A Last-Minute Add to Stimulus Bill Could Restrict State Tax Cuts [View all]

[MissMillie]

WASHINGTON — A last-minute change in the $1.9 trillion economic relief package that President Biden signed into law this week includes a provision that could temporarily prevent states that receive government aid from turning around and cutting taxes.

The restriction, which was added by Senate Democrats, is intended to ensure that states use federal funds to keep their local economies humming and avoid drastic budget cuts and not simply use the money to subsidize tax cuts. But the provision is causing alarm among some local officials, primarily Republicans, who see the move as federal overreach and fear conditions attached to the money will impede upon their ability to manage their budgets as they see fit.

Officials are scrambling to understand what strings are attached to the $220 billion that is expected to be parceled out among states, territories and tribes and are already pressing the Treasury Department for guidance about the restrictions they will face if they take federal money.

Under the new law, $25 billion will be divided equally among states, while $169 billion will be allocated based on a state’s unemployment rate. States can use the money for pandemic-related costs, offsetting lost revenues to provide essential government services, and for water, sewer and broadband infrastructure projects.

But they are prohibited from depositing the money into pension funds — a key worry of Republicans in Congress — and cannot use funds to cut taxes by “legislation, regulation or administration” through 2024.

Democrats slipped the new language into the legislation last week after several senators from the party’s moderate wing expressed concern that some states would seize on the opportunity to use emergency relief money to subsidize tax cuts. They worked with Senator Chuck Schumer, the majority leader, on language for the amendment, according to a Democratic Senate aide.

https://www.msn.com/en-us/news/politics/a-last-minute-add-to-stimulus-bill-could-restrict-state-tax-cuts/ar-BB1exbYF?li=BBnb7Kz

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Makes sense to me.