WASHINGTON—Insisting that Washington shouldn’t veto state tax cuts, Ways and Means Republican Leader Kevin Brady (R-TX) and House Committee on Oversight and Government Reform Republican Leader James Comer (R-KY) offered a new bill, the “State Tax Freedom Act,” during the pro forma session on Friday afternoon. The bill (HR 2189) pushes back against an unconstitutional provision inserted into the American Rescue Plan that restricts states’ ability to manage their own finances.
“States that have helped workers, families, and Main Street businesses through tax relief need greater flexibility, not shackles from the federal government,” said Rep. Brady. “Democrats rammed through an unconstitutional provision with no committee hearings or input from the states, and this bill will protect states’ freedom to make their own fiscal decisions.”
“Economists across the political spectrum agree the Pelosi Payoff to Progressives Act will hamper economic recovery and job creation,” said Rep. Comer. “The law rewards locked-down states due to their high unemployment rates and will hamper the economic recovery by prohibiting job-creating tax cuts in any state that receives a dime of funding relief from the law. The State Tax Freedom Act repeals the Democrats’ blatant attack on states’ rights and allows states to lower taxes for their residents.”
The State Tax Freedom Act will repeal the prohibition on states’ freedom to lower taxes if they receive money from the American Rescue Plan Act’s Coronavirus State Fiscal Recovery Fund. Additionally, the bill will make whole any state that is harmed by this provision, by requiring that Treasury refund the state any money that was clawed back due to the state cutting taxes.
Treasury Secretary Janet Yellen has so far not been very responsive to these concerns or provided much clarity or guidance on what restrictions states face.
Republican leaders in the House wrote to Treasury urging clear guidance when the provision was discovered to have been inserted in the bill prior to the President’s signature.
Specifically, the provision appears to impose coercive restrictions on states, prohibiting them from “directly or indirectly” taking actions that would “reduce net revenue” if the states receive even a dime of federal State Fiscal Recovery Funds. Furthermore, this prohibition may apply for a period that extends through December 31, 2024. We have heard from many stakeholders concerned about the apparent breadth of this provision, which was included in ARP without the benefit of committee hearings, a legislative markup, or any input from affected stakeholders.
Rep. Brady issued a joint statement with the Senator Mike Crapo (R-ID), the top Republican on the Senate Finance Committee:
“The response to concerns raised by the state Attorneys General or in our letters has so far been entirely inadequate. As states make important fiscal decisions about how to crush the virus and help businesses and workers, there can be no room for confusion about this unconstitutional law that allows Washington to intimidate states into a tax relief ban for the next three years. Treasury must provide prompt and clear guidance to avoid undermining states’ authority to design their own tax system.”