Stimulus package: Rules on the use of state money for state money lead to IDP complaints – and a lawsuit

Stimulus package: Rules on the use of state money for state money lead to IDP complaints – and a lawsuit

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The restriction, added by the Senate Democrats, forced Ohio Attorney General to file a case Wednesday and his colleagues in the IDP to write a vicious letter to Finance Minister Janet Yellen.

The issue is a provision in the $ 1.9 billion stimulus law that could limit the ability of states to reduce taxes. It says states cannot use the funds to offset ‘directly or indirectly’ a decrease in net tax revenue due to changes such as rate cuts, rebates, deductions, credits or delays in tax increases or the imposition of taxes.

The rule may apply until 2024, which is the deadline for states to use their aid.

The Treasury Department said Thursday that the aid is not intended for tax cuts, but that countries are free to use other funds to reduce levies.

Funding for state and local governments was one of the most controversial measures in Congress’s emergency relief agreements. Many states and municipalities have been struggling with declining tax revenues amid the pandemic, although for some the drops have not been as large as originally feared.

Democrats wanted to contribute to the $ 150 billion pot provided for in the stimulus agreement passed a year ago, but Republicans successfully blocked it while in control of the Senate in 2020.

President Joe Biden’s package, which received no GOP votes, sends more aid, but also includes the tax cut provision and one that bans states from introducing the money into their pension funds, which Republican lawmakers support.

Claim an unconstitutional tax mandate

Ohio Attorney General Dave Yost has filed an order with the U.S. District Court in South Ohio banning the application of what he calls the “tax mandate,” saying it is unconstitutional and exceeds congressional authority. .

According to the motion, the state, which is expected to receive about $ 5.5 billion in aid, suffered a $ 1.1 billion loss in tax revenue.

“The tax mandate therefore gives the states a choice: they can have either the much-needed federal funds or their sovereign authority to determine the state’s tax policy. But they can not have both,” the motion reads. “In our current economic crisis, it’s not a choice at all. It’s a metaphorical ‘gun to the head’.”

Meanwhile, a coalition of 21 Republican attorneys general – led by Georgia, Arizona and West Virginia – wrote to Treasury Secretary Janet Yellen on Tuesday, expressing concern over the provision, especially the ban on ‘indirect’ offsetting. tax cuts and the list banned. measures.

The letter included a variety of tax shifts in which states are currently considering officials may be concerned about the right to relief. These include raising the standard deduction in Georgia, introducing tax credits in Indiana and cutting income taxes in Montana.

The attorney general asked Yellen to confirm that the relief package at most prevents states from using the funds explicitly for direct tax cuts, rather than for the purposes.

What states can do according to the treasury

The Treasury said the law does not prevent countries from lowering taxes or that they must repay their aid.

“In other words, states are free to make policy decisions to reduce taxes – they just can’t use the pandemic funds to pay the tax cuts,” an agency spokesman said.

However, the Biden administration made it clear earlier this week that the aid was intended to prevent states from laying off more workers – especially essential workers. State and local governments have shaken off nearly 1.4 million jobs in the past twelve months.

“The original purpose of the state and local funding was to keep police, firefighters, other essential workers employed and employed, and it was not intended to reduce taxes,” White House Press Secretary Jen Psaki said Monday. said in an information session.

The Treasury’s response did not satisfy Yost.

“It’s like saying ‘but you can keep your wallet, it’s your choice’, just after the mosquito says ‘your wallet or your life’,” the attorney general said Thursday.

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