Republicans wanted to use relief funds for deep tax cuts, but Democrats got involved

In nearly two dozen U.S. states, Republican leaders are attempting to use relief funds approved by Congress last year to finance tax cuts instead of devoting the money to combating the ongoing economic consequences from the last few years. This would be potentially in violation of federal law.

GOP officials are working to subvert a provision in the American Rescue Plan (ARP) that bars states from using money from a $350 billion aid program “to either directly or indirectly offset a reduction in the net tax revenue,” according to a report.

“The moves have threatened to siphon off aid that might otherwise help states deal with problems, shore up their local economies, or prepare for a potential recession.”

Just days after President Joe Biden signed the ARP into law, last March, 13 Republican state attorneys general sued the Biden administration over that provision, decrying it as an “unconstitutional assault on state sovereignty.” Since then, in the nearly year and a half, the GOP officials filed suit, numerous Republican states have moved to slash taxes, often in ways that primarily benefit rich households and profitable businesses.

Earlier this year, it was noted by Whitney Tucker and Coty Novak of the Center on Budget and Policy Priorities, that Iowa, one of the states that joined the legal action against the Biden administration, replaced its “graduated personal income tax with a flat 3.9% tax while retaining credits and deductions that would allow wealthy Iowans to pay even less.”

Tucker and Novak observed that “Lawmakers in multiple states are pushing deep tax cuts as states see stronger-than-expected revenues driven largely by the federal government’s robust fiscal response to the problems. Iowa, Mississippi, South Carolina, and West Virginia are pushing for income tax cuts that would deliver outsized gains to wealthy residents and profitable corporations.”

It was reported by Tony Romm from the Post, that “as gas prices climbed toward record highs this May, Florida Gov. Ron DeSantis (R) secured a pause on the state’s fuel taxes, a $200 million plan he helped pay for with a pot of federal funds awarded earlier.”

“More than a year after Congress approved a $1.9 trillion relief package, Republicans in nearly two dozen states have ratcheted up efforts to tap some of those funds for an unrelated purpose: paying for tax cuts. The moves have threatened to siphon off aid that might otherwise help states deal with problems, shore up their local economies, or prepare for a potential recession,” wrote Romm.

It was emphasized by the Biden Treasury Department that the ARP only prohibits states from using federal funds to pay for tax cuts, not from pursuing tax cuts at all.

But, as Romm pointed out, claiming that it limits their states’ fiscal flexibility, Republican attorneys general are still fighting the law.

“In a flurry of court filings, many of the states argued for the ability to move money around freely—plugging federal dollars into various parts of their budgets, for example, then using the savings to pay for state tax cuts. Republicans have won nearly every federal lawsuit, convincing judge after judge that the rules are unconstitutional. The Treasury Department repeatedly has appealed, but the decisions, for now, have left the Biden administration unable to enforce the rules in much of the country,” Romm reported.