A Provision in the New Coronavirus Relief Bill May Ban State Tax Relief
In trying to prevent his own state from using federal aid funds to expand its planned tax cut, Senator Joe Manchin may have turned the American Rescue Plan into a legal mess. One of the major expenditures in the law is $350 billion for the state, local, and territorial governments, including about $200 billion for states alone. Manchin, aware of ongoing tax reform efforts in his own state, as well as others, wanted a provision inserted that barred states from using these relief funds to pay for tax cuts.
But here’s the thing: a strict reading of the provision in question would suggest that it prevents states from doing a wide range of things, including uncontroversial reforms or changes to plans that had already passed. That’s probably not what Manchin intended. But the provision, which prevents states from using relief funds to “directly or indirectly” offset reductions in net tax revenues might have that effect. The provision was likely phrased this way because state funds are fungible, and a ban on using relief funds “directly” to offset revenue reductions could easily be circumvented. Yet including the word “indirectly” creates far more issues than it solves.
