Nebraska Attorney General joins call for Treasury to prevent “unconstitutional” tax restrictions
A letter signed by 21 state Attorneys General, including Nebraska, was sent to Treasury Secretary Janet Yellen explaining their concern over the unconstitutionality of restrictions regarding the indirect use of COVID-19 relief funds.
In section 9901 of the American Rescue Plan Act (ARPA), there is a provision that forbids states from using the COVID-19 funds to “directly or indirectly offset a reduction in….net tax revenue” that may result from cutting rates, giving rebates, deductions, or credits.
According to the AGs from these 21 states:
- “…this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the States…”
- “…such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”
- “…prohibition on “indirectly” offsetting reductions in tax revenue…could also be read to prohibit tax cuts or relief of any stripe, even if wholly unrelated to and independent of the availability of relief funds.”
Several examples of state tax policy across the nation were given to illustrate the confusion and overreach the federal government would have on the states and their fiscal policy. Some of those include:
- Arizona is phasing out law-enforcement fees on vehicle registration renewals.
- Georgia has a bill under consideration that would provide income tax relief to lower- and middle-income earners.
- A bill in West Virginia would expand a limited aircraft repair and maintenance sales tax exemption to all such activities. This change will result in a small reduction in sales tax collections.
- Kansas is considering giving property or income tax deferrals or credits to small businesses impacted by closure orders during the COVID-19 pandemic.
- Montana’s Legislature is considering a very slight income tax cut for most income earners.
- In Oklahoma, a bill has passed the House that would, among other things, restore the refundability of the state’s Earned Income Tax Credit.
The latter parts of their letter focus on the legal and “unprecedented and unconstitutional infringement” parts of ARPA. They listed various court cases as precedent, including South Dakota v. Dole, 483 U.S. 203, 207-208, 211 (1987); National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012); Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17 (1981); and New York v. United States, 505 U.S. 144, 169 (1992).
This letter, along with many others that are being sent to the Treasury secretary are an indication of just how egregious this legislation is towards the states and their fiscal policy. Another thing this letter shows is that depending on Secretary Yellen’s guidance, there will most likely be lawsuits and legal precedent will be set once again in the name of federalism and state sovereignty