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Ohio Loses Bid to Block Tax-Cut Ban in Biden Stimulus Package

A federal judge found that even though the ban on states using federal pandemic aid to offset tax cuts is ambiguous and Ohio will likely succeed on the merits, there is no harm that an injunction would remedy.

CINCINNATI (CN) — While finding Ohio’s challenge to a clause in President Joe Biden’s Covid-19 stimulus package stands a good chance to succeed, a federal judge on Wednesday denied the state’s request for injunctive relief after finding no evidence that an injunction would prevent any harm relating to the acceptance of the pandemic aid.

At issue is a clause in the American Rescue Plan Act that Ohio Attorney General Dave Yost claims is unconstitutional. The clause, which Yost referred to as a "tax mandate" in his March lawsuit challenging the provision, prohibits states that accept the relief money from using the funds to offset a future reduction in tax revenue.

The Republican attorney general claims the clause allows the federal government to commandeer taxing authority and coerces states into accepting the terms to receive the funds, in violation of the U.S. Constitution's spending clause and the 10th Amendment, which protects states' rights.

U.S. District Judge Douglas R. Cole ruled Wednesday that even though Ohio had shown a likeliness of success based on the merits of its claims, the state did not establish that injunctive relief would prevent or stop ongoing harm.

“There’s the rub,” Cole wrote. “The preliminary injunction that Ohio requests here is directed solely at the [Treasury] secretary’s exercise of her recoupment powers. But there is no reason to believe that the secretary will exercise those powers any time soon.”

Cole, a Trump appointee, noted the ambiguity of the stimulus mandate throughout the 35-page opinion.

“Where things get hopelessly muddled is with regard to ‘indirectly’ and ‘net tax revenue of such state.’ Start with the latter phrase,” Cole wrote. “Net tax revenue as measured against the previous fiscal year? Or against what would have been collected without the change in taxes? Or what?”

The judge added, “That on its own would be bad enough, but the ARPA then lumps ‘indirectly offset’ on top. The court honestly has no idea what an ‘indirect offset’ to net tax revenues may be. It became clear at oral argument that the federal government was largely unwilling to hazard a guess as to what it meant either.”

Yost applauded the ruling despite not winning the injunction.

“The trial court here agreed with our core argument: the federal government does not have the right to tell the states what to do with its tax policy,” he said in a statement. “Imagine if a conservative federal government required states to reduce taxes as a condition for receiving emergency funding.”

The Department of Treasury did not immediately respond to a request for comment.

Yost’s lawsuit says Ohio, which is set to receive $5.4 billion in aid under the legislation, will only get the full amount if it complies with the mandate and agrees not to make changes to its tax policies.

According to the complaint, a violation of the mandate allows the federal government to “recoup the lesser of: (1) the amount of the applicable reduction to net tax revenue; or (2) the amount of funds the state received from the federal government.”

When the lawsuit was filed, the Treasury Department attempted to clarify the provision, saying that states are free to cut taxes but they just cannot use the stimulus funds to pay for those cuts.

The decision comes a day after Missouri, another GOP-controlled state, announced that it was cutting off coronavirus-related benefits in June. The decision is similar to actions taken by Alabama, Arkansas, Montana, Mississippi and South Carolina.

Supporters of the decision say the unemployment benefits have given potential employees no incentive to find work. Opponents claim taking the benefits away forces workers to accept low wages and accentuates the poverty gap.

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