The recent tax cut passed by the Georgia General Assembly is directly affected by the so-called COVID relief law that includes $350 billion in federal aid to states and localities. Georgia and other states may use the money to increase spending, but the Democrat-controlled Congress inserted language that appears to block states from using it to cut taxes. “A state or territory shall not use the funds,” the law says, “to either directly or indirectly offset a reduction in the net tax revenue” from a new law or regulation.
Ohio Attorney General Dave Yost argues that “this coercive offer of federal funds violates the Constitution,” and he is joined by Georgia Attorney General Chris Carr and 20 other state attorneys general.” Yost initiated the suit against the U.S. Treasury Department to uphold federalism – the division of power between the states and federal government, as stipulated in the U.S. Constitution.
The Wall Street Journal explains:
“Federalism fosters competition among states, a source of American dynamism. This (congressional)provision takes direct aim at that feature by hobbling the ability of states to compete for business and investment through their tax codes unless they turn down massive federal relief. Obstructing that competition was no doubt part of Democrats’ intention, as states like Illinois and New York grow less competitive.” And, it should be added, Republican-run states like Georgia-employ tax cuts to lure businesses as well as to provide some taxpayer relief.
The lawsuit also underscores that the federal restriction on state tax cuts “allows Congress to quietly impose its preferred tax policies without having to pay the full political price for doing so.”
The lawsuit argues that the congressional mandate is too dictatorial and thus undermines Supreme Court precedents.
Carr and other attorneys general have also written to U.S. Treasury Secretary Janet Yellen to object. They hope she stipulates that the tax cut restriction is far narrower than the new law says.
