(The Center Square) – Tennessee Attorney General Herbert Slatery and Kentucky Attorney General Daniel Cameron have filed a federal lawsuit against the Biden Administration in an attempt to stop what they argue is an unconstitutional attempt by the federal government to block states from enacting tax cuts.
The American Rescue Plan, which Congress passed last month, contained $200 billion in COVID-19 relief for state governments. Tennessee expects to receive about $3.7 billion under the act, Slatery's office said.
Slatery and Cameron, however, said the new law forbids states from cutting taxes over a four-year period.
“The states have a constitutional right to implement their own tax policy,” Slatery said in a statement. “We should not have to choose between accepting COVID-19 relief funds or surrendering to Washington’s attempt to override what only our elected officials in Tennessee are authorized to do.”
Slatery and Cameron were among a group of 21 state attorneys general who wrote last month to Treasury Secretary Janet Yellen about their concerns over that provision.
Yellen responded and said the American Rescue Plan doesn’t keep states from cutting taxes.
However, Congress, she wrote, “has given States considerable flexibility to use that money to address the diverse needs of their communities. At the same time, Congress placed limitations to ensure that the money is used to achieve those purposes – including provisions stating that this funding may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”
Filed in U.S. District Court in Frankfort, Kentucky, the lawsuit seeks a temporary and permanent order keeping the federal government from preventing their states from using the funding to offset revenue lost to tax cuts as well as an order keeping the U.S. Treasury from seeking to recoup any American Rescue Plan funding used for that purpose.
"This case is about federal overreach," the lawsuit reads. "After a year of some of the most trying economic circumstances in recent history, a bare partisan majority of Congress is telling the States that they cannot lower their citizens' tax burdens without suffering a penalty. This attempt to usurp the States' authority is unthinkable in our federal Republic."
The Tennessee chapter of Americans for Prosperity praised Slatery for challenging the provision.
“Tennesseans don’t care for the federal government telling us how to run our state’s fiscal policy. If anything, the federal government should look to Tennessee on how to run its finances considering the growing $26 trillion national debt," AFP State Director Tori Venable said in a statement. "Our state is a national leader in managing tax dollars and spending responsibly, but the latest spending bill would tie legislators’ hands from enacting tax relief until the provisions sunset in 2025. This is wrong, and we support Attorney General Slatery in ensuring Tennessee can continue to lower taxes and increase growth.”