Crapo Urges Treasury to Give States Maximum Flexibility in Use of COVID Relief Funds

WASHINGTON, D.C. – In an exchange during a Senate Banking Committee hearing with U.S. Department of Treasury Secretary Janet Yellen, U.S. Senator Mike Crapo (R-Idaho) urged Secretary Yellen to give states the maximum flexibility as they determine how best to use funds authorized by Congress.  As written, a provision in the American Rescue Plan punishes states if they “directly or indirectly” cut taxes.  Crapo is Ranking Member of the Senate Finance Committee and former Chairman of the Banking Committee. 

“I encourage you [Secretary Yellen] to give states the maximum flexibility you can,” said Crapo.  “They are hamstrung.  The last thing we should do is put states in a predicament where they could lose the funding that was authorized by Congress to help them, just because they want to manage their fiscal policy in a way that might include some reduction of tax revenue.”  

On “Direct or Indirect” Tax Cuts 

Crapo: “How do you intend to approach the question of what indirectly or directly offsets a tax cut?” 

Yellen: “When I said we have thorny questions to work through, you have just indicated why we do.  We will have to define what it means to use money from this Act as an offset for tax cuts.  Given the fungibility of money, it’s a hard question to answer.  That is what we are required to do, and we will do our best to offer guidance on it.” 

Crapo: “You just hit the nail on the head when you referenced the fungibility of money.  I encourage you to be very restrictive in terms of the application of this prohibition and give the maximum flexibility to states and local communities as they administer these funds.” 

On States’ Ability to Waive Taxes on Unemployment Compensation  

Crapo: “What if a state decides that, as with the federal waiver on the taxation of a certain amount of unemployment compensation, the state would also like to waive a portion of its tax on those same unemployment compensation dollars.  Would that be a penalty that the state would have to pay for?” 

Yellen: “We have been asked this question by a number of states, and it’s one we are going to have to consider and work through—for example, with respect to unemployment insurance, whether or not that would qualify as a tax cut or be exempt.  We are examining that question carefully.” 

On Timing 

Crapo: “This is an issue that needs immediate clarity.  I’m aware of the letter that you responded to the Attorneys General with, in which you said that you will provide guidance . . . but that doesn’t really tell us how soon this guidance will come out.  Seems to me the states are hamstrung right now. They can’t do anything until you give them the guidance.  Can you give us some clarity on how soon this guidance will come out?”

Yellen: “There are a host of thorny questions we have to work through to connect with the issue you just mentioned and we simply are going to have to try to craft guidance in that period of time and we’re working on it 24/7 to get it out as rapidly as we can.”  

As Ranking Member of the Finance Committee, Senator Crapo has pressed the Treasury Department for detailed guidance on the vaguely-written provision of the American Rescue Plan that prevents states from using relief funds to cut taxes.

Crapo joined U.S. House Ways and Means Ranking Member Kevin Brady (R-Texas) in calling on Treasury to issue detailed guidance as soon as possible. 

Crapo also wrote an opinion piece published in The Hill outlining problems with the provision.   

###