WASHINGTON (Legal Newsline) - State officials have joined forces to warn provisions of the massive federal stimulus bill could impact on the states' abilities to manage their own taxes and call for a clear rules from the Treasury Department.
Attorneys general representing 21 states, all Republicans, have signed a letter to Treasury Secretary Janet Yellen warning of the potential consequences of the American Rescue Plan Act, particularly those provisions that bar states from "indirectly or directly" offsetting reductions in tax revenue.
"The import of the Act’s prohibition against 'offsetting' reductions in state tax revenue is unclear, but potentially breath taking," according to the letter.
At issue is $350 billion set aside for states and local communities to deal with the downturn and economic damage caused by the COVID-19 pandemic. It is part of the broader $1.9 trillion package.
This includes $195.3 billion for state governments and Washington, $130.2 billion allocated for local governments, $20 billion to tribal governments, and $4.5 billion to U.S. territories.
Lawmakers in Congress included provisions barring states using these federal funds as a way of introducing tax cuts.
The White House Tuesday told The Washington Post that the provision "does not say that states cannot cut taxes at all.” It “simply instructs them not to use that money to offset net revenues lost if the state chooses to cut taxes," the official added.
But the attorney generals, led by Arizona's Mark Brnovich, argued that the act is written so broadly that it could hamper the states' abilities to introduce a whole range of tax-relief measures, depending on how the Treasury Department interprets the language.
Brnovich told Legal Newsline: "We are concerned that the treasury may interpret the language in a very broad way to stop states introducing tax cuts even if they are not related to the funding.
"That would be federal overreach at its worst and we will use every tool, including litigation, to stop it."
He added: "We want to make sure the federal government does not weaponize the language to tie knots in the state." The treasury secretary must make clear how her department interprets the language of the bill, Brnovich said.
South Carolina Attorney General Alan Wilson, in a statement issued to Legal Newsline, said he and his colleagues are warning "that a broad interpretation would result in an unprecedented and unconstitutional intrusion on the sovereignty of the States."
“Nothing is more important to the principle of states rights than the right of South Carolina to cut taxes if it so chooses,” Wilson said. “I will most certainly defend against any Federal intrusion on our State’s right to reduce tax burdens on its citizens.”
A broad interpretation against “offsetting” reductions could be interpreted to prohibit tax cuts or relief of any kind, even if unrelated to or independent of relief funds, Wilson added.
The American Rescue Plan Act "could be used to deny Georgia the ability to cut taxes in any manner for years to come,” said the Peach State's Attorney General Chris Carr.
“That would be unacceptable. In fact, it would amount to an unprecedented federal takeover of state tax policy and would represent the greatest attempted invasion of state sovereignty by Congress ever attempted.”
He cited an extension of a tax credit for Georgia families who adopt a child out of foster care and an increase to the standard deduction as potentially impacted.
The attorneys general are most concerned about language barring states from COVID-19 relief funds to “directly or indirectly offset a reduction in…net tax revenues” resulting from state laws or regulations that reduce tax burdens, whether by cutting rates or by giving rebates, deductions, credits, “or otherwise.”
Missouri Attorney General Eric Schmitt said the states want to "ensure the American Rescue Plan Act does not strip states of their authority to implement basic state tax policy, including tax cuts."
"Congress may not micromanage a state's fiscal policies in violation of anti-commandeering principles nor coerce a state into forfeiting one of its core constitutional functions in exchange for a large check from the federal government," West Virginia Attorney General Patrick Morrisey said in a statement.
Oklahoma Attorney General Mike Hunter said: “The federal stimulus bill might prohibit Oklahoma from providing this economic relief without losing its share of federal funding to high-tax states."
"From a broader perspective, the problem my colleagues and I have with this language is that it is unconstitutional," Hunter added.
The attorneys general are asking the treasury secretary to state by March 23 "that the Act does not prohibit States from generally providing tax relief, and that the Act simply precludes express use of the relief funds to provide direct tax cuts."
"In the absence of such an assurance by March 23, we will 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," the authors wrote.
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, all signed the letter.