I'm an employee at Target, and actually just made an account to post on here although I have been browsing the blog for quite a while now (my family has a trip planned this year to do a 4-night Disney Dream Cruise with a 4-night stay in Disney World mid-September), but as far as I know, and I guess all of the Targets are different, it has always at least been my store policy that you can't use GC to pay with GCs, but unlike before, the computer would never stop us at mine, you could still do it even though it wasn't necessarily "policy." There would be some team members who wouldn't do it, though, even when the computer had allowed it.
However, this time, the computer is actively stopping us from using Target GCs to apply to any type of GCs and most employees akin it to corporate actually changing it, just like how the Access code is now needed for GCs, to prevent people from stealing GC numbers, waiting until the card is loaded, and using it, which I heard is what sometimes happens. I guess it's also if people get a large gift card (I saw someone once with like a $3500 gift card who repeatedly bought $50 Google Play gift cards, coming in and out of the store before we realized what he was doing and stopped him) then it prevents them from using it if they had gotten the GC in an illegal manner? They always talk at my store about people being the subject of a scam that requires them to purchase thousands of dollars in Target GCs with cash to like "save loved ones." It may sound unbelievable, but I've definitely seen people get fidgety when they are politely asked if they are somehow being asked to send a Target GC worth that much overseas and one woman had even come in with an envelope with over a thousand dollars in cash to pay for the GC.
I, like some here, speculate that this isn't just an IT problem gone wrong, but may be something more permanent. So far, while working there, I haven't seen any IT mistake that resulted in a change in the system entirely on every computer. The IT mistakes would typically be if something didn't come off properly, like Cartwheel, or, more recently, some of the promotional GCs not loading immediately for the guest to use it right away buying something else.