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Feds fight to reinstate restrictions on pandemic stimulus aid  

The U.S. Treasury Department urged the Sixth Circuit to overturn an injunction and reinstate a portion of President Biden's Covid-19 stimulus package that places restrictions on how states can use the funds.

CINCINNATI (CN) — Tax cuts do not implicate the portion of President Joe Biden's Covid-19 stimulus package designed to prevent states from using the funds to offset a reduction in net tax revenue, the federal government argued Wednesday before an appeals court panel.

Attorneys for the U.S. Treasury Department urged the Sixth Circuit panel to lift an injunction and reinstate the so-called offset provision of the American Rescue Plan Act, which had previously been ruled unconstitutionally vague by a federal judge.

The state of Ohio challenged the provision in March 2021 and initially refused to accept more than $5.5 billion in stimulus funds over concerns there would be certain strings attached to the money.

Dave Yost, attorney general for the Buckeye State, accused the federal government of holding pandemic relief money hostage, and won an injunction in July 2021.

U.S. District Judge Douglas Cole, an appointee of Donald Trump, determined the language in the Rescue Plan Act gave state legislators insufficient information regarding how much of the money would be available if they altered tax rates.

Cole said the law's language "raises a host of interpretive problems," and granted Yost's motion to permanently suspend enforcement of the offset provision.

The federal government appealed to the Sixth Circuit, and argued in its brief that Cole misinterpreted the statutory language at issue.

"As other courts addressing analogous challenges have emphasized," the brief states, "the offset provision does not prohibit state tax cuts; it merely prohibits a state from using the new federal funds to pay for a reduction in net tax revenue." (Emphasis in original)

The tax cuts and alterations made by Ohio since the passage of the stimulus package do not implicate the offset provision, according the federal government, which argued the case should be dismissed for lack of jurisdiction.

In its brief, Ohio called the tax mandate "hopelessly ambiguous" and part of a "coercive offer" by the federal government to get states to accept the Covid-19 economic relief money, with particular importance attached to the legislation's use of the phrase "indirectly offset."

"Every dollar of revenue gained will, in some sense, 'indirectly offset' a dollar of revenue lost. Thus, every dollar of Rescue Plan funds will, in some sense, indirectly offset lost tax revenue," the brief states. "How are states to tell which uses of Rescue Plan funds qualify as indirect offsets of lost tax revenue? The statute does not say. And neither economic theory nor the English language provides any clarity." (Emphasis in original)

Ohio admitted legislation that implicates the Constitution's spending clause is not required to spell out every possible ambiguity, but emphasized the Rescue Plan Act "provides the states with no guidance at all regarding which exercises of state taxing authority will violate the mandate's prohibition."

Attorney Daniel Winik argued on Wednesday on behalf of the federal government and assured the Sixth Circuit judges that "states are free to use their own money to pay for tax cuts."

Winik claimed Ohio lacks standing to bring its challenge as a result of its failure to provide specific examples of actions it wants to take but cannot because of the provision.

"The state hasn't been prevented from cutting taxes," the Justice Department attorney said. "It is a genuine problem that Ohio hasn't shown that these cuts will implicate the provision."

U.S. Circuit Judge John Bush, a Trump appointee, asked the government's counsel if the case would be ripe for adjudication if Ohio was unable to balance its budget and faced a recoupment action.

Winik admitted it would be, but emphasized that states with balanced budget amendments in their constitutions, including Ohio, do these types of budgetary analyses on a regular basis.

Ohio Solicitor General Benjamin Flowers argued on the state's behalf, and was pressured by the panel to explain why his client has standing to challenge the tax mandate.

Flowers argued that being forced to expend resources to ensure compliance with the provision is sufficient to grant standing, and pointed out that such expenditures are "always a concrete injury" under federal jurisdictional requirements.

U.S. Circuit Judge Richard Griffin, an appointee of George W. Bush, was skeptical.

"It sounds like a hypothetical injury," he told Flowers. "'What if the government did this? What if they change their mind?'"

U.S. Circuit Judge Bernice Donald, a Barack Obama appointee, echoed her colleague's sentiments, and asked Flowers why the court should deal with this issue now, considering there is no evidence to indicate the federal government intends to initiate a recoupment action.

Flowers emphasized the vague nature of the statutory language and said the provision is "so lacking in semantic content" that Ohio cannot determine whether it applies to the state's tax cuts.

No timetable has been set for the court's decision.

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