Paul L. Caron

Friday, March 12, 2021

Biden's COVID-19 Stimulus Bill Prohibits States From Cutting Taxes

Wall Street Journal editorial, Democrats to States: No New Tax Cuts:

Democrats in Congress aren’t satisfied with spending $1.9 trillion to help blue states and union friends. They’ve also launched a sneak attack against conservative states. Read their legislation’s lips: No new state tax cuts. ...

[H]ere’s the political gut punch. The bill explicitly bars states from cutting taxes. States “shall not use the funds,” the bill says, “to either directly or indirectly [our emphasis] offset a reduction in the net tax revenue” that results “from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.” ...

The language is so expansive that states could be limited from making any changes to their tax codes that reduce revenue even if they don’t use federal funds as direct offsets.

Eric Boehm, Federal COVID-19 Bailout Prohibits States From Cutting Taxes:

Buried within the $1.9 trillion emergency spending bill that Congress sent to President Joe Biden's desk on Wednesday is a provision that could effectively block states from cutting taxes if they accept federal bailout dollars.

That provision, added to the bill by the Senate last week, could put a halt to several states' plans to cut taxes this year as a way to stimulate economic growth following the COVID-19 pandemic. Depending on how the text is interpreted, the measure could also make it illegal for states to create new tax credit programs like the ones that have become a popular mechanism for expanding school choice. Critics say this expansion of federal control over state policymaking is murky at best, and potentially unconstitutional. ...

Even if this bill passes constitutional muster, however, it's clearly a coercive provision that ties the hands of state policymakers. If Congress doesn't want states to use bailout dollars for certain purposes, it could more easily accomplish that goal by simply not bailing out states that don't need the help.

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