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Op-Ed: States embracing tax cuts, but
Congress headed in wrong direction
By David Williams | The Taxpayers Protection Alliance.
Because of this strong link between tax cuts and growth, policymakers
should be especially wary about reckless spending on the federal level
as a way to “help” people.
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 Nearly all Americans have felt the impact of
“stimulus” spending signed into law by Presidents Donald Trump and Joe Biden.
Inflation has topped 8 percent and prices for everything from food to gas to
timber for home construction has soared through the roof. For all the financial
turmoil inflicted on U.S. households, federal and state policymakers are making
extraordinarily poor use of this newly printed money ... for the most part.
Fortunately, some governors and state lawmakers have decided to give these
dollars back to the American people in the form of tax relief. More politicians
should learn from their example, while making sure that spending is kept under
control.
According to a July 5 report from The Washington Post, elected officials
(primarily in red states) are using federal relief funds to cut a variety of
taxes. For example, Florida Gov. Ron DeSantis (R) used these dollars to pause
the state’s fuel taxes and deliver $200 million in relief to Floridians.
Mississippi lawmakers signed onto a plan to lower top state income tax rates to
4 percent from 5 percent, while Georgia is set to flatten its brackets and
reduce rates from 5.75 percent to 4.99 percent. Even blue states have been
getting in on the action. Illinois has enacted a property tax rebate of $300 per
homeowner and New Jersey is pioneering an ambitious $2 billion property tax
relief program. Policymakers have been especially sensitive to their
constituents’ concerns about spiking grocery prices. Illinois, Kansas, and
Tennessee are leading the charge to roll back grocery taxes.
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State and local tax cuts spurred by federal funds have proven controversial
because the American Rescue Plan Act (ARPA) bars states from, “directly or
indirectly offset[ting] a reduction in net tax revenue” using Fiscal Recovery
Funds. However, federal courts have found that this language impermissibly
coerces states by denying them their fiscal autonomy and goes far beyond normal
“strings attached” to federal spending packages. In addition, Congress failed to
clarify the meaning of an “indirect offset,” a troublingly vague phrase with
disturbing implications. Under a broad reading of that text, a state or local
tax cut enacted three years post-ARPA could be struck down because ARPA funds
indirectly freed up long-run funds for tax cuts. The legal fight over the
language in ARPA is far from over, but for the time being, states seemingly have
a free hand to cut taxes as they wish.
And that’s a good thing, because tax cuts are linked with bolstered growth and
prosperity over the long term. According to a comprehensive 2022 review of the
evidence by the Tax Foundation, “[r]esearch almost invariably shows a negative
relationship between income tax rates and gross domestic product (GDP).” Reduced
rates do far more than make the country’s economic accounting look rosier.
Flattening tax brackets and lowering rates is linked to higher real wages and an
increased, “likelihood of an employed head of household obtaining a better job
within a year...”
Because of this strong link between tax cuts and growth, policymakers should be
especially wary about reckless spending on the federal level as a way to “help”
people. Persistently high deficits will eventually require higher federal taxes,
effectively cancelling out tax cuts at the state and local level. Congress can
avoid this scenario by signing onto a sustainable deficit reduction program that
zeroes out unneeded spending such as the wasteful F-35 program and
out-of-control farm subsidies. Americans can reap the reward of lower taxes at
all levels of government, but only if lawmakers embrace fiscal responsibility.
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