PHOENIX (AP) — A federal appeals court on Thursday revived Arizona’s lawsuit challenging the portion of President Joe Biden’s massive coronavirus bailout law that bars states from using federal money to offset cuts of taxes.
The decision by a three-judge panel of the 9th U.S. Circuit Court of Appeals overturned a ruling by a federal judge in Phoenix who said Arizona had no right to pursue the provision.
The panel did not rule on the merits of the case, instead sending it back to the same judge to assess the state’s claim that Congress exceeded its authority when it bound the acceptance of American Rescue Plan Act money to state certification that it would not be used to offset tax cuts.
Attorneys general in 22 Republican-led states had urged the appeals court to either revive the case or declare the provision unconstitutional.
“The federal government has no right to tell states how to set their tax rates,” Arizona Attorney General Mark Brnovich said in a statement. “Yet the Biden administration is trying to bully and punish states with the loss of COVID-19 relief funding if they don’t comply with these unconstitutional demands.”
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Arizona lawyers argued that the provision was ambiguous and illegally violated state sovereignty by preventing the state from making its own tax policy decisions.
“This case potentially involves one of the most aggressive encroachments on state sovereignty ever enacted by Congress in Republican history,” the Arizona lawyers wrote of the law Biden signed. in March 2021. The $1.9 trillion law gave nearly $200 billion to states to help weather the coronavirus pandemic.
But lawyers for the US Treasury Department argued that Arizona was overstating the impact of the provisions. The law and rules issued by the Treasury Department do not contain a blanket prohibition on tax cuts, they argued. Rather, “the provision only restricts the use of fiscal stimulus funds to offset the revenue effects of tax cuts.”
They also noted that the Arizona legislature enacted a $1.9 billion income tax cut last year, which the state wouldn’t have done if lawmakers had really gotten to it. concerned about this provision.
The provision was included in Biden’s bailout at the insistence of Democratic West Virginia Sen. Joe Manchin. The Republican governor of his state was about to eliminate income taxes.
Besides Arizona’s challenge, other states have argued that the tax cut ban is unconstitutional. In November, a federal judge sided with West Virginia and 12 other states that challenged the provision. He agreed with arguments similar to those raised by Arizona.
The Treasury Department appealed this decision.
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