A provision was put into the bill saying money sent to states as part of the relief plan couldn’t be used for tax cuts, as some in Republican-led states had proposed. Yellen’s agency is charged with setting guidelines for how the money can be used.
However, it’s unclear whether the American Rescue Plan Act of 2021 would have any impact on state tax cuts or tax credits that were in the works before it was passed, and therefore weren’t using federal relief money.
Still, Ralston wrote, “Unfortunately, this law threatens Georgia’s ability to provide tax relief to our citizens.”
Congressional Democrats said they didn’t want states to use the billions of dollars being sent to them for COVID-19 relief as an excuse to cut taxes. Just reducing income tax rates — for instance — tends to provide most of the benefit to high-income earners.
However, the tax cut Ralston referenced in his letter would provide a small break for many low- and middle-income earners, as well.
The Georgia House earlier this month unanimously approved a bill to raise the standard deduction for those who don’t itemize on their taxes. By doing so, taxes would be owed on a smaller portion of the earnings of millions of Georgians. While the tax cut would be relatively small — less than $100 for a married couple filing jointly — it would cost the state $140 million a year.
The bill is awaiting action in the Senate.
The House also voted to extend a tax credit for families who adopt a child out of the state’s foster care system, as well as measures continuing special-interest tax breaks that help industries such as giant yacht repair businesses in Savannah and rural development programs.
In his letter to Yellen, Ralston focused on the income and child adoption tax breaks.
“As Secretary of the Treasury, it will fall on to your department to interpret this act and promulgate rules and regulations,” he said. “I pray you will protect the states by ameliorating the impact of this flawed law and respect our right to budget responsibly.”
The Republican majority in the General Assembly is expected to push ahead with the tax bills anyway.
House Minority Whip David Wilkerson, D-Power Springs, a certified public accountant, said Republican concerns about not being able to cut taxes are a partisan talking point.
“I think part of this is grandstanding,” he said. “The whole intent is that states don’t take federal money and then give out tax cuts to the rich.
“If it is smart tax policy that helps people, (the feds) are not going to push back.”
When the act passed this week, some Georgia Republicans were critical of it, despite the fact that the state will get almost $5 billion to spend. Democrats said there are a host of uses for the money, including providing more health and mental health care and improving the education system.
But some Republicans said the state didn’t need all that money. They also complained that Georgia didn’t get its fair share, calling the act a “bailout” for Democratic-run states.
“This bill represents everything that is wrong with Washington, D.C.,” Kemp said the day it passed Congress.