TOPEKA – (March 17, 2021) – U.S. Treasury Secretary Janet Yellen must take immediate action to ensure a sweeping provision of the American Rescue Plan does not improperly intrude on states' authority to set their own tax policy, Kansas Attorney General Derek Schmidt said today.
Schmidt joined 20 other state attorneys general in a letter to Yellen regarding provisions of the recent federal stimulus act that 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 collections, whether by cutting rates or by giving rebates, deductions, credits, “or otherwise.” Schmidt warns that unless interpreted narrowly this language could deny Kansas and other states the ability to change state taxes in any manner that would result in less revenue, even if the state would have made the tax changes without the COVID-19 relief funds.
Schmidt and his colleagues are urging the Treasury to adopt a narrow interpretation of the language, warning that a broad interpretation would result in an unprecedented and unconstitutional intrusion on the sovereignty of the states. The letter notes several tax proposals currently pending in state legislatures, including two Kansas proposals, that could be called into question if the federal statue were interpreted broadly.
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 taking any actions that reduce tax collections in the near future. This would be a clear intrusion by Congress upon the democratic structures of the states.
Schmidt is asking the Treasury to confirm by March 23 that the Act does not prohibit States from generally providing tax relief, but simply precludes express use of the relief funds to provide direct tax cuts. The attorneys general noted they may take further appropriate action if necessary assurance is not provided
A copy of the letter can be viewed at https://bit.ly/3llbUnw.