Arizona Attorney General Mark Brnovich has filed a lawsuit against the Treasury Department calling for a controversial provision in the $1.9 trillion spending package to be tossed.
The lawsuit was filed on Thursday and focuses on an amendment slipped into the bill after it passed the House that prohibits states from using relief funds to offset tax cuts or credits “directly or indirectly.” There are fears that it could be interpreted to give the federal government power over state tax policies .
Democratic Sen. Joe Manchin of West Virginia, a key vote in passing the relief package, pushed for the language about tax cuts to be included in the text of the bill. He had argued that states should not be cutting taxes during a global pandemic. Arizona attacked the provision on two fronts, the first being ambiguity.
The lawsuit points out that Manchin appears to have interpreted the language at its broadest and then referenced the Treasury Department’s view on the matter, which is apparently narrower than Manchin’s interpretation. The department has indicated that states can cut taxes as long as the relief funds are not used to fill the revenue gaps that creates.
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“These divergent views — which exist even amongst Congressional Democrats who passed the Act and the Administration of the President that signed the Act into law, to say nothing about non-aligned parties — underscore the palpable ambiguity in the Tax Mandate,” the lawsuit reads. “This ambiguity alone renders the Tax Mandate unconstitutional.”
The lawsuit cites Supreme Court precedent holding that if Congress wishes to condition states’ receipt of federal funding, it must not be ambiguous in doing so.
Secondly, the lawsuit targets the constitutionality of the provision if it is interpreted the way Manchin seemingly intended it to be.
“It attempts to eviscerate the federal structure of the Constitution by collapsing a system of dual sovereigns, each with their own taxing authority, into a system where Congress — and Congress alone — has authority to set tax policy,” it reads.
The lawyers also wrote that Congress cannot use the spending clause to “coerce” states like Arizona into adopting its preferred policy. They pointed to a Supreme Court ruling that reaffirmed that while Congress can attach conditions for states to receive federal funds, it can’t cross the line from persuasion to coercion.
“The Tax Mandate crosses this line. It offers an enormous amount of money to the States — for Arizona, a total amount that is about 40% of its general fund budget — at a time when that budget is strained by the ravages of a once-in-a-century pandemic. Indeed, addressing the financial straits of the States is Congress’s explicit motivation for this third wave of stimulus aid,” the suit says.
The lawsuit concludes, “Whether the Act is too ambiguous to carry out its patron’s desired intent or actually unambiguously provides for a result that is patently unconstitutional — the result is the same: the Tax Mandate cannot stand.”
The Thursday lawsuit follows one filed by Ohio Attorney General Dave Yost last week. Yost also argued that Congress exceeded its constitutional authority by including the amendment. Yost had filed the lawsuit despite a separate effort by 21 GOP attorneys general (one of whom was Brnovich) who called on Treasury Secretary Janet Yellen to clarify what the provision means. They gave her a Tuesday deadline to respond, but Arizona was not pleased with the response.
Yellen’s response “was ambiguous and failed to provide the assurances that states can craft their own tax policies and budgets without being stripped of federal relief funding,” Katie Conner, spokeswoman for the Arizona Attorney General’s Office, told the Washington Examiner on Wednesday.
Yellen addressed the controversy during a joint hearing with Federal Reserve Chairman Jerome Powell on Wednesday. She said that the Treasury Department has 60 days from when the law was enacted to issue guidance on the matter and noted that there is a “host of thorny questions” her department has to work through.
“We will have to define what it means to use money from this act as an offset for tax cuts, and given the fungibility of money, it’s a hard question to answer,” Yellen said. “But that’s what we’re required to do, and we will do our best to offer guidance on it.”
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Meanwhile, Ohio and Arizona showed they aren’t waiting for that clarification to come in filing the two lawsuits. Other states might also follow up with more legal challenges, given that the top prosecutors of 20 other states have expressed enmity toward the provision.
