Paul L. Caron

Wednesday, July 27, 2022

No New Tax Cuts? Examining The Rescue Plan's New State Tax Limits

Conor Clarke (DOJ; Google Scholar) & Edward G. Fox (Michigan; Google Scholar), No New Tax Cuts? Examining the Rescue Plan's New State Tax Limits, 103 Tax Notes St. 1361 (Mar. 28, 2022):

Tax-notes-stateIn this article, Clarke and Fox examine the American Rescue Plan Act’s restrictions on state tax cuts, arguing that the restrictions are a variation on more familiar maintenance-of-effort provisions. These provisions are common, and are designed to help ensure that federal grants supplement rather than supplant state spending by requiring the state to maintain its level of spending on a program. Clarke and Fox conclude that the Rescue Plan’s requirements create similar incentives, and argue that the similarity makes it more likely that the act’s tax provisions are consonant with the Constitution’s spending clause.

The purpose of this article is to put ARPA’s tax provision in context. Viewing it as an MOE provision that sits at a level higher than a single activity, we think, helps clarify what it gives states and what, if anything, it takes away. It is not unusual for states to give up federal grants or subsidies when they cut taxes — an observation that may be helpful in thinking more generally about whether ARPA’s tax provision is consonant with the spending clause.

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