States want to use federal stimulus payments to fund tax cuts
Some U.S. states want to use the economic aid delivered under the federal government's recently passed coronavirus package in order to cut taxes. The problem: The $1.9 trillion American Rescue Plan Act, which provides states with hundreds of billions in assistance, bars using the emergency funding for tax relief.
More than a dozen states are considering new tax credits or cuts that could be jeopardized because of the relief funds. Some of these cuts have been planned for a while, and others are just starting to be pursued. West Virginia, for instance, has been looking to cut its state personal income tax following the successful rollout of the vaccine in that state and an improving economy.
"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.
Republicans press Yellen for answers
Morrisey, along with 20 other republican state attorneys general, on Monday sent a letter to Treasury Secretary Janet Yellen questioning the provision in the pandemic rescue plan that bars states from using their stimulus funds to offset tax cuts.
In the letter, the Republican state officials 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.
"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 Mr. Biden doesn't expect the relief funds to be used to lower 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 respond to 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," 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.