Twenty-one Republican state attorneys general threatened to take “appropriate additional action” unless the Biden administration makes clear that the American Rescue Plan doesn’t prevent their states from providing various forms of tax relief if they take federal relief money provided by the bill.
Members of the Republican Attorneys General Association requested clarity on a provision in the bill that said states “shall not use the funds … to either directly or indirectly offset a reduction in the net tax revenue,” in a letter Tuesday to Treasury Secretary Janet Yellen.
“This language could be read to deny States the ability to cut taxes in any manner whatsoever — even if they would have provided such tax relief with or without the prospect of COVID-19 relief funds,” the letter said.
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If Yellen’s department interprets the language that way, the attorneys general said that “such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”
If the rescue plan’s provision is read and enforced in a way to prevent any state actions that would directly or indirectly reduce tax revenue, it could preclude states from enforcing measures that have already been passed or are under consideration in their legislatures if they want the aid.
“After all, money is fungible, and States must balance their budgets,” the letter said. “So, in a sense, any tax relief enacted by a state legislature after the State has received relief funds could be viewed as ‘using’ those funds as an ‘offset’ that allows the State to provide that tax relief.”
While some states have weathered the coronavirus pandemic better than others, “it is difficult to envision many, if any, turning down this [federal aid] for their citizens,” the letter noted.
The American Rescue Plan provides $350 billion in aid to state and local governments. A number of states, including Alaska, Hawaii, Texas, Nevada, and Florida, suffered revenue losses in the double digits in the April-December 2020 period, as compared with 2019, according to data from the Urban-Brookings Tax Policy Center.
However, California, Alabama, Washington, Colorado, and 17 other states saw increases in revenue over the same period.
The attorneys general are asking for a response from Yellen by March 23 that affirms that the American Rescue Plan does not prevent them from passing tax relief measures. In the absence of a confirmation, they said they would “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.”
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The Washington Examiner reached out to the Treasury Department for comment on the letter but did not receive a response.
