States Should Choose Tax Cuts Over Federal Bailouts

Don't take the money.


Ohio is in many ways a perfect example of why a federal bailout of states was hardly necessary—and now it will become the focus of a legal battle over a federal power-grab hidden inside that bailout.

Last year, as the COVID-19 pandemic was accelerating and the U.S. economy was being locked down, Republican Gov. Mike DeWine said the state might have to drain its entire $2.7 billion rainy day fund to offset expected revenue losses. By this spring, however, things were looking much less bleak. Thanks to some wise spending reductions and a less-severe-than-anticipated revenue decline due to COVID, the state now seems likely to emerge from the pandemic without touching the rainy day fund at all.

The story is pretty similar in most states. Overall, state tax revenue declined by less than 0.1 percent last year, and billions of dollars in federal aid distributed to states remain unspent. Still, Ohio is set to receive more than $5.5 billion—twice as much money as is sitting in the state's untapped rainy day fund—from the American Rescue Plan (ARP), which President Joe Biden signed into law earlier this month.

To get it, all Ohio has to do is trade away control over tax policy for the next few years. States that accept the federal bailout are prohibited from using the money to "directly or indirectly offset a reduction in the net tax revenue" from policy changes between now and 2024. It's a provision that is both vague enough and potentially broad enough to block states from cutting taxes or making changes to tax credit programs without first getting permission from the federal government.

That "coercive" provision of the ARP "allows Congress to quietly impose its preferred tax policies without having to pay the full political price for doing so," argues Ohio Attorney General Dave Yost in a lawsuit filed in federal court last week. Other states are likely to join the lawsuit. Already, 21 Republican attorneys general signed a letter to Treasury Secretary Janet Yellen last week objecting to what they called "an unprecedented and unconstitutional intrusion" on state sovereignty.

Republicans' objections to the ARP's federal power-grab have merit, but they probably overstate the degree to which the federal money should be considered coercive.

The federal government is allowed to attach strings to grants provided to state governments (and it routinely does so). But the Supreme Court has held that such restrictions must be "unambiguous." In contrast, the ARP's state tax provision is incredibly ambiguous and is made more so by the fact that money is fungible.

"That prohibition on indirectly offsetting a state tax cut is extremely vague and potentially quite expansive," writes Jared Walczak, vice president of state projects at The Tax Foundation, a nonpartisan tax policy think tank. "It is very difficult to be sure what sort of uses of state aid might be interpreted as indirectly offsetting a net tax cut, even if the state had the resources to cut taxes in the absence of the federal assistance."

The Treasury Department will draw up its own guidance and enforcement rules, but the courts should be skeptical of laws that grant the executive branch such potentially broad power over state policy. And the courts historically have done so, including striking down the Trump administration's attempt to block federal grants to so-called "sanctuary cities" and blocking the part of the Affordable Care Act that required states to expand Medicaid eligibility in order to continue receiving federal funding for the program.

"If the executive can use vague statutes to impose its own grant conditions on state governments, it would give the president dangerous leverage to pressure the states and usurp Congress' power of the purse, thereby undermining both federalism and the separation of powers," writes Ilya Somin, a law professor at George Mason University.

The ARP's state tax provision seems to be a poorly written policy that rests on shaky constitutional and legal grounds. But Ohio's claim of undue federal coercion is more than a bit disingenuous.

"The Tax Mandate thus gives the States a choice: they can have either the badly needed federal funds or their sovereign authority to set state tax policy," lawyers for the state argue in their lawsuit challenging the ARP. "But they cannot have both. In our current economic crisis, that is no choice at all."

That's overstating things. Unlike, for example, the Affordable Care Act's attempt to arm-twist states into expanding Medicaid by threatening to hold hostage an already-existing and ongoing stream of federal funding, the bailout contained in the ARP is a one-time cash infusion that most states, including Ohio, don't need. In objecting to the string attached to the bailout, Ohio's lawyers are overtly asking federal courts to let the state have the money without the objectionable conditions. Instead, state lawmakers should just say no to the federal funds.

