Arizona Attorney General Mark Brnovich threatened on March 23 to sue the Biden administration over a provision in the $1.9 trillion pandemic rescue plan that could bar states from using its funds to offset tax cuts.
In his Twitter post, Brnovich shared a letter from Treasury Secretary Janet Yellen addressed to him and Republican attorneys general from 20 other states. That letter was a response to the states after they questioned the provision from the American Rescue Plan Act of 2021 that could prohibit states from using federal funds to pay for tax cuts.
The stipulation of President Joe Biden’s sweeping relief package highlighted by the 21 attorneys general states, “A state or territory shall not use the funds provided under this section or transferred pursuant to this section to either directly or indirectly offset a reduction in the net tax revenue of such state or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit or otherwise) or delays the imposition of any tax or tax increase.”
Signing on to the letter were Arizona, Georgia, West Virginia, Alabama, Arkansas, Florida, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Wyoming.
The group listed over a dozen instances of states currently considering new tax credits or cuts they believe could be jeopardized simply because of the relief funds.
“We ask that you confirm that the American Rescue Plan Act does not prohibit States from generally providing tax relief,” wrote the coalition, led by Georgia, Arizona, and West Virginia.
In her response, Yellen asserted that nothing in the American Rescue Plan Act prevents U.S. states from enacting a broad variety of tax cuts.
“It is also important to note that States choosing to use the federal funds to offset a reduction in net tax revenue do not thereby forfeit their entire allocation of funds appropriated under this statute.
“The limitation affects States’ ability to retain only those federal funds used to offset a reduction in net tax revenue resulting from certain changes in state law.”
Yellen noted that the Treasury is working to craft further guidance to address the issues raised by the coalition.
Ohio became the first state to sue Biden’s administration over his pandemic rescue plan, arguing on March 17 that the provision holds a “gun to the head of states” by blocking them from cutting taxes, and exceeds the authority of Congress.
“[States] can either have the badly needed federal funds or their sovereign authority to set state tax policy,” Republican Ohio Attorney General Dave Yost said in his lawsuit. “But they cannot have both. In our current economic crisis, that is no choice at all. It is a metaphorical ‘gun to the head.’”
The White House didn’t respond to a request by The Epoch Times for comment by press time.
