I suspect that there are many surprises in the Covid Relief Bill that was just passed by Congress (and expected to be signed by the President this afternoon). However, there is one surprise that caught my attention.
Reason reported the following yesterday:
Buried within the $1.9 trillion emergency spending bill that Congress sent to President Joe Biden’s desk on Wednesday is a provision that could effectively block states from cutting taxes if they accept federal bailout dollars.
That provision, added to the bill by the Senate last week, could put a halt to several states’ plans to cut taxes this year as a way to stimulate economic growth following the COVID-19 pandemic. Depending on how the text is interpreted, the measure could also make it illegal for states to create new tax credit programs like the ones that have become a popular mechanism for expanding school choice. Critics say this expansion of federal control over state policymaking is murky at best, and potentially unconstitutional.
First of all, I am not convinced that even one-tenth of our current Congress has read the U.S. Constitution, so why would they worry about passing a bill that is unconstitutional?
The article continues:
First, the basics: The COVID-19 relief-bill-that-isn’t-really-a-relief-bill contains $350 billion earmarked for state governments, local governments, and Native American tribes. That money is supposed to help governments fill temporary budget holes created by the pandemic—even though the funding vastly exceeds actual state and local budget shortfalls, as Reason’s Christian Britschi has previously reported. States are in such non-dire straits, in fact, that about $150 billion of the state aid distributed as part of last year’s Coronavirus Aid, Relief, and Economic Security (CARES) Act hasn’t even been spent yet.
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.
Stay tuned. I suspect that as time goes on we will find many more legislative gems in this bill.