Ohio Attorney General Dave Yost sued the Biden administration Wednesday over a last-minute provision in the $1.9 trillion Covid-19 economic relief plan that prevents states from using it to fund tax cuts, opening the first major legal battle against the stimulus package since it passed last week without Republican support.
Senate Democrats added the provision to the American Rescue Plan in an effort to ensure the $350 billion set aside for states would be used to fund cash-strapped governments that have been hurt by the coronavirus pandemic, rather than to subsidize tax cuts.
In a sharply worded letter to the Treasury Department late Tuesday, 21 Republican state attorneys general called the tax provision “unprecedented and unconstitutional.”
The Republican attorneys general from Arizona, Georgia, Texas, West Virginia and 17 other states demanded clarification that legislatures could still pursue tax cut plans, some of which were already underway, and vowed to take ”appropriate additional action” if not.
“The federal government should be encouraging states to innovate and grow business, not holding vital relief funding hostage to its preferred pro-tax policies,” Yost said in a statement.
Biden signed the American Rescue Plan into law Friday after Democrats last month used a budgetary maneuver to bypass Republican support on the package, which also included direct payments to some Americans, additional unemployment benefits and expanded child tax credits. Congressional Republicans have sought to undermine the legislation, which they unanimously voted against despite overwhelming public support on both sides of the aisle. In addition to the tax provision, congressional Republicans have argued against the cost of the American Rescue Plan and warned it could cause harmful levels of inflation.
In a statement to Forbes, Treasury Department spokesperson Alexandra LaManna said if a state does cut taxes without replacing that revenue in some other way, it must pay back to the federal government pandemic relief funds up to the amount of the lost revenue. States are free to make policy decisions to cut taxes – they just cannot use the pandemic relief funds to pay for those tax cuts,” LaManna said. The White House press office did not immediately respond to a request for comment.
In an interview with CBS on Sunday, Gov. Asa Hutchinson, (R-Ark.), expressed concerns that the bill would interfere with plans to reduce sales taxes on used cars. “And now we’re worried about whether that’s going to be prohibited under this bill,” she said. The language seems to indicate it is. So, while there’s many good things about it, it is too large and we’ve got to make sure the states have flexibility.”