The federal provision doesn’t entirely prevent state officials from cutting taxes. Some scenarios, such as slashing one tax but offsetting it with a tax increase, wouldn’t be a problem. But Sarah Austin, tax and budget policy analyst at the Maine Center for Economic Policy, said it does mean that “if states want to go and cut taxes … there will be a price for that in reduced federal aid.”
Austin said because the U.S. Treasury Department has yet to issue final guidance, it’s not entirely clear exactly how the policy will work in practice. However, she said the intent behind the provision is evident.
“I think the big picture message is clear that this money is supposed to be supporting services that people count on like really good schools and health care systems so that we can all get back to normal and that the money isn’t supposed to be used for really wasteful tax breaks,” she said.