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Wednesday, May 12, 2021 Leer en Español

New Federal Aid Is ‘Broad and Flexible,’ except Where It’s Not

If governments really believed in local solutions, they wouldn’t take our money in the first place.

Brookings Institution - Flickr | CC BY-NC-ND 2.0

Earlier this year, President Biden signed a $1.9 trillion COVID relief law known as the American Rescue Plan. As part of the package, $350 billion was set aside for state and local governments, and that money is being delivered starting this week. But while the federal government is promoting this funding as “intentionally broad and flexible” so that local governments can tailor the spending for local needs, the reality is that they have included some major strategic restrictions.

“The Treasury Department said Monday that governments will be compelled to spend the cash infusion ‘to meet pandemic response needs and rebuild a strong, more equitable economy,’” CNBC reports. “Importantly, Treasury officials said states and territories are not allowed to use the funding to offset lost revenue as the result of a tax cut or make a deposit to a pension fund.”

So on the one hand, the federal government is saying that they believe decisions are best made locally because local officials better understand the needs of their communities. But on the other hand, they insist that local officials refrain from using this money to cut taxes or boost pension funds, because the federal government clearly knows that these things won’t be helpful, regardless of the local context.

Give me a break.

Of course, the irony of having this restriction placed on government “aid” is that cutting taxes is probably one of the most helpful things a local government could do. After all, even state and local governments have insufficient knowledge to efficiently direct resources. Only individual consumers are local enough to know what’s best for themselves, so they would be far better off if they were simply allowed to keep their own money in the first place.

So while I guess it’s nice that the federal government is at least giving lip service to the importance of local decision making, it would be a lot better if they took that idea to its logical conclusion for once. Namely, let individual consumers determine how to spend their money rather than having bureaucrats spend it for them.

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  • Patrick Carroll is the Managing Editor at the Foundation for Economic Education.