Of course, that should not excuse Congress for including an overly broad and probably unconstitutional provision in the ARP. But the best way for states to maintain control over their sovereignty is for them to assert responsibility for their own budgets by rejecting unneeded federal aid.

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  1. ***Spoiler Alert***

    They’re gonna take the money.

    1. My first reaction to that subhead was “Oh, Eric, you’re so cute!” and my second reaction was to see the comments. Now I’ll go read for my morning laugh.

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    2. Well, given that the Feds took it at the point of a gun from their citizens, they should. Then cut taxes anyway and dare Congress to do a fucking thing.

    3. At least the Blues states that get offered the money will.

      1. Why would you ever think that there would be a difference between how eager blue states and red states are in taking federal money?

        1. So you missed the whole media cycle of how evil, uncaring red states wouldn’t expand the ACA even though it was “free” huh?

          Yeap, definitely no sides for you buddy.

    4. Take the money. It’s a free lunch after all.

  2. The vice of power tightens……..

  3. “Here’s some of your citizen’s money to help in your emergency”
    (that you don’t have).
    By the way, your emergency will last through 2024.

    1. More accurately: “here’s some money we’re borrowing from your citizens”. Let’s not be naïve enough to think this is in any way paid for.

      I would think Libertarians would believe the right thing to do is turn the money in if it’s not needed. Lining our pockets with money borrowed from future generations is obscene.

      1. I think it would be more productive to fund an effort to wipe ou the progs.

  4. The idea that California, Illinois, New Jersey, or New York will stiff their public employee unions on their unfunded pension obligations–in the interests of cutting taxes–is childish and ridiculous.

    In the months leading up to the election, how often did we discuss the bailout of the states in comments–every day? The bail out of the states was not only foreseeable but also foreseen. Opposing a bail out of the states was an excellent reason to reelect Trump and keep the Senate in the hands of the Republicans, and to whatever extent you contributed to those losses, you are complicit in the bail out of the states.

    Some of these people are living in a dream world, where Trump losing, Biden winning, and the Republicans losing control of the senate somehow didn’t mean a bail out of the states, doesn’t mean the Green New Deal, doesn’t mean an assault on our gun rights, doesn’t mean a $3 trillion “infrastructure” bill, etc., etc. They want to dodge their own complicity in the Republicans’ losses.

    It’s fails.

    Buyer’s remorse is for people who are too stupid to see the likely consequences of their choices and people who are too dishonest with themselves to take responsibility for the choices they made. To whatever extent you helped make this bed, you did it on purpose and you are complicit. As the foreseen negative consequences of your complicity keep piling up, persisting in these pathetic dodges for your responsibility in them just makes people think you’re too dumb to learn from your mistakes.

    Grow up.

    1. Fuck Biden and Trump – both are commie traitors to this nation. I stand by my vote for Jo Jorgensen (granted she may have become a commie traitor but who knows).

      I didn’t cause either of those assholes to win or lose.

      1. You have to remember, Ken is the guy who, right after the election, insisted that it behooves all of us to assist Trump in spreading his lies of MASSIVE FRAUD to undermine the integrity of the electoral process itself, if it meant delegitimizing Biden in any way. So he’s fully on board with the catastrophizing caucus, where Biden represents the beginning of the end of the Republic itself. So OF COURSE if you didn’t vote for Trump, you’re complicit in destroying the Republic!

        1. You have to remember jeff is another TDS-addled shit and dumb as a rock, besides.

          1. I see Sevo took some time from jerking off to Sidney Powell rants to fling feces here.

            1. I see the asshole chipper assumes his erotic fantasies are of interest to anyone but him.
              Fuck off and die, lefty shit.

            2. No sides chipper everyone!

        2. Ahh yes. The principles one makes to ensure the one promising open authority wins. Such a principled stance!

        3. ChemJeff still doesn’t know what an ad hominem fallacy is or why they make him look so stupid–despite having his face rubbed in them over and over again like a dog that’s shit on the carpet again.

