State Republican Attacks on the COVID Relief Bill are Starting

The Washington Post writes:

Twenty-one Republican state attorneys general on Tuesday threatened to take action against the Biden administration over its new $1.9 trillion coronavirus stimulus law, decrying it for imposing “unprecedented and unconstitutional” limits on their states’ ability to lower taxes.

The letter marks one of the first major political and legal salvos against the relief package since President Biden signed it last week — evincing the sustained Republican opposition that the White House faces as it implements the signature element of the president’s economic policy agenda.

The attorneys general take issue with a $350 billion pot of money set aside under the stimulus, known as the American Rescue Plan, to help cash-strapped cities, counties and states pay for the costs of the pandemic. Congressional lawmakers opted to restrict states from tapping these federal dollars to finance local tax cuts. 

Lawmakers included the provision to ensure Washington isn’t footing the bill on behalf of states that later take deliberate steps to reduce their revenue. But the guardrails frustrated many GOP leaders, who said in a letter to the Treasury Department that the law’s vague wording threatens to interfere with states in good financial standing that sought to provide “such tax relief with or without the prospect of COVID-19 relief funds.”

The attorneys general from Arizona, Georgia, West Virginia and 18 other states called on the Biden administration to make it clear that they can proceed with some of their plans to cut taxes, including those that predate the stimulus, in a seven-page missive sent to Treasury Secretary Janet Yellen on Tuesday. Otherwise, they said, the relief law “would represent the greatest invasion of state sovereignty by Congress in the history of our Republic” — and they threatened to take “appropriate additional action” in response. 

A White House official late Tuesday said Congress had acted appropriately in seeking to stipulate conditions on the federal stimulus funding, emphasizing in a statement the law “does not say that states cannot cut taxes at all.” Rather, the official said, it “simply instructs them not to use that money to offset net revenues lost if the state chooses to cut taxes.”  

“So if a state does cut taxes without replacing that revenue in some other way, then the state must pay back to the federal government pandemic relief funds up to the amount of the lost revenue,” the official added.

This is an interesting turn of events. States want to cut taxes, some even before the relief bill became law, but the federal government does not want COVID relief funds to pay for tax cuts. Money is fungible. How does one deal with this paradox, or is it not a paradox at all? Republican tax cuts can be used to negate pro-economic effects of the relief bill, leaving the GOP free to argue the relief bill was a failure and a waste of money. On the other hand, states need to be free to change their tax policy as a matter of state sovereignty. In theory, the constitution's Supremacy Clause would make the federal law controlling and valid.

If the GOP would act in good faith, this could be worked out. But with a party that refuses to compromise or even negotiate in good faith, this disagreement could eventually wind up before the supreme court. There the court will have a chance to kill at least the contested provision of the COVID relief bill. 

I checked the text of the relief bill to see if it contains a severance clause that allows a court to nullify a contested part of a law without trashing the entire law. I could not find one. Thus, if the court invalidates this provision of the law, maybe the entire law falls.

Wouldn't that just take the cake? The first major bill out of the democratic congress is fatally flawed. I hope the clause is in there somewhere. Maybe we're going to find out.