More than three dozen state-based and national public policy organizations wrote to the Secretary of the U.S. Department of the Treasury to express concerns that the American Rescue Plan Act unconstitutionally undermines the power of states to determine their own tax laws. In the letter to Secretary Janet Yellen, the heads of 42 different groups argued that many states were already considering tax changes and the proposal creates significant confusion about whether policymakers could go ahead with these pre-planned changes or future policymakers would be able to make reforms.
“We are concerned that, 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,” the letter states.
“How long will the prohibition on tax reductions in the several states be imposed by the federal government?” the letter asks. “The Act allows for funds to the states to be used through December 31, 2024. This year, two states will elect governors and state legislators. In 2022, 36 states will elect governors, and most will have state legislative elections. Will newly elected officials be precluded from implementing an agenda that includes tax cuts? Does this impact automatic tax cut triggers enacted in states? Additional states are already in the midst of considering tax reductions or expansions to tax credits— considerations that though not yet enacted were developed and considered before Congress appropriated aid money to the states.”
Groups like the Texas Public Policy Foundation are suggesting alternate solutions on how states can better use the funding, such as building the border wall, paying down state debt, and reforming post-state employment benefits.