          Suffice it to say that the bailout of the states wouldn’t have happened if Trump had been reelected regardless of whatever accusations ChemJeff hurls at me personally. I repeat: dishonesty is not his primary feature.

          It’s his stupidity.

          1. Suffice it to say that the bailout of the states wouldn’t have happened if Trump had been reelected

            It wouldn’t have happened had JoJo been elected either.

            1. Jorgensen winning wasn’t one of the alternatives on November 3rd, 2020, and if you thought it was, then you’re stupid for that reason, too. There were only two possible outcomes, and one of them meant things like the Green New Deal, bailing out the states, and assault on our gun rights, etc., where the other one didn’t. You seem to believe and say a lot of stupid things. There’s a simple explanation for that.

              1. Ken, Ken, come now….. Jeffy is stupid for MANY reasons.

            2. Lol. It wouldn’t have happened if Cruz, howley, et al would have been elected either. They had the same chance as Jo. But your principles chose inaction against action.

              You think it is principled to stomp your feet and say no if a candidate doesn’t align to your views in the least. You think mean tweets are more disqualifying than actual actions towards liberty.

              And let’s top with the fake shit you pretend where you claim you are a neutral libertarian. You openly and only attack the right. You currently make excuses for the left and Biden. Then when called put as the bitch you are you hide under the guise of voting for Jo.

              You are an unprincipled leftist.

              1. Jesse actually posted this:
                ” You think mean tweets are more disqualifying than actual actions towards liberty.”

                Words fail, except to point out that you’re a fucking ignoramus.

                1. What didn’t you get from that. He think mean tweets are worse than Trump’s actual policies that reduced regulation, reduced taxes, etc.

            3. “It wouldn’t have happened had JoJo been elected either.”

              Nor if a unicorn had been elected, you TDS-addled shit.

            4. Here is basically what your principles did…

              Heads: GND, Higher Taxes, more Spending, More regulations, adoption of anti-racism and CRT, etc.
              Tails: Less taxes, more spending, less regulation, no new was, withdrawal from foreign conflicts, attacking anti-racism and CRT etc
              Edge: Less Taxes (maybe), more spending (Jo wouldn’t control Congress), Les regulation (maybe), and Anti-racism (CRT) in government

              You chose edge and yell muh principles.

            5. It wouldn’t have hard most of us in the comment section got elected too. Which would have been about as likely.

          2. Lol, the irony of Ken Shultz, resident blowhard nincompoop, to accuse Chemjeff of an ad hominem argument with an ad hominem argument. Go home, Ken.

            1. Fuck off and die, lefty asshole.

            2. No Sides Chipper reappears! Tired of your socks buddy?

        4. There was massive fraud. Time magazine bragged about it

        5. You know they are all lies, for a fact? Was there ever a thorough investigation performed by the DOJ regarding fraud in the 2020 election, the way it was for the “Russian collusion” hoax? With witnesses under oath? No, there was not, despite over 1000 witnesses willing to come forward and testify, under oath, regarding their witnessing of fraud. It was all quickly swept under the rug by Democrats and most popular news outlets. So, Biden is not the duly elected President, in my mind – he was “installed”, much like other banana republic leaders are.

      2. Fuck you, TDS-addled shit.
        Trump suggested a tax holiday instead of passing the money through the government grinder and TDS-addled shits like you made sure that didn’t happen.]
        Fuck off and die, asshole.

        1. Nationalizing private property and taxing illegally by executive order aren’t communist policies?

          1. Oh and for the record if I did live in a competitive state, I’d have voted for the communist traitor Trump. But I’d still call him the communist traitor that he is; that is how much I dislike Joe Biden.

            1. And you’d still be a TDS-addled shit, asshole. Thank you for Biden, you piece of shit.

              1. So you don’t know how the electoral college works and Maryland politics. Now I got it. Let me explain, my state of Maryland leans heavily Democrat especially on national elections (off years is how we get a Hogan or Erlich as governors), its also winner takes all. So my vote for Jo Jorgensen didn’t give Joe Biden 1 electoral college vote and if you take all the votes for Jo and any other odd ball character and give them to Trump, he still doesn’t beat Biden for control of Maryland’s electoral votes.

