They say the COVID relief package Biden just signed is an 'unprecedented and unconstitutional' limit on states' authority to pass massive tax cuts for the rich and corporations.
A group of 21 Republican state attorneys general threatened to sue the Biden administration if their states are not allowed to use grants intended for COVID-19 relief to cut taxes.
In a letter to Treasury Secretary Janet Yellen on Tuesday, they demanded the administration clarify a provision in the $1.9 trillion American Rescue Plan that prevents states accepting a share of $350 billion in pandemic relief funds from turning around and using that money to reduce revenues.
"Those provisions, found in section 9901 of the Act,1 forbid States from using COVID-19 relief funds to 'directly or indirectly offset a reduction in … net tax revenue' resulting from state laws or regulations that reduce tax burdens—whether by cutting rates or by giving rebates, deductions, credits, 'or otherwise,'" they wrote.
"This language could be read to deny States the ability to cut taxes in any manner whatsoever—even if they would have provided such tax relief with or without the prospect of COVID-19 relief funds," the letter continued.
It was signed by the attorneys general of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, West Virginia, and Wyoming.
They warned that without a "more sensible interpretation from your department, this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the States through federal usurpation of essentially one half of the State's fiscal ledgers" and that "would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic."
“The pandemic has wreaked havoc on the economy and states like Arizona must be independent and free to determine their own tax policies without the threat of losing federal funds," said Arizona Attorney General Mark Brnovich in a press release.
They are upset about a provision — added at the last minute to the final version of the legislation by Senate Majority Leader Chuck Schumer — designed to make sure states use the relief funds for relief.
The funds were intended to go to state, local, tribal, and territorial governments to "ensure that they are in a position to keep front line public workers on the job and paid, while also effectively distributing the vaccine, scaling testing, reopening schools, and maintaining other vital services."
When some GOP-controlled state legislators suggested they would instead siphon the funds to cut taxes for corporations and the rich. Schumer's provision aims to prevent this by allowing the treasury secretary to take back the grants if states misuse them for that purpose.
The attorney generals in their letter complain that since "money is fungible, and States must balance their budgets," this could punish states that innocently enact unrelated tax cuts after taking the money.
But no state is required to take the relief funds if they believe they have sufficient revenue without them. And several state lawmakers were explicit that they would use the federal grants precisely for that purpose.
Georgia House Ways and Means Committee Chair Shaw Blackmon told the Atlanta Journal-Constitution last month that he and the GOP House majority might cut taxes much more than $120 million if the American Rescue Plan became law.
"It's the fairest way to help the most people keep more of their money," he said. "If we are able to afford it, we ought to let people keep some more of their money."
Kansas Senate Majority Leader Gene Suellentrop told the Kansas City Star on March 1 that the Kansas Legislature would use the funds for tax cuts that would mostly benefit large companies and rich and retired Kansans.
"We don't know the revenue stream that's going to ultimately come from the feds to provide relief in all areas of the budget," he explained, meaning the size of the cuts would depend on the American Rescue Plan.
A White House official told the Washington Post on Tuesday that the law "does not say that states cannot cut taxes at all" but "simply instructs them not to use that money to offset net revenues lost if the state chooses to cut taxes," meaning that "if a state does cut taxes without replacing that revenue in some other way, then the state must pay back to the federal government pandemic relief funds up to the amount of the lost revenue."
Some Republican lawmakers are already pushing to change the law to allow their states to tax the funds they unanimously opposed and use them for tax cuts.
Sens. Mike Crapo and Jim Risch of Idaho introduced the "State Fiscal Flexibility Act" on Monday, seeking to repeal the provision.
Risch complained in a press release that "under Democrats’ COVID spending plan, poorly managed states receive a windfall while fiscally responsible states like Idaho are barred from providing tax relief to its citizens," noting, "With this legislation, financial competence will be rightly rewarded—not penalized." Their bill is co-sponsored by nine GOP colleagues.
Sen. Mike Braun of Indiana introduced his own legislation last week to do the same thing. In a press release, he said his "Let the States Cut Taxes Act" would "make sure Democrats don't get away with this scheme to stop states from further opening their economies and allowing Americans to keep more of what they earn through tax cuts." His bill is backed by seven other Republican co-sponsors.
Even if somehow those bills passed in the Democratic House and Senate, it is unlikely President Joe Biden would sign them.
"The original purpose of the state and local funding was to keep cops, firefighters, other essential employees at work and employed, and it wasn’t intended to cut taxes," White House press secretary Jen Psaki told reporters on Monday. "So I think he certainly hopes that that’s how the funding is used."
Published with permission of The American Independent Foundation.