Many are concerned that states accepting money from the State and Local Fiscal Recovery Funds could be prohibited from implementing tax cuts between now and 2024, the Tax Foundation reports. And they have reason to be.
The American Rescue Plan Act allocates $350 billion to state and local governments, including nearly $3.2 billion of which would go toward Louisiana’s state government. States have seen revenue declines of just $2 billion, meaning the state aid component is 116 times greater than overall losses. Thus, states will have to identify other ways to spend a large infusion of one-time money.
Some might like to use the money for tax relief, but Senate amendments prohibit that. There are other restrictions, too, raising serious questions of how states are supposed to spend these dollars if they can use them only in limited ways.
The real problem, though, isn’t the direct prohibition on spending some of the $350 billion on tax relief, but on broad language about indirect funding of tax relief that could capture tax reforms that don’t actually rely on American Rescue Plan funding. Ultimately, it could bring about an astonishing level of federal interference in states’ fiscal affairs.
Read the full report to consider several scenarios in which the act might impede a state’s ability to set its own fiscal policy with regard to tax reform.
