State lawmakers call for withholding state employees’ federal taxes

New York has been hit with a slew of federal funding cuts and clawbacks in the past month: $18 billion in infrastructure funding for the Hudson tunnel and Second Avenue subway, $34 million in counterterrorism dollars for the MTA and half a billion in clean energy grants. (Another $187 million was initially revoked but later restored.) That’s not to mention the $80 million in FEMA funding that the Trump administration quietly took from the city’s bank account in February. Negotiations with the White House, pressure campaigns and suing the feds has been the only recourse that states like New York have had in fighting back against federal funding cuts. But a bill introduced in Albany earlier this year could give the state some teeth – or open up new legal headaches.

The RECOURSE Act (which is short for “Reciprocal Enforcement of Claims On Unpaid or Reduced State Entitlements”), sponsored by state Sen. Jessica Ramos and  Assembly Member Micah Lasher, would enable New York to withhold an equal amount of funds to the federal government if federal payments are withheld from the state in violation of a court decision. Equivalent bills have been proposed in the Maryland, Connecticut, Pennsylvania and Wisconsin legislatures; Lasher said he stays in touch with the representatives shepherding the idea in their respective states. 

“Everyone in the Legislature right now is scrambling to figure out how we can best protect our state,” Ramos said, adding that she thinks the bill “has wide support.”

“It’s a way to fight fire with fire. It’s putting our money where our mouth is,” she said.

Lasher said he thinks there’s an appetite for the bill – but he acknowledged it’s a big swing. 

“These bills are very much out-of-the-box approaches to dealing with an unprecedented situation, and that is something that requires people to wrap their arms and heads around,” Lasher said. “I don't think we quite got there by the end of last session.”

The bill currently has ten cosponsors in addition to Ramos and Lasher. If it manages to garner more support during next year’s legislative session, it could be worked into the state budget in the spring. 

New Yorkers send more than $320 billion to the federal government each year. But most of the money consists of income taxes that are collected directly by the Internal Revenue Service; it never passes through the state government’s hands, so there’s no way for the state to intervene and impound that money. The bill would instead target funds that the state has control over – chiefly, federal tax withholdings from New York State employees’ paychecks, which the state collects and then pays to the federal government.

According to data provided from Comptroller Tom DiNapoli’s office, New York’s state government sent about $5.39 billion in taxes to the federal government last year. That’s much less than the hundreds of billions the federal government receives from New Yorkers directly through the IRS, but it’s not insignificant: refusing to send that money to the feds would be more than enough to reciprocate clawbacks to federal counterterrorism funding, for example.

Municipalities in the state could also decide to stop sending their employees’ federal tax withholdings to the Trump administration. Lasher said that if New York City refused to send the federal government its typical withholdings from city employees’ paychecks, it could double the amount of funds on the table.

Whether or not this would be legal is an unsettled question, since no state has ever tried something like this before.

“If a run-of-the-mill employer were to withhold money from an employee’s paycheck and not pay it to the federal government, that employer could be prosecuted,” Lasher said. “I don’t think it’s ever been tested of what would happen if, in effect, one of the 50 states as an employer took that action, particularly in a circumstance where the federal government has already been found to be violating the law.”

Rachael Fauss, senior policy advisor at the good government group Reinvent Albany, said that the question of whether a state can retaliate against federal clawbacks by withholding those funds is an entirely different legal question than whether the Trump administration can make those clawbacks in the first place.

“Anything like this is going to be embroiled in the courts for a long time,” she said. “Because it is a novel approach.”

There would be a certain risk tolerance required for New York to go through with such an unprecedented process, though multiple states working in coordination could help ease that weight.

The RECOURSE Act would require Gov. Kathy Hochul, DiNapoli and the director of the Division of Budget to all unanimously give a stamp of approval before any funds could be withheld from the federal government –  “which one would expect they would only do after extremely careful consideration,” Lasher said. 

DiNapoli’s office, the state budget office and New York City Comptroller Brad Lander’s office all declined to comment on the bill. 

Another bill, introduced by Lasher and state Sen. Cordell Cleare last session, would take an alternate approach by placing liens on federal property in New York state if funds are unlawfully withheld. Maryland and Wisconsin both have similar bills in the works. 

Ramos argued that signing off on the RECOURSE Act next year would be in Hochul’s best interest.

“I think it would be a really powerful tool for Governor Hochul to have at her disposal,” Ramos said. “I mean, she's already proven that she can take on President Trump. Let's help her be stronger.”

Emma Wallner, a spokesperson for the governor, declined to comment directly on the bill but said that Hochul “is doing everything in her power to stand up for New Yorkers in the face of deep and devastating federal funding cuts.”