AG Asks Treasury Secretary to Clarify Position on Federal Control of State Finances

OKLAHOMA CITY – Attorney General Mike Hunter today sent a letter to Treasury Secretary Janet Yellen asking her to clarify whether the last-minute provision added to the latest coronavirus stimulus package strips state legislatures of their authority to provide further economic relief to their citizens by reducing state tax rates, or risk paying back federal aid.

The letter, signed by 21 attorneys general, says if the intent was to deny states the ability to cut taxes in any manner whatsoever, the act would likely constitute the greatest attempted invasion of state sovereignty by Congress in the history of the Republic.

The troublesome language in the American Rescue Plan Act of 2021 prohibits states receiving a portion of the $1.9 trillion relief package from cutting taxes until 2024. If a state fails to comply, that state’s government would be required to repay the Department of the Treasury the amount equal to the tax cut.

Attorney General Hunter said the Treasury Department has given little guidance on what the language means, and that it could discourage actions by states intended to help citizens.

“There is currently a bipartisan piece of legislation that has already passed the state House of Representatives that would provide personal income tax relief to Oklahomans,” Attorney General Hunter said. “Part of the legislation restores the refundability of the state’s Earned Income Tax Credit, which is important for working families in the state. But the federal stimulus bill might prohibit Oklahoma from providing this economic relief without losing its share of federal funding to high-tax states. From a broader perspective, the problem my colleagues and I have with this language is that it is unconstitutional. It is the responsibility of independent state legislatures to set tax rates for their states, not the federal government using threats and decrees. We hope Secretary Yellen clarifies the provision’s scope in accordance with the Constitution.”

In the letter, attorneys general write that the separation of federal and state sovereigns is fundamental to the Constitution. States have the right to their own taxing policies based on their own independent legislatures.

The attorneys general ask Secretary Yellen specifically to confirm the mandate only prohibits states from using the funds received by the federal government to reduce taxes but does not prohibit states from otherwise cutting taxes.

“In the absence of such an assurance by March 23, we will be forced to seek either a declaratory judgment to that effect or a judicial holding that the Act, if not so limited, violates the U.S. Constitution,” the letter concludes.

Read the letter, here: https://bit.ly/3txjfmR.