Washington – A legal confrontation between the Biden administration and Republican Attorney General over billions of dollars in aid to state and local governments threatens as federal government prepares to implement US $ 1.9 trillion bailout signed into law this month.
Twenty-one attorneys general have issued a covert legal threat to the Treasury Department – while Ohio’s attorney general has already turned to the courts – over obligations attached to the $ 350 billion to state and local governments recover from the economic consequences of the corona pandemic
Under the comprehensive package, the money given to states cannot be used for pension funds or to offset “directly or indirectly” tax cuts. Now, the Republican Attorney General is targeting the stipulation that money should not be spent on tax cuts, warning that the condition unconstitutional impedes their efforts to cut taxes, even if the tax cuts were planned before the adoption of the US bailout.
The 21 state officials last week sent a letter to the Treasury Department seeking clarification on the provision, which they believe could be interpreted as an attempt by the federal government to deprive states of their authority to pursue tax policies.
“This language could be read to deny states the ability to cut taxes in any way – even if they would have offered such a tax reduction with or without the prospect of COVID-19 support funds,” the officials wrote to the minister. of Finance Janet Yellen, warning that the provision, as written, amounts to “an unprecedented and unconstitutional violation of the individual sovereignty of states”.
The letter lists more than a dozen tax cuts or credits being considered by states that could put their coronavirus help at risk. Without assurances by Tuesday that the package will not prevent states from offering tax relief in general, the attorneys general said, “ we will take appropriate additional steps to ensure that our states have the clarity and certainty needed to the well-being of our citizens through the adoption and implementation of prudent tax policies, including tax relief. ”
Regardless of the 21 attorney general’s missive, Ohio Attorney General Dave Yost is asking a federal court in the state to block enforcement of the condition, arguing that the “ coercive offer of federal funds ” is unconstitutional because Congress exceeded its authority when it passed the mandate.
Because money is fungible, Yost said in a preliminary injunction filing against the court, “any money a state receives through law will necessarily, directly or indirectly, offset any tax relief that the state might pursue.”
“So the tax mandate gives the states a choice: they can have much-needed federal funds or their sovereign authority to set state tax policies. But they can’t have both,” he said. “In our current economic crisis that is not a choice at all. It is a metaphorical ‘gun to the head’.”
Yost is the only attorney general so far asking the courts to intervene, but Ilya Somin, a law professor at George Mason University, expects others to follow suit by taking part in Ohio’s lawsuit or file their own lawsuit unless the Biden government says it has no intention of enforcing the provision.
For states challenging the tax provision in the COVID-19 aid package, Somin said one strong argument they have is the lack of clarity on what states should do to receive their share of the money.
The Supreme Court has said that conditions attached to the receipt of federal dollars must be unambiguously set and cannot be coercive, and the Supreme Court has further clarified whether a condition is mandatory in its 2012 decision that invalidates provisions of the Affordable Care Act that states require their Medicaid programs or risk losing federal Medicaid funding.
“The strongest problem Republican states have is that it’s just not very clear what the provision means,” he told CBS News. “It is not clear whether if you reduce taxes in any way, you will lose all the money the act would earn you or just the amount you lose through tax cuts. Nor is it clear what it means by ‘directly or indirectly’ to use the funds to make up for lost income from tax cuts. ”
Ohio’s case, he said, has teeth for many of the same reasons the Trump administration lost legal battles over attempts to withhold federal money from reservation cities that refused to cooperate with immigration authorities.
In the cases involving the previous administration, Somin said Congress has never given clear permission to impose conditions on state and local governments that have received the money the Trump administration was trying to bring in.
“Under Obama’s administrations, Republican states used the federalism argument to attack Obama’s policies. Under Trump, it was the blue states and cities that did it, and now we’re coming back in the other direction,” Somin said. “It’s a very common phenomenon, but it shows that federalism can protect states with different types of political beliefs.”
“The irony,” he continued, “is that if this thing fails, it could fail on some of the same bases as Trump’s attempt to force sanctuary cities.”
Somin said he is not aware of a similar provision in a law of the same magnitude as the sweeping coronavirus relief package.
At the heart of the Republicans’ challenge to the ban is that “you can’t have Uncle Sam tell the good folks in Louisiana or Texas how to run their tax systems,” Kenneth Manning, a professor of political science at the University of Massachusetts in Washington DC. Dartmouth, told CBS News.
“States need the money,” he said of the help with the bailout. “There are plenty of crumbling schools and beleaguered unemployment systems and the list is endless of state-level needs. I don’t see any major tax cuts coming from this.”
President Biden won a major legislative victory when the Congress passed narrowly passed his $ 1.9 trillion relief package, and he and top officials of his government have embarked on a nationwide tour to promote its benefits. Still, more details are expected from the Treasury Department on the implementation of the stimulus package.
By law, states are ready to receive their federal aid within 60 days of submitting documentation to the federal government.