Nearly 2 Dozen GOP States Are Trying to Use COVID Relief Funds for Tax Cuts

Republican leaders in nearly two dozen U.S. states are attempting — potentially in violation of federal law — to use coronavirus relief funds approved by Congress last year to finance tax cuts instead of devoting the money to combating the ongoing pandemic and its economic consequences.

The Washington Post reported Tuesday that GOP officials are working to subvert a provision in the American Rescue Plan (ARP) that bars states from using money from a $350 billion Covid-19 aid program “to either directly or indirectly offset a reduction in the net tax revenue.”

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

Whitney Tucker and Coty Novak of the Center on Budget and Policy Priorities noted earlier this year 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.”

“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 Covid-19 recession,” Tucker and Novak observed. “Iowa, Mississippi, South Carolina, and West Virginia are pushing for income tax cuts that would deliver outsized gains to wealthy residents and profitable corporations.”

The Post’s Tony Romm reported Tuesday 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 in the pandemic.”

“More than a year after Congress approved a $1.9 trillion coronavirus 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,” Romm wrote. “The moves have threatened to siphon off aid that might otherwise help states fight the pandemic, shore up their local economies, or prepare for a potential recession.”

The Biden Treasury Department has emphasized 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, Republican attorneys general are still fighting the law, claiming that it limits their states’ fiscal flexibility.

“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,” Romm reported. “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.”