Federal aid could hobble new state tax cuts and credits
By Paul Bonner
A condition attached to $350 billion in relief for state and local governments by the American Rescue Plan Act (ARPA), P.L. 117-2 — that states may not use the money to offset their own tax reductions — may prove problematic, and is perhaps unconstitutional, tax practitioners said.
ARPA’s Coronavirus State Fiscal Recovery Fund appropriates $220 billion in fiscal year 2021 for states, U.S. territories, and Tribal governments to mitigate the fiscal effects of the COVID-19 pandemic, available through the end of 2024. Another $130 billion is earmarked for similar payments to cities, counties, and other local governments (Section 9901 of ARPA, Title IX, Subtitle M). The funds may be used for a broad range of state and local governmental costs and aid, assisting households, small businesses, and not-for-profit organizations. The money may be used for grants and premium pay to essential workers, infrastructure investments, and aid to pandemic-affected industries such as tourism, travel, and hospitality.