13 attorneys general sue administration over stimulus tax rule

CHARLESTON, W.Va. – Attorneys general from 13 states sued President Joe Biden’s administration on Wednesday over a rule in the federal stimulus that bars states from using relief money to offset tax cuts.

The filing in U.S. District Court in Alabama asks judges to strike down the provision in the wide-ranging relief act signed by Biden that prohibits states from using $195 billion of federal aid “to either directly or indirectly offset a reduction” in net tax revenue. The restriction could apply through 2024.

The coalition, which includes one Democratic attorney general, is concerned the provision can construe any tax cut as taking advantage of the pandemic relief funds.

A bigger group of 21 Republican attorneys general earlier in March wrote a letter seeking clarification from Treasury Secretary Janet Yellen, who is named in the new lawsuit. The department at the time said the provision isn’t meant as a blanket prohibition on tax cuts. States can still offset tax reductions through other means.

“Nothing in the Act prevents States from enacting a broad variety of tax cuts,” Yellen wrote in a response on April 23. “It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”

But West Virginia Attorney General Patrick Morrisey, who co-led the lawsuit with his colleagues from Alabama and Arkansas, argues the interpretation of the word “indirectly” in the provision could come back to haunt states that cut taxes.

“This ensures our citizens aren’t stuck with an unforeseen bill from the feds years from now,” he said in a statement.

Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah also signed onto the lawsuit.