Buried in the 628 pages of the $1.9 trillion so-called COVID-19 emergency spending bill passed Wednesday is a provision that effectively could prevent states that receive bailout cash from cutting taxes.
Several states are planning tax relief with the aim of stimulating the economy amid the pandemic, notes Reason magazine’s Eric Boehm.
However, he points out, the measure could make it illegal for states to create new tax credit programs such as the ones used to expand school choice.
Critics charge the expansion of federal control over state policymaking could be unconstitutional.
The Wall Street Journal editorial board suggests the provision could violate the Supreme Court’s “anti-commandeering” doctrine, which prohibits the federal government from dictating policies to states.
Among the many reasons why critics insist the bill isn’t more welfare than COVID relief is the $350 billion earmarked for state and local governments, and Native American tribes.
The money supposedly is to help governments fill temporary budget holes created by the pandemic. But the funding greatly exceeds state and local budget shortfalls. Further, about $150 billion in state aid from last year’s Coronavirus Aid, Relief, and Economic Security Act hasn’t been spent.
State lawmakers have two options for the excess federal cash, Boehm explained: increase government spending or lower the tax burdens of citizens.
But the Senate inserted language in the bill saying states “shall not use the funds provided … to either directly or indirectly offset a reduction in the net tax revenue.”
Nor can states 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 biggest losers, Boehm wrote, are states such as Mississippi, New Hampshire and West Virginia that were planning tax cuts next year.
They now might have to worry about being sued.
“This is terrible, this is absolutely terrible,” Republican West Virginia Gov. Jim Justice said Tuesday.
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