Bloomberg Tax
Free Newsletter Sign Up
Bloomberg Tax
Free Newsletter Sign Up

Ohio Sues Biden Administration Over Stimulus Tax Restriction (3)

March 17, 2021, 8:10 PM

Ohio sued the Biden administration over a provision in the $1.9 trillion Covid-19 relief law that bars states from using stimulus money to reduce taxes, claiming the rule illegally restricts the state’s power to change its tax structure and economic policy.

The lawsuit, filed Wednesday against the U.S. Treasury Department, seeks to bar enforcement of the so-called tax mandate that Ohio Attorney General Dave Yost claims was added at the last minute to the stimulus plan, which includes more than $195 billion in aid to struggling states.

The provision, added by Senate Majority Leader Chuck Schumer, is holding Ohio’s $5.5 billion in federal relief “hostage,” said Yost, a Republican.

”There was never any debate on this amendment,” Yost said in a phone call, adding that Schumer had gone too far by adding the provision without debate. “There were no hearings. He slipped it in in the 11th hour without any transparency or discussions.”

The case in federal court in Cincinnati is the latest Republican challenge to the Biden administration’s policies, including several lawsuits over his plan to freeze deportations of undocumented immigrants for 100 days and his moratorium on oil and gas leasing on federal public land.

Read More: Biden Opens Stimulus Road Show in Swing State to Rebut Jabs

The Treasury Department didn’t immediately respond to a message seeking comment.

In its complaint, Ohio argues the administration is overstepping its authority and needlessly putting the state’s recovery at risk. It’s an argument that may be echoed in coming days by other Republican-led states.

“The mandate injures the state by unconstitutionally intruding on the state’s sovereign authority, by interfering with the state’s orderly management of its fiscal affairs, and by subjecting the state to the risk that it may be made to return funding to the federal government,” Ohio said in the complaint.

Republicans in Congress didn’t support the stimulus, even after states and cities warned they’d be forced to make deep cuts to public health, safety and education programs without more funding. Ohio said its tax revenue for fiscal year 2020 fell $1.1 billion below estimates due to the pandemic.

The provision added by Schumer is intended to focus the money on where it’s needed most. It bars states from “either directly or indirectly” using the funds to offset a reduction in tax revenue “resulting from a change in law, regulation, or administrative interpretation during the covered period.”

Yost said the provision “allows the federal government to claw back this money if it finds this tax mandate was violated,” even if the money has already been spent. “They can say ‘give us the money back’ but where are we going to get it? It’s spent,” he said. “There’s a substantial danger here.”

On Tuesday, Oklahoma Attorney General Mike Hunter and 20 other state AGs sent a letter to Treasury Secretary Janet Yellen asking her to clarify whether the provision “strips state legislatures of their authority” to provide economic relief to citizens by reducing state taxes. Hunter pointed to proposed Covid relief legislation in Oklahoma that aims to provide tax relief by restoring the refundability of the earned income tax credit, saying the bill could be put at risk by the federal tax mandate.

“The federal stimulus bill might prohibit Oklahoma from providing this economic relief without losing its share of federal funding to high-tax states,” Hunter said in a statement. “From a broader perspective, the problem my colleagues and I have with this language is that it is unconstitutional.”

In Ohio’s motion for an injunction, the state said its claim is backed by a U.S. Supreme Court ruling that rejected a provision of the Affordable Care Act that allowed the federal government to withhold Medicaid funding from states that didn’t comply with the law known as Obamacare. So-called spending clauses are legal in many instances, Ohio argues, but not this one.

“Congress can impose conditions on the states through Spending Clause legislation only if it does so in a non-coercive fashion for the promotion of the national welfare, and only if the conditions it imposes are unambiguous and otherwise constitutional,” Ohio said in the filing.

(Updates with comments by Ohio AG Yost in phone interview)

--With assistance from Alexander Ebert.

To contact the reporter on this story:
Erik Larson in New York at

To contact the editors responsible for this story:
David Glovin at

Peter Blumberg

© 2021 Bloomberg L.P. All rights reserved. Used with permission.