State Republicans have found their first fight to pick with Biden

State Republicans have found their first fight to pick with Biden

Opinion by Paul Waldman

Columnist

March 18, 2021 at 2:27 a.m. GMT+9

President Biden signs the coronavirus relief package at the White House on March 11. (Andrew Harnik/AP)

When Barack Obama was president, Republican state attorneys general would brag about how often they sued him, which for many became a steppingstone to positions of greater glory. Now that another Democrat is in the White House, Republican-run states are already launching the first salvo in what will surely become a years-long war in which they regularly shout that their sovereignty has been assaulted by the tyrannical federal government.

The first legislative achievement of Joe Biden’s presidency — the $1.9 trillion coronavirus relief bill — has now been greeted with the threat of a lawsuit by 21 attorneys general from Republican states.

In this case, though, they might actually have a point.

AD

Their objection concerns the $350 billion the bill offers in aid to states, counties and cities to help rescue their budgets. In giving that money, the bill says states and localities can’t use that money to offset a tax cut, “either directly or indirectly.” While they can spend it on almost anything — schools, clinics, roads, libraries — they can’t use it to cut taxes.

Here’s the rationale. Because of the pandemic and the economic crisis, states and localities suffered a loss of tax revenue just as their costs were going up, as often happens in a recession. The result in many cases was drastic cutbacks in services and layoffs of employees — state and local governments have shed 1.3 million jobs as a result of the crisis.

So Congress wanted to prevent states from saying, “Thanks for this cash — now we’re going to turn around and cut taxes,” which would mean that instead of keeping teachers on the job and food banks open, the federal money would just be shunted right into the pockets of whichever constituency wields power in the statehouse, most likely the wealthy.

AD

But the Republican attorneys general argue that the federal government is dictating every state’s tax policy for the next few years, depriving them of their ability to make their own laws. “Indeed, such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic,” they write.

One might argue that if that’s the way they feel, they can just not take the money. And if they were planning on a big tax cut, that would seem to indicate that they don’t need it.

I spoke about this question with Richard Auxier of the Urban-Brookings Tax Policy Center, who pointed out that about a quarter of the money in state budgets comes from the federal government even in a normal year. And those funds usually come with restrictions about what they can be used for.

AD

“What becomes complicated is when they say ‘We want the money but we don’t want your rules,’” Auxier said.

Nevertheless, the Republican AGs are right in their first request: that Treasury Secretary Janet Yellen issue guidance clarifying what would and wouldn’t run afoul of the law. “Every state right now needs that guidance,” Auxier told me.

But it’s going to get extremely complicated, and it will be up to the Treasury Department to say when a state has violated the terms of the law. For instance, what if a state meticulously documents how the aid went to teachers and firefighters, but then decides to increase its earned-income tax credit, which helps poor people? Maryland — a very Democratic state — recently did this in response to the pandemic. Would that run afoul of the law?

AD

The Republican AGs insist that Yellen should essentially nullify the restriction altogether. Their letter asks her to declare that the relief act “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.”

But that standard would render the restriction all but meaningless. It would essentially allow a state to do whatever it wants with the money as long as it avoids passing a bill called The Using Federal Covid Relief Money to Cut Taxes For Billionaires Act of 2022.

“Any time money goes into a general fund, it’s really hard to say” exactly where it went, Auxier says.

AD

But if a state is so eager to cut taxes, it can only be because it doesn’t need the federal money, and thus can choose not to take it. The AGs have a response to this: It’s just too tempting. Because some states have “weathered the crisis better than others,” they write, “it is difficult to envision many, if any, turning down this support for their citizens” because it’s so generous.

However, that’s precisely what many of these same states did when the federal government wanted to expand Medicaid through the Affordable Care Act. They sued and won permission not to accept billions of dollars from the federal government to give their poor citizens health coverage.

Not only that, saying the money is irresistible is a strange argument given that many Republicans in Congress said aid to states was completely unnecessary; they even claimed falsely that it would only help states with lots of Democrats, calling it a “blue-state bailout.”

AD

Here’s the big picture. Republican states want this money, but they don’t want any restrictions on what they do with it, especially restrictions that keep them from cutting taxes. Some of those attorneys general are no doubt spoiling for a fight with the Biden administration, perhaps one that could take them to the Supreme Court. But one way or another, Yellen and the Treasury Department have to sort it out.

Read more: