For state governments, the good news is that the American Rescue Plan recently signed by President Biden will inject $350 billion into their budgets. The bad news is that it places unwise and possibly unconstitutional limitations on how states can use the money.
According to the Rescue Plan, as part of a new law or regulation, states and territories “shall not use the [federal] funds to either directly or indirectly offset a reduction in the net tax revenue.” In other words, if states want the money, they can’t pass tax cuts.
If states want to speed job creation, no tax incentives. If they want to provide additional support to local businesses, no luck. And the rule applies through 2024, well beyond the time most observers think the pandemic will be over.
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