The American Rescue Plan (ARP) Act of 2021 prohibits states from using the funds to provide state tax relief to small business owners, and the National Federation of Independent Business (NFIB) Legal Center has joined Missouri in challenging that provision.
Brad Jones, NFIB state director in Missouri, said that Missouri’s small business owners have been hit hard by the pandemic, and need the tax relief, according to an NFIB press release.
”The ARP Act jeopardizes Missouri lawmakers from passing important COVID-19 tax relief for our struggling small business owners who are trying their best to keep Missourians employed and the economy running,” Jones was quoted as saying in the release.
Richard C. Auxier, a Tax Policy Center senior policy associate, recently spoke with the St. Louis Record about the provision and the impact it could have. While he said he couldn’t speak to the constitutionality of the law, he feels that there is a disconnect between what the law actually does and how some perceive it.
“The law is pretty clear, in that it is setting restrictions on how states can use the money they are given from the American Rescue Plan, and that’s it,” Auxier said. “I understand how you can read it to believe that this is a ban on tax cuts.”
However, Auxier said that he feels it becomes clear on reading the law that the intent of Congress was to give states money to spend toward specific efforts, such as public health programs and economic recovery. Additionally, it is not unusual for the federal government to provide specific ways money sent to the states should be spent.
“Congress sending states and local governments money, and saying 'This is how we’d like you to spend the funds' – very normal,” he said. “What is legitimately novel is saying, ‘But we don’t want you to do this,’ especially when ‘this’ is cut a tax, or use it for a tax reduction, because state budgets are really big, and a lot of things affect state budgets, beyond policy decisions.”
Auxier said he thinks there needs to be more specific instructions from the federal government. The situation is further complicated by the nature of state budgets, and states might simply spend less on a program supported by the American Rescue Plan, then use the money cut from that program for something not authorized for the federal dollars.