GOP-led states are trying to use federal COVID funding to decrease tax liability

05 July 2022

Republican lawmakers in more than 20 states are now attempting to se federal COVID relief funding to decrease their states' tax burdens, according to a new report published by The Washington Post. However, Republican lawmakers are faced with opposition from the White House due to stipulations on how the funds can be spent.

Per The Post: "More than a year after Congress approved a $1.9 trillion coronavirus relief package, Republicans in nearly two dozen states have ratcheted up efforts to tap some of those funds for an unrelated purpose: paying for tax cuts. The moves have threatened to siphon off aid that might otherwise help states fight the pandemic, shore up their local economies or prepare for a potential recession."

However, Congress also included a number of conditions to better govern how the $350 billion in COVID funds are spent to make it clear that "the federal government would not subsidize state tax cuts." Now, Republican leaders and lawmakers are engaging in legal practices to challenge those tax cut prohibitions. The news outlet highlighted the "legal wrangling" in Florida as an example of what's occurring.

In Florida, the legal wrangling has enabled DeSantis and his political allies to leverage about $200 million in federal coronavirus aid to help pay for a planned suspension of the gas tax this October, according to state budget documents. Lawmakers essentially adopted a law that deposited its allotment under the stimulus program into the state’s general fund, then appropriated the money for the tax holiday, records show.

Many Republicans condemned and opposed the passing of the Democrat-backed bill for additional COVID relief funding. While many publicly criticized Democrats' desires to spend, describing it as "wasteful," they appear to be working tirelessly to spend the same money now. Speaking to The Post, multiple tax professionals weighed in on the creative ways lawmakers have found to circumvent the stipulations.

“States are always creative in how they come up with tax cuts and create workarounds,” said Lucy Dadayan, leader of the Tax Policy Center's State Tax and Economic Review project. She also attributed the budget cuts to “federal funds and the strong growth in revenues.”

Jamie Yesnowitz, a top state tax lawyer at the Illinois-based law firm Grant Thornton, also explained why states are pushing to control their own fiscal policies.

“States want the power to put in their own policies and be able to set fiscal policy the way they want,” said Yesnowitz. “They don’t want to be stifled by this provision that essentially says, ‘Hey, the federal government is going to give you this money, but there are significant strings attached to it.’”

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