Attorney General Schmitt joined a letter yesterday, signed by twenty-one state attorneys general, urging the U.S. Department of Treasury (“Treasury”) to take immediate action to ensure the American Rescue Plan Act (“Act”) does not strip States of their core authority to implement basic state tax policy.
Certain provisions of the Act forbid states from using COVID-19 relief funds to “directly or indirectly offset a reduction in…net tax revenues” resulting from state laws or regulations that reduce tax burdens, whether by cutting rates or by giving rebates, deductions, credits, “or otherwise.” Attorney General Schmitt, in the letter, warns that this language could be used to deny Missouri and other states the ability to cut taxes in any manner, even if they would have provided tax relief with or without the prospect of COVID-19 relief funds.
Attorney General Schmitt and other attorneys general are urging the Treasury to adopt a more sensible interpretation of the language, warning that a broad interpretation would result in an unprecedented and unconstitutional intrusion on the sovereignty of the States. Such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress ever attempted.
“Congress should have no say or control over Missouri’s ability to cut taxes, and the American Rescue Plan should not hinder Missouri’s ability to cut taxes,” said Attorney General Schmitt
. “That’s why I joined this 21-state coalition – to get a clarification from the Treasury Department and ensure that the federal government isn’t overreaching into state tax policy.”
A broad interpretation against “offsetting” reductions could be interpreted to prohibit tax cuts or relief of any kind, even if unrelated to or independent of relief funds.
The attorneys general also warn that a single governor could accept stimulus funds and thereby bind both the state legislature and a future successor from cutting any tax or tax assessments in the near future. This would be a clear intrusion by Congress upon the democratic structures of the States.
Accordingly, the attorney generals are asking the Treasury to confirm by March 23 that the Act does not prohibit States from generally providing tax relief, and that the Act simply precludes express use of the relief funds to provide direct tax cuts. The attorneys general will take further appropriate action if such an assurance is not provided to ensure that states like Missouri have the clarity and assurance needed to enact and implement sensible tax policies for the taxpayers of Missouri.
Joining Attorney General Schmitt were attorneys general from the states of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, Oklahoma, South Carolina, South Dakota, Texas, Utah, West Virginia, and Wyoming.
A copy of the letter can be viewed here