President Joe Biden held his first White House press conference since taking office on March 25.
In one of the latest lawsuits, thirteen U.S. states took legal action again against the Biden administration, protesting a provision in Biden’s epidemic relief plan. The provision prohibits states from using the funds to pay for tax breaks.
The American Rescue Plan Act of 2021, the $1.9 trillion Democratic bailout plan to address the impact of the Communist virus epidemic, includes a provision that states may not use federal bailout funds to offset any tax breaks (including tax deductions, rebates, abatements, credits or other measures) or any reduction in tax revenue due to tax deferral.
The bipartisan coalition of 13 states filed a federal lawsuit late Wednesday (March 31) in the U.S. District Court for the Northern District of Alabama. They argue the provision is unconstitutional.
The lawsuit says the provision in the relief plan is “one of the most egregious seizures of state power by the federal government in the history of the United States.” It also argues that the provision, which regulates how states use federal funds for tax relief, amounts to forcing states to relinquish control over their taxing authority. And that is not allowed under the Tenth Amendment. The lawsuit also alleges that the federal government has violated the conditional spending doctrine and the anti-commandeering doctrine.
The plaintiffs in the lawsuit are: West Virginia, Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah. The defendants in the lawsuit are U.S. Treasury Secretary Janet Yellen and Treasury Department Inspector General Richard Delmar.
The 13-state coalition is led by West Virginia Attorney General Patrick Morrisey, a Republican.
“Never before has the federal government tried to take over the states’ finances so completely,” Morrisey said in a statement. “We cannot tolerate this overreach. The Constitution envisions co-sovereign states, not a federal government that forces state legislatures to relinquish one of their core constitutional functions in exchange for a huge check equal to roughly 25 percent of the state’s total annual budget.”
The provision under scrutiny reads in full: “No state or territory may use funds provided under this section or transferred under this section to offset, directly or indirectly, any reduction in tax revenue (by providing for a reduction in tax rates, refunds, deductions, credits, or otherwise) due to a change in law, regulation, or administrative interpretation during the time period involved, or due to a delay in the collection of any tax or tax increase of a reduction in the net tax revenue of the state.”
The letter comes after attorneys general from 21 states wrote to Yellen on March 16 asking for clarification of provisions in the bill and seeking confirmation that the restrictions would not deprive states of their taxing authority. In the letter, they said the bill’s language prohibiting offsetting state tax reductions was “unclear,” including questioning how the Treasury Department would interpret the word “indirectly” in the provision.
They said the prohibition on “indirectly” offsetting tax reductions “could also be read to prohibit any form of tax reduction or deduction, even if it is completely unrelated to the bailout funds and is independent.”
The 21 attorneys general wrote: “After all, funds are fungible, interchangeable, and states must balance their budgets. Thus, in a sense, any tax relief enacted by a state legislature after receiving relief funds could be considered to have ‘used’ those bailout funds as an ‘offset’ so that the state could provide the tax relief. “
In her March 23 response, Yellen wrote: “This limitation affects only the ability of states to retain those federal funds that are used to offset reductions in net tax revenues resulting from certain changes in state law.”
She added, “It is also worth noting that states that choose to use federal funds to offset reductions in net tax revenue do not forfeit the full amount of appropriations allocated under this statute as a result.”
She wrote, “It is well known that Congress may place such reasonable conditions on how states use federal funds.”
Yellen added, “If states reduce certain taxes but do not use the relief funds allocated under this act to offset those tax cuts – for example, by making up for lost revenue in other ways – they would not be implicated by the act’s restrictions.”
But the attorney general’s offices of Montana and West Virginia noted in their statements that Yellen “failed to clearly address the limits of this vague provision.”
West Virginia Gov. Morrisey’s office said the issue “directly affects” whether the law would infringe on the state legislature’s consideration of a state bill to eliminate the income tax. He also took issue with the Treasury Department’s interpretation of the word “indirect” in the provision.
Attorney General Morrisey said, “Our lawsuit is designed to protect West Virginia from federal overreach.” “It ensures that our citizens will not be stuck with unexpected bills from the federal government for years to come.”
This latest lawsuit follows a series of other actions taken by states against the Biden administration that accuse the federal government of overstepping its authority.
Previously, 21 states sued the Biden administration on March 17 over President Biden’s decision to revoke federal permits for the Keystone XL pipeline. Also on March 24, 14 U.S. states filed a lawsuit against the Biden administration for suspending new oil and gas exploration activities on federal lands.
The Biden administration was also the target of a lawsuit filed March 8 by 12 states against Biden’s executive order related to climate change. The lawsuit claims that Biden’s move could severely impact their economies. A day later, the Biden administration was also sued by the states of Arizona and Montana over its immigration policies.
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