Washington – A Last Minute Change $ 1.9 trillion economic relief package President Biden has included a provision signed into law this week that could temporarily withhold states that receive government assistance from turning and cutting taxes.
The ban, which was added by Senate Democrats, aims to ensure that states use federal money to keep their local economies humming and avoid drastic budget cuts and only money to subsidize tax cuts. Do not use. But the provision is causing alarm among some local officials, mainly Republicans, who see the move as a federal exaggeration and a fear of funding hurdles that will hinder their ability to manage their budgets. Look fit
Officials are scrambling to understand what wires are attached to the $ 220 billion that is expected to be a parcel between states, territories and tribes, and for guidance about sanctions already in place if they take federal funds Treasury departments are pressing.
Under the new law, $ 25 billion will be divided equally between states, while $ 169 billion will be allocated based on the state’s unemployment rate. States can use the funds for epidemic-related costs, compensate for lost revenue to provide essential government services, and for water, sewer, and broadband infrastructure projects.
But they are prohibited from depositing the funds into pension funds – a major concern of Republicans in Congress – and cannot use the funds to cut taxes through 2024 by “legislation, regulation or administration.”
Several senators from the party’s liberal wing expressed concern that the opportunity would be seized by some states last week to use emergency relief funds to subsidize tax cuts. He worked with Majority Leader Senator Chuck Schumer on the language for the amendment, according to a Democratic Senate aide.
Senator Joe Manchin III, a West Virginia Democrat, explained why he pushed for language in a briefing this week, arguing that states should not cut taxes at a time when they need to combat the virus More money is required. He urged the states to postpone their plan to cut taxes.
“How in the world would you cut your revenue during an epidemic and still need dollars?” Mr. Manchin said.
Senator Ron Weiden, a Democrat from Oregon, said the money meant “hiring teachers and firefighters and stopping the panic of state and local services that we saw during the Great Recession.”
“It is important that the railings be used to block these funds, which can be used to cut taxes for those at the top,” he said.
But some Republican-led states are pointing to the explicit prohibition as a violation of their sovereignty and calling for that part of the law to be repealed. They see the need that states avoid tax cuts as an unusual intervention by the federal government in tax policy.
“This is an intrusion into how traditionally we balance our budgets, it will be a state progressive,” said Ben Watkins, director of the Florida Division of Bond Finance. “If they want to give us this money to deal with Kovid, they should attach it to us without any strings attached.”
Funding for state and local governments was one of the most controversial issues during the talks, with Republicans stating that Democrat-led states were being rewarded for mismanagement of their finances and as a “blue-state bailout” Support labels were being put in place.
The latest law raised concerns that a state allocates money Is based on a formula that considers its unemployment rate Instead of its population. Conservative-leaning states, many of which had low coronovirus restrictions and did not cease to be business activity, claim they are essentially being punished for prioritizing their economies during epidemics.
But initial analyzes of the bill suggest that both conservative-leaning and liberal-leaning states will receive large portions of cash. California, Florida, New York and Texas each will receive more than $ 10 billion in aid Tax Foundation Tally.
Still, the tax language has angered Republicans – none of whom voted for the rescue package – and on Thursday, Republican Senator Mike Braun of Indiana introduced legislation to overturn it.
“Broans said, Democrats are trying to prevent states from cutting taxes with a stealth amendment to the $ 1.9 trillion so-called Kovid relief package,” Mr. Braun said. “Not only did this blue-state bailout bill punish states to reopen by calculating state funds based on unemployment, they now use it as a backdoor to ban states from cutting taxes. Trying. “
Sanctions have created an apprehension for states, while Many cities are facing budget crisis, State finances have become relatively healthy.
A New York Times Analysis This month found that, on balance, state revenue was generally slightly up or down compared to 2019, the previous year, as expanded unemployment benefits allowed consumer spending and tax revenue to keep flowing.
“Idaho will subsidize potentially poorly managed states only because we are using our record budget surplus to pursue historical tax relief for our citizens.” Brad Little of Idaho said this week. “We attained our record budget surplus after years of responsible, conservative governance and quick action during the epidemic, and our surplus must be returned to Idahoans as I proposed.”
Jim Justice, a Republican Republican from West Virginia, criticized Mr. Manchin In an interview this week With CNN.
No. The so-called Pecuniary effect payment Not considered as income. In fact, they are technically an advance on a tax credit, known as a recovery rebate credit. Payments can indirectly affect what you pay in state income taxes in a handful of states, where federal tax is deducted toward state taxable income, as our colleague Ann Cairns wrote. Read more.
