Towns and Cities Should Use Their Stimulus Windfalls to Cut Taxes

States can’t do it, but there’s nothing stopping local governments from issuing refunds.

By Judge Glock

Sept. 14, 2021 12:54 pm ET

President Biden speaks during at an event on his tour touting the American Rescue Plan Act in Columbus, Ohio, March 23.  PHOTO: LEAH MILLIS/REUTERS

Since the passage of the American Rescue Plan Act in March, state policy makers have fiercely debated how to spend nearly $200 billion in stimulus funds. Few Americans, however, have heard plans for the $130 billion that went to cities and counties.

Despite concerns during the pandemic that the economic downturn would bankrupt local governments, we now know that they don’t need this windfall. Local governments actually saw an increase in tax revenue in 2020, thanks to growing property taxes, and they are looking at a bumper tax year in 2021. States should push these cities and counties to return the stimulus money to taxpayers by allowing citizens to vote on any new spending.

The stimulus legislation forbade states to use the money to cut taxes. It was silent on local government tax cuts, but did say those funds should be used for the relief of households and for spurring local economies. Nothing would accomplish these tasks better than cutting property and sales taxes, the two biggest sources of local tax revenue.

Not only is stimulus unnecessary for most local governments, it was distributed nonsensically. The act gave money to counties and small cities based solely on their population and to large cities based on an antiquated formula from the 1970s that benefits bluer cities in the Northeast and Midwest.

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