Since the federal government is giving states money that they don’t need, there are two things state lawmakers can do: Use the federal money to grow government spending or pass that extra cash along to taxpayers by lowering their tax burdens.
However, the Senate inserted language in the American Rescue Plan expressly telling 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.”
That same section of the bill also bans states from depositing the federal bailout into their public pension funds. That’s probably a good idea, but it’s pretty ironic considering that the American Rescue Plan also contains a completely indefensible bailout of some private-sector pension funds run by labor unions.
Author(s): Eric Boehm
Publication Date: 10 March 2021
Publication Site: Reason