The CBO says providing aid to cash-strapped states would deliver a bigger economic boost than Trump-backed tax breaks for businesses

• The CBO said in a letter to House Democrats that extending a federal lifeline to states would likely provide a bigger economic boost than tax cuts.
• "Other provisions, such as business tax provisions and refundable tax credits, are expected to have smaller effects," the agency said.
• Trump has publicly opposed providing an infusion of cash to states hammered economically by the pandemic.

The Congressional Budget Office said in a letter sent to House Speaker Nancy Pelosi on Tuesday that extending aid to states would pack a bigger punch in bolstering the economy compared to tax breaks for businesses — a priority of the Trump administration as it seeks to jumpstart growth.

CBO Director Phillip Swagel wrote that "additional federal funding for state and local governments would increase output by reducing the size of tax increases and spending cuts enacted" to balance budgets.

While it didn't elaborate on specific tax-cut plans, the CBO said that measure wouldn't provide as large of an economic boost.

"Other provisions, such as business tax provisions and refundable tax credits, are expected to have smaller effects," the head of the nonpartisan agency wrote. But he conceded it would depend on the structure of those tax cuts and the rate businesses ramped up their spending as a result.

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The CBO added that social distancing measures to curb the spread of the virus would likely dampen growth in the short-term, and that ramping up spending on Medicare would significantly shore up the economy.

President Donald Trump has publicly opposed extending aid to states, deriding the idea as a "blue-state bailout" and casting Democratic-led states as irresponsible spenders.

"It's not fair to the Republicans because all the states that need help — they're run by Democrats in every case," Trump said in an interview with the New York Post back in May.

Instead, he has supported a payroll-tax holiday and a capital-gains tax cut for investors in a future spending package, The Wall Street Journal reported.

Experts, though, say every state regardless of its political stripes is confronting plummeting tax revenues that has already prompted massive layoffs of state and other government workers. State and local municipalities have shed around 1.5 million workers in April and March, according to the Bureau of Labor Statistics.