Republican States Trying to Use Covid Relief Aid to Cut Taxes

Republicans in nearly two dozen states are trying to use Covid relief funds to cover the cost of tax cuts, The Washington Post reports.

The $1.9 trillion American Rescue Plan approved by Congress last year bans the use of relief funds to directly or indirectly offset the cost of tax cuts but nearly two dozen Republican-led states have tried to do just that.

In fact, Republican attorneys general in 21 states have sued for the power to overturn the Biden administration’s policy. Most of the lawsuits have been successful so far.

The Treasury Department has been left unable to enforce the rule as an appellate court is scheduled to hear its argument in one of the cases later this year.

Major trend:

At least 24 states have cut income, sales, or excise taxes over the last two years, according to the report, primarily cutting individual income rates.

“None of the cuts appear to rely directly on federal pandemic aid, though some states paid for the rate reductions out of broader savings achieved thanks to federal coronavirus funds — or, at least, the economic improvements that Washington-led investments helped bring about,” The Post reported.

“Much of the movement on tax reform and tax relief began before any court had ruled on the tax mandate,” Jared Walczak, the vice president of state projects at Tax Foundation, told the Post. “However, the multiple court decisions favoring the states has created more comfort around tax relief.”

Trouble ahead:

The moves could spell trouble for states ahead of a possible recession.

“Once the states run out of the federal funds, then they are going to face challenges to fill the gap for lost revenues,” Lucy Dadayan, the leader of the State Tax and Economic Review project at the Tax Policy Center, told the Post.

Others criticized the states for not using the money for public health measures.

“You have to look at the opportunity cost of what else they could have done with American Rescue Plan dollars,” said Esteban Santis, a budget analyst at the Florida Policy Institute.


Related News