President Biden, House Speaker Pelosi, and Senate Majority Leader Schumer sent a clear message in their latest COVID relief bill: Increased government spending is fine but cutting state taxes is unacceptable.
In an attempt to prevent states like Iowa from letting residents keep more of their money, the $1.9 trillion American Rescue Plan Act prohibits using any of the $350 billion in State and Local Fiscal Recovery Funds to cut taxes. As written, the bill prevents states from using relief funds "to either directly or indirectly offset a reduction in net tax revenue" that results “from a change in law, regulation, or administrative interpretation during the covered period 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."
In other words, they are banning tax cuts. (President Biden is also proposing the first major federal tax increase in 30 years. We will dig into that another day.)
This is an astonishing level of federal interference in each state's fiscal affairs.
Georgia Governor Brian Kemp, a Republican, boldly said, "Democrats in Washington and in the White House are not going to tell me, or the Georgia General Assembly, that we can’t cut taxes for hard-working Georgians."
Grover Norquist, President of Americans for Tax Reform, thinks this is an attempt to prevent state tax competition. He writes, "Failed governors and mayors hate that their citizens and job-creating businesses are moving to lower-tax, better-governed states. They evidently convinced Democrat congressmen and Senators to try and use federal muscle to prevent a reduction in pro-growth states' taxes. Tax-hiking Democrats have trouble getting elected in pro-taxpayer states. So now they are trying to kneecap the growing and competitive states from Washington."
Jonathan Williams, Executive Vice President, Policy and Chief Economist of American Legislative Exchange Council, says individual states are "laboratories of democracy" and, "Restricting states from providing pro-growth net tax relief tips the balance of federalism significantly in the direction of the federal government, and its one-size-fits-all central planning."
ITR has joined other state policy organizations to send a letter to the Secretary of Treasury Janet Yellen. In the letter, we share that Article I of the U.S. Constitution gives Congress broad authority to raise taxes and spend monies for the general welfare. However, that broad authority must be read considering our federalist system of government, which reserves all other powers to the states and the people. The 10th Amendment to the U.S. Constitution provides: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
The letter continues:
"If broadly implemented, the Act will, in fact, undermine state sovereignty by handing over to the federal government the states’ sovereign right to create state budgets, tax structures, and taxation levels that are accountable to their citizens.
With that as background, as your department implements Section 602(c)(2), we respectfully request you ensure that states have the clarity and freedom they need to decide whether to accept the funds allocated to the states in Section 602 without, as Chief Justice Roberts wrote, the proverbial “gun to the head” that rendered the funding contingent on Medicaid expansion in the Patient Protection and Affordable Care Act unconstitutional."
We need your help!
Some Iowa lawmakers and even Governor Kim Reynolds' team are working hard to resist this overreach of the federal government. Sign our petition to help us send a message to Washington.