MAR 17, 2021
Twenty-one States Warn Language in American Rescue Plan Act Could Prevent States from Implementing Any Tax Relief
(COLUMBIA, S.C.) - March 17, 2021 - Attorney General Alan Wilson joined a letter today signed by twenty-one state attorneys general urging the U.S. Department of Treasury (“Treasury”) to take immediate action to ensure the American Rescue Plan Act (“Act”) does not strip States of their core authority to implement basic state tax policy.
Certain provisions of the Act 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 burdens, whether by cutting rates or by giving rebates, deductions, credits, “or otherwise.” Attorney General Wilson warns that this language could be used to deny South Carolina and other states the ability to cut taxes in any manner, even if they would have provided tax relief with or without the prospect of COVID-19 relief funds.
Attorney General Wilson and his colleagues are urging the Treasury to adopt a more sensible interpretation of the language, warning that a broad interpretation would result in an unprecedented and unconstitutional intrusion on the sovereignty of the States. Such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress ever attempted.
“Nothing is more important to the principle of state’s rights than the right of South Carolina to cut taxes if it so chooses,” Attorney General Wilson said. “I will most certainly defend against any Federal intrusion on our State’s right to reduce tax burdens on its citizens.”
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, the Georgia House of Representatives has passed a bill that’s now in the state Senate that would extend tax credits for families who adopt a child out of foster care. But such a policy decision by the Georgia 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.
Accordingly, Attorney General Wilson is asking the Treasury to confirm by March 23 that the Act does not prohibit States from generally providing tax relief, and that the Act simply and narrowly precludes express use of the relief funds to provide direct tax cuts. The attorneys general will take further appropriate action if such an assurance is not provided to ensure that states like South Carolina have the clarity and assurance needed to enact and implement sensible tax policies for the taxpayers of South Carolina.
Joining Attorney General Wilson were attorneys general from the states of Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nebraska, Oklahoma, South Dakota, Texas, Utah, West Virginia, and Wyoming.
A copy of the letter can be viewed here.
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