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States Sue Treasury Department To Protect State Tax Cuts

Montana Attorney General Austin Knudsen joined a bipartisan 13-state coalition in filing suit Wednesday, March 31, to protect the well-established authority of states to lower taxes for their citizens from being violated by the “American Rescue Plan Act of 2021”.

U.S. Treasury officials cannot force states to relinquish control of their taxing authority in return for the federal dollars that Congress appropriated in ARPA. The Federal Tax Mandate, housed in §9901 of ARPA, is “one of the most egregious power grabs by the federal government in the nation’s history,” the lawsuit states.

“While Joe Biden is proposing trillions in wasteful spending, it’s a slap in the face to Montana – where we balance our budget each year – to tell our legislature they can’t provide tax relief or additional education tax credits,” Knudsen said.

The bipartisan coalition of attorneys general argue that ARPA’s federal tax mandate could be used to claw back a share of a state’s stimulus allotment. For instance, uncertainty remains in the state legislature surrounding an income tax cut and increased education tax credit for Montana families that have been proposed.

Members of the coalition sought to avoid litigation by asking U.S. Treasury Secretary Janet Yellen to confirm the legislation would not “strip states of their core sovereign authority to enact and implement basic tax policy.” Yellen’s response, however, failed to place limits on the vague provision. The secretary admitted this uncertainty exists, referring to it as a “thorny” issue in testimony to Congress.

Attorneys general filed the lawsuit against the U.S. Department of Treasury Secretary Yellen and the department’s Acting Inspector General Richard K. Delmar, who would be responsible for seeking any potential claw back of federal funds.

The attorneys general seek a court order that prohibits enforcement of the federal tax mandate and declares it unconstitutional.

In addition to Montana, Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah and West Virginia are plaintiffs in the lawsuit.

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