Biden Beats First GOP Bids to Block Stimulus Ban on Tax Cuts

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The Biden administration can enforce a congressional ban on tax cuts by states that tap almost $200 billion in Covid stimulus money, two federal judges ruled in separate cases.

Ohio, the first state to sue over the restriction, was denied an injunction because it hasn’t yet suffered any harm, U.S. District Judge Douglas R. Cole ruled Wednesday in Cincinnati. Cole said Ohio’s lawsuit can proceed. On Tuesday night, a judge overseeing Missouri’s lawsuit denied a similar request for an injunction and dismissed that case outright.

The Ohio and Missouri lawsuits were among five legal challenges triggered in mostly Republican-led states after the so-called tax mandate was added to the $1.9 trillion American Rescue Plan Act. The decisions are 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. In the Ohio ruling, Cole said the state had established “a substantial likelihood (although by no means a certainty) of success” on at least part of its Spending Clause claim.

Ohio Attorney General Dave Yost’s press secretary, Steve Irwin, didn’t immediately have a comment when reached by phone.

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).

©2021 Bloomberg L.P.

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