Republicans are disgusted by the provision, which says that states, the District of Columbia, territories and tribal governments cannot use the $ 220 billion in aid that Congress has given them to compensate “indirectly or directly” for the cost of tax cuts.
Ohio has already sued the Biden government over the provision, saying it is unconstitutional, and more lawsuits may follow, probably from other red states. West Virginia Attorney General Patrick Morrisey tweeted on Tuesday: “Now we are getting ready for court”, saying the Biden government’s response to a request for clarification on the issue “is unacceptable”.
Senator Mike Crapo (R-Idaho) told Yellen that states are “paralyzed” and “this is an issue that needs immediate clarity”.
Yellen noted that the Treasury has 60 days from the enactment of the law, which President Joe Biden signed on March 11, “to complete this work and get the money to distribute to state and local governments, and there are a number of thorny issues. we have to work on to connect with the problem you just mentioned. ”
“We will simply have to try to create guidance in that time frame,” she said. “We are working on it 24 hours a day, 7 days a week, to get it out as soon as possible.”
Crapo, who is co-sponsoring legislation to remove the tax cut restriction from the law, told Yellen: “I will encourage you to do everything you can to develop this guidance to answer these thorny questions in a way that will maximum flexibility for states and local communities. “
Treasury officials noted that the federal government often imposes conditions on the financing it provides to states. They also said that states are still free to cut taxes, but not to pay for them with federal money for pandemic relief.
Still, Crapo said it was not a direct problem. For example, he noted that some states may follow the example of the federal government in exempting some unemployment benefits from taxes. He asked Yellen if this was “a penalty that the state would have to pay if it did this?”
Yellen said the Treasury “received this question from several states” and “we are examining this issue carefully”.