State Tax Cut Limit Should Be Narrower, Tax Foundation Says

A Treasury interim rule saying states and localities can't spend American Rescue Plan Act funds to indirectly offset tax cuts should be narrowed to avoid unnecessarily subjecting state funds to clawbacks, the conservative-leaning Tax Foundation said.

The Tax Foundation, in comments submitted Wednesday, said the Treasury should narrow the rule issued last month to avoid infringing on state fiscal rights. As it stands, the rule could subject state funds to clawbacks when a state funds tax reductions with budget cuts even when agencies use federal funds for unrelated reasons, the comment said.

--Editing by Roy LeBlanc.

For a reprint of this article, please contact reprints@law360.com.