Opinion: Democrats to States: No New Tax Cuts

Senate Majority Leader Chuck Schumer holds a press conference on the COWIDA aid and rescue package approved by the Senate, New York, March 7.


Lev Radin/Zuma Press

Democrats in Congress are not satisfied with spending $1.9 trillion to help blue states and union bosses. They also launched a sneak attack on conservative states. Read their laws off by heart: No new tax cuts at the state level.

That’s according to a provision added by Democrats in the Senate last week that places restrictions on how states and local governments can use the $360 billion. States may use the proceeds to provide public services, cover lost revenues during a pandemic, and respond to a health emergency or its adverse economic effects, including by providing assistance to households, small businesses and non-profit organizations, or by supporting affected sectors such as tourism, travel and hospitality.

Most of it will inevitably go to union pension funds, which are underfunded in states like Illinois, New Jersey and Connecticut. To protect themselves from GOP attacks, Democrats stipulated in the bill that the bailout funds could not be used to contribute to a pension fund. But the money is ridiculous. The states can pay for the pensions out of their general funds and use the federal funds for other things.

Majority Leader

Chuck Schumer

In addition, the amendment contained a provision that allowed states to use federal funds to pay bonuses of up to $13 per hour (and $25,000 total) to employees who perform as much work as determined by each state’s governor.

But here’s a political punch in the gut. The bill specifically prohibits tax cuts. States may not use these funds to offset, directly or indirectly [our attention], a reduction in net tax revenues resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces a tax (through a rebate, deduction, credit, or otherwise) or delays the levy of a tax or a tax increase.

Wow. Democrats in Washington are trying to dictate to the governors and legislators of the states that they may not change their tax laws if they accept their share of the $1.9 trillion. The massive ban will last until 2024, and the bill gives the Treasury Secretary

Janet Yellen.

the right to adopt rules where necessary or appropriate.

The wording is broad enough to prevent states from changing their tax laws in a way that reduces revenue, even if they do not use federal funds as direct compensation. Much will depend on how indirectly Ms. Yellen defines herself. States that do not comply with this interpretation must repay federal funds.

Several states, including West Virginia, Mississippi, Arkansas and Idaho, are considering tax cuts to attract people and businesses. Some GOP lawmakers also want to start or expand private school choice programs that offer tax breaks to companies and individuals who donate money for scholarships. The Treasury Department may say that this policy is against the law. The Democrats in the Beltway are essentially preventing Republican-led states from becoming more competitive than high-tax Democratic states.

California Democrats recently approved $600 stipends for low-income residents and undocumented immigrants, and these stipends, along with other support for liberal districts, appear to be authorized by law as budget support. Corporate tax cut? This is not possible.

The constitutionality of this approach can be questioned. The Supreme Court’s anti-traffic doctrine prohibits Congress from using federal funds to coerce states. But even if the tax cut ban does not meet the Court’s legal test for coercion, it remains a blatant violation of constitutional federalism. The Democrats failed to recapture the home states in the 2020 election, but now plan to control them from Washington anyway.

Newspaper article: Senate Democrats ignore bipartisanship and agree to image: Samuel Corum/Getty Images

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Appeared in the print edition of 10. March 2021.

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