Republican attorneys general in more than a dozen states are threatening legal action against the Biden administration over the newly signed $1.9 trillion coronavirus economic relief package, a measure they say is unconstitutional.
In a seven-page letter sent to Treasury Secretary Janet Yellen on Tuesday, the Republican officials argue that the relief package, specifically the $350 billion included within to help states and counties offset the cost of dealing with the pandemic, limits those governments’ ability to lower taxes for citizens should they want to.
“Absent 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,” they wrote to Yellen. “We ask that you confirm that the American Rescue Plan Act does not prohibit States from generally providing tax relief through the kinds of measures listed and discussed above and other, similar measures, but at most precludes express use of the funds provided under the Act for direct tax cuts rather than for the purposes specified by the Act.”
A White House official told The Washington Post on Tuesday that Congress did the right thing in stipulating certain conditions for localities that receive federal coronavirus relief money.
“So 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,” the official said, adding the bill “does not say that states cannot cut taxes at all” but instead “simply instructs them not to use that money to offset net revenues lost if the state chooses to cut taxes.”
“Federal spending power has clear limitations,” West Virginia Attorney General Patrick Morrisey (R) said on Tuesday. “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. Such ‘economic dragooning’ of the states cannot withstand constitutional scrutiny.”
A Treasury Department spokesperson told The Hill on Wednesday that “Congress may establish reasonable conditions on how states should use federal funding that the states are provided.”
“Those sorts of reasonable funding conditions are used all the time – and they are constitutional. In the American Rescue Plan, Congress has provided funds to help states manage the economic consequences of COVID-19, and gave states flexibility to use that money for pandemic relief and infrastructure investments,” the spokesperson said.
“The law does not say that states cannot cut taxes at all, and it does not say that if a state cut taxes, it must pay back all of the federal funding it received. It simply instructed them not to use that money to offset net revenues lost if the state chooses to cut taxes. So 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.”
The spokesperson added that states are free to make policy decisions to cut taxes but clarified they cannot use the pandemic relief funds to pay for those tax cuts.
Republicans on Capitol Hill roundly criticized the bill for its size and including what they called Democratic pet projects and funding for initiatives not related to the coronavirus.
Democrats, including those in the White House, have argued a sweeping and comprehensive package was needed to adequately address the economic devastation American workers have been hit with during the pandemic.
This week, President Biden, first lady Jill Biden and Vice President Harris have been touring the country touting the American Rescue Plan and discussing a potential future tax hike to pay for the administration’s policy agenda.
“It’s one thing to pass a historic piece of legislation like the American Rescue Plan, and it’s quite another to implement it,” Biden said on Monday. “The devil is in the details.”
Updated at 1:28 p.m.