Kentucky, Tennessee AGs sue over stimulus tax mandate

FRANKFORT, Ky. (WTVQ) – Kentucky Attorney General Daniel Cameron joins Tennessee Attorney General Herbert Slatery III to file a lawsuit Tuesday challenging the Biden Administration’s power included in the American Rescue Plan Act that prohibits states from providing tax relief to their citizens.

The lawsuit, filed against Treasury Secretary Janet Yellen in the United States District Court for the Eastern District of Kentucky, argues the tax mandate unconstitutionally usurps the authority of each state’s legislature to enact beneficial tax policies.

The American Rescue Plan Act was passed by Congress and signed into law on March 11, 2021. Of the nearly $2 trillion included in the Act, approximately $200 billion will assist state governments with COVID relief.

But, as a condition of receiving the COVID aid, the Act requires states to comply with a tax mandate that prevents it from lowering taxes for its citizens for four years.

The Attorneys General allege in the lawsuit that COVID-19 has drastically damaged the national economy and increased the financial needs of state and local governments.

They argue that requiring states to acquiesce to a sweeping tax mandate “is an unprecedented power grab by the federal government. At a time when the States are focused on helping their constituents overcome the devastating effects of the pandemic, Congress chose to use the pandemic to extend its control over state sovereignty in an unprecedented way.

The tax mandate usurps the states’ sovereign authority by coercing them into making the policy choices that a bare majority of Congress prefers, and a strictly partisan majority at that, without regard for the policy preferences of the citizens of the states or the leaders they elect.”

Kentucky is expected to receive about $2.4 billion from the Act, and Tennessee expects to receive about $3.7 billion. The funds are more than one fifth of each state’s annual General Fund revenue.

The attorneys general argue that such vital funding should not be used to dictate whether states can lower taxes for their citizens.

In March, a coalition of attorneys general sent a letter to Secretary Yellen urging clarification of the tax mandate and asking for Treasury to adopt a more “sensible interpretation” of the mandate’s language.

Yellen’s response did not provide clarity about using relief funds to “indirectly” offset a reduction in tax revenue.

Without this necessary clarity, Cameron and Slatery argue “the broad and ambiguous scope of the tax mandate has the likely and foreseeable effect of chilling legislative action by the states that affect tax revenue.”