                Hope that explains it for you, you piece of garbage. If you’d take the time to pull your head out of Trump’s ass and get some oxygen then perhaps your brain might just function.

                1. They are simply upset that we didn’t sell out our principles like they did. We make them look bad every day when it’s pointed out to them.

                  1. You have no principles. You chose mean tweets as worse than actions working towards freedom you retarded fuck.

                  2. Oh wait… your primary principle is ignorance followed by cowardice. So maybe you are principled.

                2. “So you don’t know how the electoral college works and Maryland politics.”
                  You remain a TDS-addled shit. Fuck off and die.

          2. “Nationalizing private property and taxing illegally by executive order aren’t communist policies?”

            Made-up piles of shit constitute an argument, TDS-addled shit?

            1. So I just made up the rent cancellation that the Trump administration ushered in? Or are you saying that rent cancellation isn’t a communist policy? Or is it just not a violation of private property rights for the federal government to come in and cancel rent collection by private property owners?

              Same goes for taxing by executive order (granted that’s more dictatorial then communist – so perhaps I should have called your hero a communist dictator)?

              1. It wasn’t rent cancelation, it was eviction cancelation. And yes it was wrong. Sadly supported by both sides. But one side offered tax breaks, less regulations, and less federal expansion.

                You are falling for the perfection fallacy.

                1. “…You are falling for the perfection fallacy…”

                  This scumbag is flailing around, hoping that his TDS affliction is somehow excusable.
                  Hint, asshole, it isn’t.
                  Fuck off and die; the world will be a better place.

                2. No, I am not. I stated I would’ve voted Trump if my state electorate was different. I voted for Hogan and Ehrlich in my state, not because they are good libertarian Republicans but because O’Malley and Jealous. But that doesn’t change my opinion, fuck Trump that traitorous commie.

                  1. I hope you’re still rational enough to appreciate the perfect solution fallacy–because Trump and the Republicans weren’t ideal doesn’t mean they weren’t vastly superior to Biden and the Democrats on issues ranging from free speech to the Green New Deal and from gun rights to bailing out the states.

                    In fact, the subject of this post is an excellent example. The reason we didn’t have a new stimulus bill before the election is because the Democrats in the House refused to pass any bill that didn’t bail out state and local government and because Trump and the Senate Republicans refused to sign onto any bill that bailed out state and local government. The perfect choice simply wasn’t one of the options, but if Trump had been reelected, there wouldn’t have been a bailout of state and local government.

                    It’s one thing to say that you’re glad Trump lost even if it means the Green New Deal, an assault on our gun rights, and a $350 billion federal bailout largely going to pay for unfunded pension obligations for government employees in California, Illinois, New Jersey, and New York. However, if you’re saying that these awful things happening because Trump lost don’t matter because Trump was also imperfect, you’re wrong. The fact is that these things wouldn’t be happening if Trump hadn’t lost.

                    Because being left alone is the perfect option doesn’t mean getting punched in the stomach isn’t better than being shot in the face. There were only two possible outcomes, and being left alone wasn’t one of them.

                    1. Of course, Reason did worse than go for the perfect solution fallacy. I would have respected them if they went all in for Johnson in 2016 and Jorgensen in 2020. Instead, Reason columnists made it clear that they considered Clinton and Biden to be lesser evils than Trump. This is why many readers feel these Reason writers now “own” the assault on civil and economic liberties that Biden is now enacting.

                  2. Did miss this:
                    “I stated I would’ve voted Trump if my state electorate was different.”
                    Which is my mistake; apologies.
                    But you were quite clear there were no differences.
                    Are you familiar with stated/revealed differences?

      3. Yes, they will destroy the country, but I won’t be enabling them.
        To bad more don’t think that way, it could actually change things.

        1. I’m with you – I sent ripped pieces of my stimulus check to my senators with a red-marker, “STOP SENDING ME STOLEN MONEY CRIMINALS.” written on each piece 🙂

          Government is meant to stop the stealing of other peoples *earnings* yet somehow we have a government that IS the bank-robber themselves. It’s sickening how “communist” this country is.

