Congress crafted a multiyear deficit agreement that takes the pressure off the deficit problem, at least temporarily.
With not deficit reduction bill planned this year, backers of the expiring provisions have hoped that simplification legislation introduced several weeks ago by top tax leaders would form the basis for a tax bill this year. The legislation itself is something municipal bond proponents want to see passed because it contains a number of provisions that would ease municipal bond curbs.
One of the bill's authors, Ways and Means Chairman Dan Rostenkowski, D-Ill., has repeatedly said he would like to pass a tax simplification bill this year. But he also has warned he would do his best to stave off attempts by other law-makers to add extraneous amendments -- like extensions of expiring provisions -- to any simplification measure.
He has not announced when his committee will vote on the measure, but several aides to panel said they expect the committee to meet on the simplification bill in the next few weeks. They also expect that some panel members will try, over Mr. Rostenkowski's objections, to add those extensions to the measure.
If the simplification bill gets loaded down with too many extraneous provisions, however, lobbyists and tax aides said it was possible Mr. Rostenkowski could stop the process and wait until next year to try to pass the bill. "There is precedent for letting the expiring provisions die and picking them up next year," said an aide to a member of the Ways and Means panel.
Most sources said they expected little action on any tax bill through the fall. If lawmakers do pull one together, it probably would happen very quickly and just before Congress adjourns for the year. That adjournment date is still up in the air, and some tax aides are saying Congress could go home as late as November or December.
"This could be a year like 1988, where all of a sudden a very tightly crafted and very defendable bill comes together at the last moment," said an aide to a tax committee member. The aide was referring to the tortuous process in which both Houses had passed a tax bill but seemed unable to reconcile differences in the measures. Just when it looked as if there would be no tax bill, an agreement was reached in the last days of the session.
Despite the inaction so far, two proponents of mortgage bonds remain optimistic that tax exemption will be extended, because 362 House members and 88 senators have pledge to support bills that continue the authority to issue the bonds.
"We've supplied the congressional demand, and we have reason to think the tax committees will respond," said John T. McEvoy, the executive director of the National Council of State Housing Agencies.
"We are creating momentum such that this will be considered must-do legislation," said John C. Murphy, the executive director of the Association of Local Housing Finance Agencies. "We have history to support us, [showing] that Congress has found a way in the last three years" to grant short-term extensions for the group of about 12 expiring tax provisions.