Mostly. Unemployment insurance is generally subject to federal as well as state income tax, although there are exceptions (nine states do not impose their own income tax, and another six are exempt unemployment payment tax-wise. Tax Foundation) Belongs to. But you will not pay the so-called payroll taxes, which pay for Social Security and Medicare. If your income is less than $ 150,000, the new relief bill will make the first $ 10,200 profit-tax free. It is applicable till 2020 only. (If you have already filed your tax, see IRS for guidance.) Unlike a paycheck from an employer, taxes are not automatically withheld for unemployment. The recipient must select into it and even when they do, federal taxes are withheld at a flat rate of only 10 percent. While the new tax break will provide a cushion, some people can still pay the IRS or some states’ money. Read more.
Maybe not, Unless you are self-employed, is an independent contractor or gig worker. The overhaul of the tax law at the end of 2019 eliminated the home office deduction for employees from 20125 through 2025. “Employees specifically receiving a salary or W-2 from an employer are not eligible for the deduction, even if they are currently working from home,” The IRS said. Read more.
Self-employed people can take Paid care leave If their child’s school is closed or their normal child caretaker is unavailable due to the outbreak. It works similarly to small sick leave credits – 67 percent of the average daily income (either for 2020 or 2019), up to $ 200 per day. But caregiver leave can be taken for 50 days. Read more.
Yes. This year, you can cut Up to $ 300 For charitable contributions, even if you use the standard deduction. Previously, only those who could claim these deductions were involved. Donations must be made in cash (for these purposes, this includes checks, credit cards or debit cards), and may not include securities, household items, or other assets. For 2021, the deduction limit for joint filers will be doubled to $ 600. The rules for the item became even more lenient. The limit for charitable donations has been suspended, so individuals can contribute from 100 percent to 60 percent of their adjusted gross income. But these donations should be made in cash for public donations; The old rules, for example, apply to contributions made to donor-advised funds. Both provisions are available through 2021. Read more.
“He is hurting his own people in the state of West Virginia,” Mr. Justice said. “I do not condemn it.”
The provision is also raising questions about what exactly is the tax deduction and whether the law can prevent states from other types of tax relief. The language of the legislation seems to offer a slightly ambiguous room to the states.
Jaird Valsak, vice president of state projects at the Tax Foundation’s Center for State Tax Policy, said the fine print in the law has raised many complex questions for states that, in some cases, will be awarded money for things that They either do not need or that they already have a plan to pay out of their budget. It is not clear, for example, if a state could use aid money for coronovirus-related spending that was already planning to offer tax credits with additional surpluses.
“If the federal government intends to implement any kind of revenue negative tax policy, whatever its size, because a state receives some funding, that would be a radical federal entanglement in the state’s fiscal policy.” Which may be beyond the intended purpose, ”Shri. . Valkiak said.
Such a question would largely hinge on whether Treasury Secretary Janet L. How Yellen interprets the law and what the Treasury Department gives to the states.
A department official said that the law states that funds cannot be used to compensate for a decrease in net tax revenue as a result of tax cuts to states and territories receiving aid because the funds are used to support public health response Sorting and cutting for public services is done to do and avoid. More guidance on the case is coming, the official said.
This lack of clarity also increases the risk that states use funds for projects or programs that are not actually eligible under the law and are then forced to repay the federal government. States are required to submit regular reports to the Treasury Department to show how funds are being spent and to make any other changes that they have made to their tax codes. The department will also set up a system of monitoring how the funds are being used.
Emily Svenson Brock, director of the federal liaison center at the Government Finance Officers Association, said that qualified uses of federal aid seem relatively limited for states and some may find it challenging to deploy funds in something truly useful. way.
“It’s complicated for the states here,” Ms. Brock said, adding that her organization had sought an explanation from the Treasury Department. “Congress is reaching these states and telling how they cannot use that money.”
Before they receive federal money, states must produce a certificate promising to use the money in accordance with the law. They can also decline funding or, if they are set on tax cuts, they can compensate them with other sources of revenue that do not include federal money.
For many states, federal funds are welcome, even if they are not required for public health purposes.
Speaker of the Minnesota House of Representatives, Melissa Hortman, said she expected the federal government to allow states to use the money for lost revenue from the virus. He suggested that the state should make new investments in education and transportation. Minnesota is expected to have a budget surplus for the next two years and receive more than $ 2 billion in aid.
“It’s not too much money,” said Ms. Hortmann, a Democrat. “Our country has lived through a hundred-year epidemic just once.”