State House News – The U.S. Treasury has given state lawmakers some breathing room as they consider a tax relief package worth as much as $350 million, indicating that states may cut taxes without being penalized under the new federal stimulus law.

The Treasury told the Associated Press that tax cuts are allowed under the stimulus bill as long as state money is used to pay for the tax breaks.

The stimulus bill signed by President Joe Biden last week included a provision preventing a state like Massachusetts from using any of the $4.5 billion in direct aid it will receive “to either directly or indirectly offset a reduction” in net tax revenue. The restriction could apply through 2024.

Some tax experts expressed concern that this could wind up doubling the cost of certain proposed tax breaks in the unemployment insurance rate relief bill. Experts and lawmakers were particularly interested in how the federal restriction might impact a tax credit proposed for low-income workers on unemployment benefits collected over the last year.

While the House capped the credit at $50 million over two years, the Senate reworked the credit and said it could cost $126 million. The chairmen of both the House and Senate Ways and Means Committees told the News Service last week they were awaiting guidance from the Treasury but believed the state would not be penalized for the tax relief bill because legislators had not proposed to use stimulus money to pay for it.

“However, because tax revenue collections for this fiscal year have been trending positively and performing better than benchmarks, the relief package currently moving through the Legislature, which was in development prior to the federal legislation being finalized, does not rely on expected federal funds to pay for the provisions relative to PPP and the unemployment tax credit,” Sen. Michael Rodrigues said.

And Rep. Aaron Michlewitz said, “I’m confident the moves we are making, A, we can afford and, B, are the right ones for the commonwealth in terms of the COVID relief discussion.”

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