Republican attorneys general from 21 states, including Indiana, are questioning a provision in the $1.9 trillion pandemic rescue plan that bars states from using its funds to offset tax cuts.
In a letter to Treasury Secretary Janet Yellen on Monday, they said the prohibition is “unclear, but potentially breathtaking”—airing concerns that any tax cut could be construed as taking advantage of the pandemic relief funds.
The attorneys general list over a dozen instances of states currently considering new tax credits or cuts that they believe could be jeopardized simply because of the relief funds.
“We ask that you confirm that the American Rescue Plan Act does not prohibit States from generally providing tax relief,” wrote the coalition, led by Georgia, Arizona and West Virginia.
The aid plan, approved by Congress in close party-line votes and signed by President Joe Biden last week, includes $195 billion for states, plus separate funds for local governments and schools.
White House Press Secretary Jen Psaki said Monday that Biden expects the relief funds to not go toward decreasing taxes.
“The original purpose of the state and local funding was to keep cops, firefighters, other essential employees at work and employed, and it wasn’t intended to cut taxes,” she said at a briefing.
The Treasury Department did not immediately return an email requesting comment.
In West Virginia, Republican Gov. Jim Justice has applauded Congress for passing a massive stimulus but railed against the provision amid his push to cut the state personal income tax.
“Congress may not micromanage a state’s fiscal policies in violation of anti-commandeering principles nor coerce a state into forfeiting one of its core constitutional functions in exchange for a large check from the federal government,” Republican West Virginia Attorney General Patrick Morrisey said in a statement.
Signing on to the letter were Arizona, Georgia, West Virginia, Alabama, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah and Wyoming.
Three Republican members of the U.S. Senate introduced a long-shot bill on Tuesday to eliminate the provision.
“If a state like Idaho wants to provide tax relief in the interest of economic recovery, and to help people return to earning their livelihoods, the American Rescue Plan says it will be financially punished by the federal government,” Sen. Mike Crapo of Idaho said in a statement.
5 thoughts on “GOP attorneys general question stimulus barring tax cuts”
Is this a permanent tax cut or is this a one time relief similar to the direct payments?
I don’t see how using one-time money to cut taxes, which will fiscally impact the state every year going forward, is a wise use of one time money. Where is that money going to come from the next year and the year after that?
If a state wants to temporarily offset for one year or provide direct payments, I’m fine with that.
You expected wisdom from the signatories?
This is all political propaganda with no substance, just like all of the other junk lawsuits our idiot AG has signed onto.
I do see how West VA might feel like the tax cut they were working on might get scrutiny. BUT, the key here is transparency. They were already working on the tax cut before they even thought they were going to get the money.
The federal government has no role in directing state tax policy. It is another move by Democrats to punish well runs states who could draw on rainy day funds to supplement periods where tax revenues fell. Most states including democratic run states are seeing tax revenues running above projections this year. If a state chooses to give this federal money to tax payers through tax cuts either permanent or temporary, that is a state decision. Our AG is right to stand up to federal efforts to over manage our state government.
States receive COVID stimulus money because they saw reductions in tax revenue as a result of COVIS. Of course states that cut taxes in light of reduced tax revenue should not be getting bailed out with federal money. Especially when you consider that most of these states take more federal money than they put in.