      4. Tater, Tomater, Commie Traitor, Race Baiter, Masterbater.

    2. The fun part, and I will put $50 on this:

      In 5 years, after getting enough money to completely bail out the pension funds in New York, Illinois, and California … in 5 years they will still be insolvent. The money will get shuffled around, and fudged, and then pensions will be adjusted and expanded, cost of living increases, bonuses all around, and in the future they will need a steady trickle of federal dollars to keep them solvent. Why? Because, if you pay for a certain behavior, you get more of it!

      Anyone want to argue otherwise?

      1. Bleah, close italics after “insolvent”. My kingdom for an edit button!

      2. The worst part of this is the missed opportunity.

        Government will never cut spending until they have no other choice, and given the pandemic and the recession, governments like those in California, Illinois, New Jersey, and New York would have had no other choice but to lay off a multitude of government employees. Bill de Blasio was ready to lay off 22,000 government employees.

        “NEW YORK — New York City Mayor Bill de Blasio said the city is moving forward with “painfully real” plans to lay off 22,000 public workers on Oct. 1 unless another source of cash comes through.

        —-Politico, August 12, 2020

        Because of Biden and the Democrats’ bail out of state and local government, those layoffs aren’t happening anymore, and a zillion government employees being laid off is what it looks like when the government gets smaller.

        This is moral hazard writ large to the tune of a $350 billion bailout for misbehavior. It’s a shame what they’ll do with these funds in the future, but it’s even more of a shame when you think of how the government could have been made smaller without the bailout. Find me a libertarian who opposes making the government smaller, and I’ll find you a phony libertarian.

      3. I think this has to be like “Name that Tune” where we all have to go lower and lower on the timeframe until somebody gets the bet.

        4 years.

      4. Having the Power to Steal is pretty much the definition of Criminals.

  5. OT kind of: So the Pope, just cut the salaries of his employees. So when will states and federal employees see paycuts to help offset coronavirus spending?

    1. The difference is that the Catholic church can’t print money. Their boss may be almighty but he can’t magic their ledger into balance.

    2. Lol. They just gave their employees up to 12 weeks covid leave if their kids are effected by closed schools.

    3. When will you start acting as if you’ve hit age 15?

  6. They are right to fight this provision, but they are also going to take the money, for political reasons.

    It’s a lot easier for your political opponents to point out that you (or your party) turned down billions of dollars in ‘free’ federal money in the next election cycle’s attack ads, than it is for you to explain to voters why that money wasn’t ‘free’ at all.

    They can point to the neighboring states that took the cash, and what they used it for. They could create a laundry list of hypothetical goodies this money could have paid for. All you can do is point out the strings attached and why it might turn out to be a bad idea in several years time. That’s not as fun as the unicorn rides that your opponents are selling, not by a long shot.

    If you don’t think the average voter is unsophisticated enough to fall for free giveaways, just look at how many people apparently voted democrat in the last election (and especially the Georgia senate runoffs) because they thought they were getting $2000 checks for doing so. (Some thought it was $2k / week!)

  7. “Overall, state tax revenue declined by less than 0.1 percent last year, ”
    How is that possible? My former employer’s income dropped from $3.1 million to $(70,000) in 2020. That had to affect the amount paid to Penna. for corp. income tax. And it was an essential business that never closed, just suffered a revenue decline. How much worse was tax collections from non-essential businesses like hotels and restaurants that may have actually closed?

  8. Unfunded pension liabilities. All the states are taking the cash.

  9. Gee, I think there was a guy in the WH suggesting a tax holiday instead of bailouts, but he tweeted mean stuff, so we kept paying taxes and getting money back after the gov’t baksheesh was skimmed.
    Thanks, TDS-addled shits!

  10. Will politicians take free money that someone else will have to deal with the consequences of accepting?

    The world may never know.

  11. you’re beginning to amuse me on Shikha levels.

  12. Yeah great another libertarian wish list of things that will never happen.

    You know well that welfare and warfare are drugs.

