AGs From Kentucky, Tennessee Sue Over Stimulus Tax Rule

FRANKFORT, Ky.: The Republican attorneys general of Kentucky and Tennessee have added their voices to those in several other states who are objecting to a provision in the $1.9 trillion pandemic aid plan that bars states from using relief money to offset tax cuts.

Kentucky Attorney General Daniel Cameron and Tennessee Attorney General Herbert H. Slatery III filed suit Tuesday in a federal district court in the Bluegrass State, accusing the federal government of an unprecedented power grab.”

They requested an injunction to block enforcement of the tax-related provision and asked that the restriction ultimately be struck down.

The suit echoes similar action filed last week in federal court in Alabama by the attorneys general from 13 states that took aim at the provision prohibiting states from using $195 billion of federal aid to either directly or indirectly offset a reduction in net tax revenue.

The lawsuit by Cameron and Slatery claims the provision unconstitutionally wrests away the sovereign authority of each state’s legislature to determine tax policies.

Their suit called it a case of federal overreach, saying states were being told they cannot lower their citizens tax burdens without suffering a penalty.

The tax mandate is an unprecedented power grab by the federal government, the suit said. At a time when the states are focused on helping their constituents overcome the devastating effects of the pandemic, Congress chose to use the pandemic to extend its control over state sovereignty in an unprecedented way.

Defendants in the joint Kentucky-Tennessee suit include the U.S. Treasury Department, which did not immediately return an email requesting comment Tuesday.

A larger group of 21 Republican attorneys general last month wrote a letter seeking clarification from Treasury Secretary Janet Yellen on the provision. The department at the time said the provision isnt meant as a blanket prohibition on tax cuts. States can still offset tax reductions through other means.

Nothing in the Act prevents States from enacting a broad variety of tax cuts, Yellen wrote in a response. It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.

The massive aid plan was backed by congressional Democrats in close party-line votes and signed by President Joe Biden. Kentucky’s share of the aid for states is expected to be about $2.4 billion. Tennessee’s allotment is expected to be about $3.7 billion.

Cameron said in a news release that the relief money is essential to helping Kentucky recover from the economic damage inflicted by the COVID-19 pandemic. That contrasted with remarks by his fellow Republican and mentor, Senate GOP leader Mitch McConnell, who said Monday that he didn’t think the new relief money being sent to Kentucky state government was needed.

Cameron said it’s unconstitutional for the Biden administration to hold the funds hostage if we don’t agree to Washington’s preferred tax policies.

Slatery said states have a constitutional right to implement their own tax policy.

Before ending this year’s session, Kentucky’s Republican-led legislature allocated more than $1 billion of the new infusion of federal money for several big-ticket items. Those items included school construction, water and sewer projects, broadband expansion and repayment of a federal loan that kept the states unemployment insurance program afloat.

Those spending decisions reflected several shared priorities between lawmakers and Democratic Gov. Andy Beshear. The governor called it a good start to create thousands of jobs and better position Kentucky for the post-pandemic economy.

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