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Treasury defends relief plan provision preventing use of funds for tax cuts

Treasury defends relief plan provision preventing use of funds for tax cuts
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The Treasury Department on Wednesday defended a provision of President BidenJoe Biden28 Senate Democrats sign statement urging Israel-Hamas ceasefire Franklin Graham says Trump comeback would 'be a very tough thing to do' Schools face new pressures to reopen for in-person learning MORE’s $1.9 trillion economic relief bill forcing states to pay back aid if they decide to cut taxes after backlash from a group Republican attorneys general.

A Treasury spokesperson said that the federal government is well within its rights to condition aid included in Biden’s relief plan on states not cutting taxes and rejected claims that the provision infringes on states’ rights to set their own fiscal policies.

“In the American Rescue Plan, Congress has provided funds to help states manage the economic consequences of COVID-19, and gave states flexibility to use that money for pandemic relief and infrastructure investments," the department said. 

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"The law does not say that states cannot cut taxes at all, and it does not say that if a state cut taxes, it must pay back all of the federal funding it received. It simply instructed them not to use that money to offset net revenues lost if the state chooses to cut taxes.”

The department’s pushback comes after a group of 21 Republican attorneys general warned Treasury Secretary Janet YellenJanet Louise YellenEconomist Richard Wolff says higher wages needed to spur faster job growth GOP governors move to cut unemployment benefits as debate rages over effects Judge rejects GOP effort to block tax provision in Biden stimulus bill MORE in a Tuesday letter that they may take legal action over the new stipulations on state and local aid. 

"Absent a more sensible interpretation from your department, this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the States through federal usurpation of essentially one half of the State’s fiscal ledgers," they wrote to Yellen. 

"We ask that you confirm that the American Rescue Plan Act does not prohibit States from generally providing tax relief through the kinds of measures listed and discussed above and other, similar measures, but at most precludes express use of the funds provided under the Act for direct tax cuts rather than for the purposes specified by the Act."

Not a single Republican lawmaker in either the House or Senate voted in favor of the relief bill, and GOP lawmakers were fiercely critical of the inclusion of hundreds of billions of dollars to bolster hard-hit state and local governments.

Dominick Mastrangelo contributed.