The Local Infrastructure Financing Tools (LIFT) Act introduces a new mechanism to finance public infrastructure by establishing a direct federal credit for issuers of "American infrastructure bonds." This credit, payable by the Treasury, covers a percentage of each interest payment, starting at 42 percent for bonds issued between 2026 and 2030 and gradually decreasing to 30 percent by 2033. A key feature is that while the issuer receives this credit, the interest income from these bonds becomes taxable to the bondholders , effectively redirecting the federal subsidy from investors to the entities undertaking infrastructure projects. To qualify as an American infrastructure bond, 100 percent of the proceeds must be used for capital or operations and maintenance expenditures related to infrastructure, and the issuer must make an irrevocable election. Projects financed with these bonds are also subject to Davis-Bacon Act wage requirements . The bill also allows for current refundings of these bonds under specific conditions, though the applicable credit percentage for such refunding bonds is capped at 30 percent. Furthermore, the LIFT Act amends existing provisions related to municipal bonds. It modifies the rules governing advance refunding bonds , specifying conditions for their issuance, including limits on the number of refundings and redemption timelines, and explicitly prohibiting abusive arbitrage transactions. These changes aim to provide greater flexibility for state and local governments to manage their debt. Finally, the legislation permanently increases the small issuer exception for financial institutions regarding tax-exempt interest expense allocation rules. This limit is raised from $10 million to $30 million and will be adjusted annually for inflation starting in 2026, benefiting smaller governmental entities and non-profits by reducing the tax burden on financial institutions that hold their bonds.