Attorneys general from 21 states are challenging the $1.9 trillion stimulus bill as an “unprecedented and unconstitutional infringement” on state sovereignty.
Deep in the bowels of the 5,500-page bill is language that restricts states’ abilities to offer rate reductions to taxpayers. It’s only one of the problems with the bill which critics say provides just $190 billion in pandemic relief spending with the rest going to the arts, infrastructure spending in Democrat strongholds like California and New York, and expanded abortion funding.
The attorneys general in a letter to the Treasury Department threatened to take action against the Biden administration over the law’s tax-cut provision. They are criticizing a section of the bill that prohibits states and local governments from using $350 billion in direct federal assistance “to either directly or indirectly offset a reduction in the net tax revenue” or delay the imposition of any tax or tax increase.
The broad phrasing has spurred confusion over what exactly states can and can’t do to their tax rates without jeopardizing the billions in federal assistance, particularly in states where tax cuts already are in the works. The attorneys general called for federal officials to clarify that a range of tax scenarios would be allowable and that the provision will be interpreted only to ban the express use of the federal dollars for direct tax cuts.
The state officials set a deadline of March 23 to receive such assurance, vowing that they would otherwise “take appropriate additional action to ensure that our states have the clarity and assurance necessary to provide for our citizens’ welfare through enacting and implementing sensible tax policies, including tax relief.”
Missouri Attorney General Eric Schmitt has joined the broad effort.
Republicans in Washington and state capitals have criticized the provision as an unprecedented string attached to the federal dollars. Democrats have defended the tax cut language as necessary to keep states from voluntarily reducing their revenues, but Republicans argue they went too far. “Congress should have no say or control over Missouri’s ability to cut taxes, and the American Rescue Plan should not hinder Missouri’s ability to cut taxes,” Missouri’s Schmitt said in a statement.
He added that the attorneys general’s aim was to “get a clarification from the Treasury Department and ensure that the federal government isn’t overreaching into state tax policy.”