  13. Let me get this straight. The federal government is giving money to states to improve infrastructure, expand healthcare access, and protect the vulnerable, but Reason thinks they should take that free money and give it to rich people and corporations.

    How much theft do you expect the American people to take before they go full socialist?

    1. Said by someone who doesn’t pay taxes.

    2. “Let me get this straight….”

      You’re a million brain cell shy of ‘getting straight’ what 2+2 equals, lefty pile of shit.

      1. The ability to regurgitate media narratives means Tony is smart.

        1. At least Tony is honest about his views unlike Jeff.

          1. ChemJeff doesn’t care if he’s right or wrong and isn’t smart enough to be able to tell the difference between them anyway.

    3. By give, you obviously mean not confiscating it in the first place, right?

  14. Theft is defined by law, and tax cuts aren’t defined as theft.

    Or, if we’re just able to use words appropriately, taxation is theft.

    Trying to have it both ways is convenient, yet obvious.

  15. Just remember trump is the totalitarian

  16. Leftists are scofflaws in drag so their approach is par for the course.

  17. Remember that Amendment that states, “The Federal government shall tax it’s citizens so they can pay bills that the State adds up?”

    Yeah; Me neither. I hope the SCOTUS ends ALL this unconstitutional federal commie-money pit of despair.

  18. Is anyone here actually defending the bailouts of state and local government?

    1. Well, Tony, but that’s the ‘tard 2nd cousin you keep in the attic.
      Other than that, nope, just plenty of folks claiming there is no difference between Trump and Biden, except for that issue oh, so important to adolescents: Personality!
      Trump loses! Droolin Joe wins; he’s not at all objectionable except for all of his proposed policies. So much better than mean tweets, right Jeff?

      1. And isn’t that pathetic?

        You’d think they were in favor of bailing out the states the way they’re acting, but all they really are is in favor of anything certain people are against.

        No justifications for the bailout anywhere except fucking Tony? How embarrassing for the left, and how embarrassing for erstwhile libertarians who can’t even begin to defend their positions as anything but anti-Trump.

        In another thread, they’re selling the First Amendment right to say inaccurate things about government contractors short–because Trump is involved. These people need deprogrammers. They’d support or oppose anything so long as it were pitched as being anti-Trump.

        1. “…You’d think they were in favor of bailing out the states the way they’re acting, but all they really are is in favor of anything certain people are against…”

          You’re no stranger to the dichotomy between stated and real preferences; ignoring the 2nd-cousin ‘tard in the attic, and regardless of the misdirection arm-waving, these are folks claiming they really didn’t want one thing while voting for, or campaigning against the other.
          But as always, stupidity regularly trumps cupidity; the low-watt bulb Jeff went so far as to claim voting for Jo was some sort of realistic alternative, as if anyone could credit that stand to someone with more than a room-temp IQ.

          1. He’s just an idiot.

            I’m seeing people who’ve been here for years acting like dupes.

            There’s no critical thinking going on with some of them at all. It’s all rationalizations for a gut feeling and lashing out at people who disagree. As if bailing out unfunded pension obligations were the right thing to do, from a libertarian standpoint, because Trump was bad?! This is how Leah Remini must have felt talking to her Scientology friends. Trump is gone and they still can’t get over their TDS.

            1. We have here a ‘personality cult’, and its certain that the TDS-addled shits would claim I was part of that cult. Nope, the ‘personality cult’ is the TDS-addled shit who are incapable of focusing on other than “personality’.
              Never considered the guy to be other than a lout and a loose cannon, but (expecting nothing other than a SCOTUS nomination far better than the hag would have given us), he ended up being the best POTUS in the last hundred years, regardless of being a lout and a loose cannon.
              One of the criteria in hiring for responsible positions regards the applicant’s ability to focus on important issues and ignore others. TDS-addled shits would never get hired here.
              “She knows how to get the job done” is a valid answer. “I DON’T LIKE HIM” is not a valid response.

  19. Other states are likely to join the lawsuiter, Word solver find a word.

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