State lawmakers may want to hold off on passing tax cut legislation like LB 387, a bill that exempts military retirement income from taxation, until they receive guidance from the U.S. Treasury about the use of American Rescue Plan dollars.
That was the word Tuesday from Dr. Mike Leachman of the Center on Budget and Policy Priorities during a short video interview with OpenSky Executive Director Renee Fry.
The Rescue Plan contains a provision that says states must provide the federal government a dollar-for-dollar refund of federal dollars should they pass measures like tax cuts that result in net state revenue reductions, Dr. Leachman said.
Depending on the guidance, refunds may be required even if states use surplus dollars rather than Rescue Plan funds to offset the revenue reductions, he said.
This development comes as state lawmakers are poised to consider LB 387 and several other tax cut proposals this session.
Should lawmakers want to avoid giving back federal funds, they could offset any tax cut with increases in other revenues; or they could issue direct payments to groups such as veterans rather than providing tax cuts, Dr. Leachman said.
Guidance from the Treasury regarding the use of Rescue Plan dollars should be sent to states within 60 days, if not sooner, Dr. Leachman said.
For more about the American Rescue Plan and its implications for states, watch the complete conversation with Dr. Leachman. The run time for the video is less than 8 minutes.