Judge blocks tax cut rule in US bailout – FOX21 News Colorado

MONTGOMERY, Alabama (AP) – A federal judge has blocked the US Treasury from enforcing a provision of the American Rescue Plan Act that prohibited states from using pandemic relief funds to offset further tax cuts .

US District Judge L. Scott Coogler ruled Monday in Alabama that Congress had exceeded its power by putting the so-called fiscal mandate on the states. He delivered a final judgment in favor of 13 states that had filed a lawsuit and ordered the Treasury Department not to enforce the provision. The judge left the rest of the law in place.

The US bailout directed $ 195 billion in flexible relief funds to states, but clarified that states could not use it as a means of lowering taxes by using federal relief dollars to offset the reduction in income.

The judge described the tax cut restrictions as “a federal invasion of state sovereignty” that was “unconstitutionally ambiguous” – leaving states to guess whether their tax cuts would trigger a refund of federal funds.

“The restriction of the tax mandate on direct or indirect state tax cuts pushes states to adopt a particular tax policy – and one preferred by the federal government,” Coogler wrote. That “may deter” states “from considering tax cuts for fear of losing ARPA funds,”

The lawsuit was filed by Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, l ‘Utah and West Virginia.

Alabama Attorney General Steve Marshal called the tax cut restrictions “an unprecedented and unconstitutional attack on state sovereignty by the federal government.”

Officials in other states also welcomed the decision on Tuesday.

West Virginia Attorney General Patrick Morrisey said the ruling “ensures our citizens won’t be stuck with an unforeseen federal government bill years away.”

Kansas Attorney General Derek Schmidt said this “paves the way” for the state to pursue a sales tax reduction on groceries “without fear of federal retaliation.”

Justice Department lawyers representing the Treasury Department argued that the money should be used for its intended purpose – pandemic recovery.

“Congress failed to provide bailout funds to states to replace deliberate cuts in net tax revenue; it provided the money to help states recover economically from the pandemic in ways they otherwise couldn’t, ”federal attorneys wrote in a court filing in August.

Lawyers for the federal government added that “states are free to cut any taxes they wish, as long as they don’t use federal aid to ‘offset’ a drop in income.”


Associated Press writer David A. Lieb contributed from Jefferson City, Missouri.

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