Arizona has joined Georgia and West Virginia in leading a coalition of Republican attorneys general from a total of 21 states, that are questioning a provision in the $1.9 trillion pandemic rescue plan that bars states from using its funds to offset tax cuts.
“Congress may not micromanage a state’s fiscal policies in violation of anti-commandeering principles nor coerce a state into forfeiting one of its core constitutional functions in exchange for a large check from the federal government,” Republican West Virginia Attorney General Patrick Morrisey said in a statement.
The group penned a letter to Treasury Secretary Janet Yellen on Monday, saying the prohibition is “unclear, but potentially breathtaking” in its potential interpretation. 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. For example, Arizona is currently phasing out law-enforcement fees on vehicle registration renewals, which has no connection to COVID-19 relief funds. But such a policy decision by the Arizona legislature could be deemed a tax “rebate,” “deduction”, “credit”, or “otherwise” that could result in a reduction in the net tax revenue, thus construed as violations of the Act’s prohibition on “offsetting” tax cuts.
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.
The attorneys general will take further appropriate action if such an assurance is not provided by March 23, to ensure that states have clarity.