The Democrats’ “COVID relief” bill bans states from lowering their taxes. Steve Scalise says they want every state to look like California and New York. It is true that this bill makes everyone in the country responsible for states that are reckless with spending. States that aren’t reckless can’t give any of the ‘relief’ money back to taxpayers.
Rep. Steve Scalise said: There was tucked away [in the COV relief bill] language that prohibits states from cutting taxes. Explain what that has to do with COVID. If your state, every state will get money from that bill. Again, California gets over $40 billion, even though they have a $10 billion surplus. But if a state tries to cut taxes, they actually get penalized in the bill.
The Senate inserted language in the American Rescue Plan that informs states that they “shall not use the funds provided…to either directly or indirectly offset a reduction in the net tax revenue,” or do anything 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 bill doesn’t categorically prohibit any changes to state tax policies, but “adjudicating what counts as indirect use to facilitate a tax cut is messy,” Jared Walczak, vice president of state projects at The Tax Foundation, a nonpartisan tax policy think tank, told Reason.
“States will receive federal aid regardless of their budget situation, and many potential uses of that funding could theoretically offset the need to spend state dollars. If that is enough to block a tax cut, states could find themselves barred from cutting taxes even though they could have done so without taking a dollar in state aid.”
And because the language also forbids states from using the federal bailout to forgo a potential tax increase, it may prohibit using the aid to repair state-level unemployment insurance trusts funds that have been dented by pandemic-related unemployment. Instead, states like Maryland might have to go through with a 600 percent hike in unemployment taxes despite getting a windfall from the federal government.
At the same time, there are huge bailouts for irresponsible blue states that will be paid for by taxpayers in other states that did the right thing.
Sen. Rick Scott: “What Andrew Cuomo and other governors want to do is they want the federal government to tax citizens in other states because they probably can’t raise the taxes anymore.” pic.twitter.com/qgt2HcIWb5
— The Hill (@thehill) May 25, 2020