LIFT Act
- Sponsor
- Rep. Sewell, Terri A. [D-AL-7]
- Committees
- Ways and Means Committee (primary)
- Last action
- May 15, 2026
Bottom line
The LIFT Act introduces a direct-pay bond program to incentivize infrastructure investment and adjusts existing municipal bond rules to further support state and local government financing.
What it actually does
This bill establishes a new federal tax credit for issuers of 'American infrastructure bonds,' which are taxable bonds used for capital or operations and maintenance expenditures on public infrastructure. The credit, paid directly by the Treasury to the issuer, aims to reduce borrowing costs for state and local governments. It also modifies rules for advance refunding bonds and permanently increases the small issuer exception for tax-exempt interest expense allocation rules for financial institutions, making it easier for smaller entities to issue tax-exempt debt.
Proponents argue
Proponents argue that the bill will significantly lower the cost of financing critical infrastructure projects for state and local governments by providing a direct federal subsidy, making more projects financially viable. They contend that direct-pay bonds are more efficient than traditional tax-exempt bonds because the subsidy is explicit and directly benefits the issuer, rather than being diffused through the bond market to investors. The inclusion of Davis-Bacon Act requirements ensures fair wages for construction workers on these federally supported projects.
Opponents contend
Opponents might argue that introducing a new direct-pay bond program adds to the federal deficit and creates a new federal entanglement in local financing decisions. They may also contend that the existing tax-exempt bond market is sufficient and that direct-pay bonds could distort the market or lead to less fiscal discipline among local governments. Concerns could also be raised about the administrative complexity for the Treasury and issuers in managing the credit system.
The bill is relatively short and its core provisions are understandable, but the technical tax code amendments require careful reading for full comprehension.
Section 2, amending Internal Revenue Code of 1986 by adding new Section 6436
Credit for American Infrastructure Bonds
This provision establishes a new refundable tax credit for state and local government issuers of 'American infrastructure bonds.' The credit is a direct payment from the U.S. Treasury to the bond issuer, equal to a specified percentage (starting at 42% in 2026 and decreasing to 30% by 2033) of the interest paid on these bonds. These bonds must be used for capital or operations and maintenance expenditures on public infrastructure, and their interest is taxable to bondholders, unlike traditional municipal bonds.
Supporters argue
Supporters argue this credit provides a more efficient and transparent way to subsidize infrastructure, directly lowering costs for local governments and stimulating economic activity through new projects. The taxable nature of the bonds broadens the investor base, potentially increasing demand.
Critics contend
Critics may argue that this direct payment mechanism represents a significant federal expenditure that adds to the national debt and could create an over-reliance on federal subsidies for local projects. Some may prefer the traditional tax-exempt bond market structure.
Tradeoffs
The provision balances the goal of stimulating infrastructure investment and lowering local borrowing costs against concerns about federal spending and potential shifts in the municipal bond market from tax-exempt to taxable instruments.
Section 3, amending Section 149(d) of the Internal Revenue Code of 1986
Modification of Advance Refunding Bond Rules
This section modifies the rules governing 'advance refunding bonds,' which are bonds issued to refinance existing debt more than 90 days before the original bonds are redeemed. The bill generally prohibits advance refunding for certain private activity bonds and imposes stricter conditions on other bonds, including limitations on the number of refundings and requirements for present value debt service savings. These changes aim to curb practices that could be seen as abusive or primarily for arbitrage rather than genuine debt management.
Section 4, amending Section 265(b)(3) of the Internal Revenue Code of 1986
Permanent Increase in Small Issuer Exception for Financial Institutions
This section permanently increases the cap for the 'small issuer exception' from $10 million to $30 million. This exception allows financial institutions to deduct interest expenses incurred to carry tax-exempt obligations issued by small governmental units. The bill also includes an inflation adjustment for this $30 million limit for calendar years after 2026 and modifies special rules for qualified 501(c)(3) bonds and qualified financing issues, making it easier for smaller entities to issue tax-exempt debt without financial institutions facing disincentives.
This clause mandates that projects financed with the proceeds of American infrastructure bonds must comply with the requirements of the Davis-Bacon Act (Subchapter IV of chapter 31 of title 40, United States Code).
Section 2(d)(3)(D) of the new Section 6436 of the Internal Revenue Code of 1986
Why it matters:While standard for federal infrastructure funding, its placement within a technical bond definition section might be overlooked by those not scrutinizing the fine print. It is a common legislative practice to include such requirements in the conditions for receiving federal benefits.
Case for: Proponents argue that applying Davis-Bacon ensures that federal support for infrastructure projects translates into fair wages and labor standards for construction workers, preventing a 'race to the bottom' on wages and promoting quality work.
Case against: Critics sometimes argue that Davis-Bacon requirements increase the cost of construction projects, potentially reducing the number of projects that can be undertaken with a given amount of funding. They may contend it adds an unnecessary regulatory burden.
Estimated impact: This provision would ensure that all workers on projects funded by American infrastructure bonds receive prevailing wages and benefits, impacting potentially thousands of construction jobs nationwide.
This clause introduces an inflation adjustment for the $30,000,000 small issuer exception amounts, effective for calendar years after 2026. The adjustment is tied to the cost-of-living adjustment under section 1(f)(3) of the IRC, with a base year of 2025, and rounded to the nearest multiple of $100,000.
Section 4(c), amending Section 265(b)(3) of the Internal Revenue Code of 1986 by adding new subparagraph (I)
Why it matters:Inflation adjustments are often placed in technical sections as they are administrative details rather than core policy changes. Its placement is standard legislative practice for such provisions.
Case for: Proponents argue that indexing the cap to inflation ensures that the small issuer exception remains relevant and effective over time, preventing its value from eroding due to rising costs and inflation. This maintains the intended benefit for small governmental units.
Case against: No specific opposition is typically raised against inflation adjustments for such caps, as they are generally seen as good governance. However, some might argue against any expansion of tax benefits, even if inflation-adjusted, due to potential revenue loss.
Estimated impact: This provision ensures that the real value of the small issuer exception remains constant, preventing a gradual reduction in its benefit to small state and local governments and financial institutions over decades.