Treasury Secretary Janet Yellen on Wednesday cautioned that it will likely take the full statutorily allotted 60 days for her department to issue guidance on states providing tax relief to their citizens while also accepting funds from the recently enacted $1.9 trillion rescue bill.
“It will take the 60 day period to complete the work,” she told the Senate Banking Committee, adding that “there are thorny legal issues around this and we’re working as rapidly as we possibly can, but I don’t want to make a commitment that we can get it out sooner than that.”
The recently enacted $1.9 trillion rescue bill provided $350 billion to U.S. territories, states, and local and tribal governments to contend with COVID-19 related issues. While these governments can enact tax cuts, funds from the rescue bill that are received by these entities cannot be used to offset the revenue loss from those tax cuts.
The overarching issue is that when funds are received by a state from the federal government that money becomes indistinguishable from other revenue sources, making it hard to penpoint the exact funds that would be used to offset the cost of a tax cut.
Yellen hopes to provide answer that question in the upcoming guidance.
“We will have to define what it means to use money from this Act as an offset for tax cuts, and given the fungibility of money it’s a hard question to answer,” she said.
The Treasury Department has until early May to complete guidance on this issue.
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