The Biden administration can enforce a congressional ban on tax cuts by states that tap almost $200 billion in Covid stimulus money while a lawsuit over the provision proceeds, a judge ruled.
The ruling on Wednesday denying Ohio Attorney General Dave Yost’s request for an injunction against the ban is the first legal test of the restriction, which triggered five legal challenges in mostly Republican-led states after it was added to the $1.9 trillion American Rescue Plan Act.
U.S. District Judge Douglas R. Cole’s decision is a positive early sign for Treasury Secretary Janet Yellen, who argued in court papers that the tax mandate is a “straightforward exercise” of Congress’s authority to attach conditions that “preserve its control over the use of federal funds.”
But the dispute is far from over. Judges in the other cases may come to different conclusions when ruling on pending requests for injunctions, and either side could ultimately prevail on the merits following a trial.
Yost’s press secretary, Steve Irwin, didn’t immediately have a comment when reached by phone.
Read More: Ohio Sues Biden Administration Over Stimulus Tax Restriction
The dispute is one of several GOP-led legal challenges to the Biden administration’s policies, including lawsuits over his moratorium on oil and gas leasing on federal public land and his plan to freeze deportations of undocumented immigrants for 100 days, which was blocked by a judge pending trial in another suit brought by Republican state AGs.
In the Ohio case, Yost argued that the tax mandate added by Senate Majority Leader Chuck Schumer was holding the state’s $5.5 billion in federal relief “hostage.” Republican state AGs have said they should be permitted to accept federal cash and cut taxes without fear that the money will be clawed back. Democrats in Congress say the funds should be used for relief efforts and not to finance tax cuts popular with Republican voters.
The relief money “may be directed to a broad variety of state efforts to respond to the public health emergency created by the Covid-19 pandemic and to its economic effects, including by funding state-level government services and by providing assistance to households, small businesses, and industries,” Yellen said in a filing responding to a parallel suit by Arizona.
Other states that have sued include Alabama, Tennessee and Kentucky, whose legislature is controlled by Republicans. The states have called the tax mandate an improper offer of federal money they “can’t refuse” and an attempt at a “complete take-over of state finances.”
The case is State of Ohio v. Yellen, 21-cv-00181, U.S. District Court, Southern District of Ohio (Cincinnati).
