The Stimulus Bill Specifies States Cannot Use Covid-19 Aid to Cut Taxes. They Sued.

Mish

Five states filed a lawsuit against a provision in the $1.9 trillion stimulus bill that Biden recently signed.

Showdown Over the American Rescue Plan

A last-minute provision added to the $1.9 trillion American Rescue Plan prevents states from using the money directly or indirectly on tax cuts.

The Wall Street Journal reports Five States Filed a Lawsuit against that provision. 

Republican lawmakers and attorneys general argued the provision, which would apply for three years, is overly vague, unconstitutional and would unfairly penalize states in good fiscal health. Five states have filed lawsuits seeking an injunction against the provision—the first hearing is scheduled for the end of the month—and Republicans in Congress have introduced legislation to repeal it.

“It is potentially a significant restriction on state fiscal authority, and some of that may come down to the Treasury guidance,” said Jared Walczak, vice president of state projects at the conservative-leaning Tax Foundation. “If this became a broad restriction, that raises serious constitutional questions.”

One issue is how the federal government defines “indirectly.” If states use federal aid to pay teachers and firefighters, for example, then use the savings to lower taxes, that could be considered an indirect tax cut, Mr. Walczak said.

It is unclear how far that logic would extend. Among the questions states have asked: Would policy changes, such as new tax incentives for businesses, be considered indirect tax cuts?

Money is Fungible

The stipulation effectively says states that accept any money cannot cut any taxes for three years. 

Idaho, Utah, Arizona and North Carolina, and West Virginia were weighing tax cuts for the coming fiscal year and now they can't if they accept any stimulus money.

Treasury Secretary Janet Yellen offered this cop-out. States can reduce taxes if they offset the revenue. 

Effectively, states can reduce taxes if they raise other taxes. 

The Journal noted that Ms. Yellen acknowledged that defining what it means to use the aid as a revenue offset is tricky. “Given the fungibility of money, it’s a hard question to answer,” she told the Senate Banking Committee on March 24.

No Place or Time for Nonsense

There is no need or place for this kind of nonsense. 

Democrats allegedly want bipartisan legislation then cram this kind of nonsense straight down Republicans' throats. 

Note that Republicans have done similar things in the past with abortion funding rules. Such provisions went nowhere because money is fungible.

This time, however, Democrats added the "directly or indirectly" provision provoking the lawsuit.

Mish

Comments (35)
No. 1-7
Sechel
Sechel

Yea, its non-sense. Congress intended to fund expenditures not tax cuts. Sure money is fungible but it seems like bunch of states prefer to issue tax cuts than spend mone on projects intended by the bill. I'll leave it to legal experts to sort it out.

NotaSheep
NotaSheep

This Congress and this administration are working overtime to federalize every function they can get their hands on. States and local governments are about to be rendered useless. Just wait for the summer of love riots, oops, can't use that word, "insurrections" and the push for a "national police force" for "fairness."

Democrats, and their Republican waifs (Romney, et al.) are part of a criminal conspiracy against the Constitution and have been for nearly a century.

Zardoz
Zardoz

Let them cut taxes, on condition they won't ever receive disaster relief again.

Carl_R
Carl_R

The answer here is easy enough. The states that are fiscally healthy should make plans to remain fiscally healthy. During Covid, they no doubt spent down their "rainy day" funds (the governmental equivalent of a savings account). They should run a surplus, and put the excess back into the rainy day fund. Then they should explain to their voters what they are doing and why.

Treat voters as capable and understanding, and just tell them "Look, we are running a surplus, and we'd like to give you a tax cut, but the Federal Government says we can't, so we are building up our rainy day fund. In three years, the restrictions on tax cuts will cease, and by then we should be in outstanding fiscal health, and in a position to give a tax cut."

Tex272
Tex272

Since when did a Federal, or State, passed "Bill Specifies" mean anything?

whirlaway
whirlaway

It is money from the Federal government and it can dictate how it is used. If you don't like the conditions, don't take it! But, no. These regressive oligarch ass-kissers want to give their bosses more tax cuts with it.

5 Replies

Carl_R
Carl_R

Just curious, but why do you care what a state does with it?

lamlawindy
lamlawindy

Yes, the feds can dictate what the States do with the money, but "if Congress intends to impose a condition on the grant of federal moneys, it must do so unambiguously." Pennhurst State Sch. & Hosp. v. Halderman, 451 U.S. 1, 36 (1981). Unless "indirectly" is more precisely defined in the statute -- and I doubt that these plaintiffs would be bringing this claim if there was such a precise definition -- I would venture to say that the statute is impermissibly vague. The fact that the Treasury Secretary admits to the vagueness before a congressional committee is excellent evidence of this fact.

lamlawindy
lamlawindy

I can't speak for @whirlaway but would surmise that s/he believes that -- as a federal taxpayer -- his/her money should not be used by the States for things that s/he dislikes. In this instance, it would appear that @whirlaway would argue that the State tax cuts would go to the "bosses" of "oligarch ass-kissers," who presumably are not deserving of such tax cuts.

I can certainly understand the impulse -- as a federal taxpayer -- to resist the use of federal funds by the States for things that I consider ill-targeted, immoral, or gravely evil. For example, I like the Hyde Amendment because I don't want my federal tax dollars (via federal Medicaid dollars to States) paying for the dismemberment and death of unborn children, since I believe abortion is a grave evil. I'm not a fan of the use of my federal taxes for waging the war on drugs, though I admit that such a use is not a grave evil but a well-intentioned yet ill-targeted pursuit.

Carl_R
Carl_R

I understand that, but is lowering taxes a "grave evil", or "immoral"? Does it matter what taxes the state reduces? For example, suppose a state eliminated sales taxes on food. Would that be a "grave evil"?

Personally, I don't really care what the states do with the money. Each state has it's own situation, and is in the best position to determine it's own needs. For example, consider a state that uses the money to shore up pensions. In the absence of the Federal money, they would need to do a tax increase to fund the pension, so using the Federal money would be identical to doing a tax increase to fund the pension, and then using the Federal money to reduce the taxes.

lamlawindy
lamlawindy

I wouldn't call reducing taxes to be evil or ill-considered. To be sure, I'd call ANY population-wide tax reduction good, as by its nature it is returning money to people & not being spent by politicians with their own personal or political motives.

It's certainly a wise view on your part to leave the States to make their own decisions regarding any federal funds they receive. I would say that your view parallels the 10th Amendment to the U.S. Constitution & shows an appreciation for subsidiary, the idea that lower levels of government are best-equipped to complete certain tasks.

Personally, I echo your views up to the point where a policy would constitute a grave evil. In other words, I think that the States should spend federal money on whatever they want unless it causes the intentional killing or maiming of an innocent human being, born or unborn. That means abortion or forced sterilization would be out, but it still leaves a wide berth for States to act.


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