(CNN) – Republican officials are in the arms over one of the conditions tied to the $ 350 billion state and local aid included in the Democrats’ massive aid package passed last week.
The restriction, added by the Senate Democrats, prompted the Ohio Attorney General to file a lawsuit Wednesday and his GOP colleagues to write an angry letter to Treasury Secretary Janet Yellen.
There is a $ 1.9 trillion provision in the stimulus bill that could limit states’ ability to cut taxes. It is said that governments cannot use the funds “either directly or indirectly” to offset a decrease in net tax revenue resulting from changes such as tax cuts, discounts, deductions, credits or delays in tax increases or the introduction of a tax.
The rule can apply until 2024. This is the deadline by which states can obtain their aid.
The Treasury Department said Thursday that the aid is not intended for tax cuts, but that states are free to use other means to lower taxes.
Funding from state and local governments was one of the most controversial measures in the congressional aid agreements. Many states and communities suffered a decline in tax revenues due to the pandemic – although for some the declines were not as large as originally feared.
Democrats attempted to top up the $ 150 billion pot envisaged in the stimulus agreement passed a year ago, but Republicans successfully blocked it while controlling the Senate in 2020.
President Joe Biden’s package, which didn’t get GOP votes, sends more support, but it also includes the tax cut provision and one that bans states from pouring the money into their pension funds, which Republican lawmakers backed.
Entitlement to an unconstitutional tax mandate
Ohio Attorney General Dave Yost filed an injunction with the US District Court in South Ohio to prevent the enforcement of what he called the “tax mandate”. He said it was unconstitutional and exceeded the powers of Congress.
“The tax mandate thus gives states a choice: they can either dispose of the urgently needed federal funds or their sovereign authority to determine state tax policy. But they can’t have both, ”the application says. “In our current economic crisis, that’s not an option 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 concerns about the provision, particularly the ban on “indirectly offsetting” tax cuts and the list of prohibited measures.
The letter contained a number of tax measures that states are currently considering that officials fear may violate the relief law. These include increasing the standard deduction in Georgia, introducing tax credits in Indiana, and lowering income taxes in Montana.
The attorney general asked Yellen to confirm that the aid package will at most prevent states from expressly using the funds for direct tax cuts rather than for the purposes listed.
What states can do, according to the Treasury
The Treasury Department said the law does not prevent states from lowering taxes or from having to repay their aid if they do.
“In other words, states are free to make policy decisions to cut taxes – they simply cannot use the pandemic aid money to pay for those tax cuts,” an agency spokesman said.
Still, the Biden administration made it clear earlier this week that the aid is intended to deter states from laying off more workers – especially key workers. State and local governments have shed nearly 1.4 million jobs in the past 12 months.
“The original purpose of the state and local funding was to keep and employ police officers, firefighters and other key employees in the workplace, and it was not intended to cut taxes,” White House press secretary Jen Psaki said in a Press conference on Monday.
Yost was not satisfied with the Treasury Department’s answer.
“It’s like saying,” But you can keep your wallet, the choice is yours, “right after the robber said” your wallet or your life, “” the attorney general said Thursday.