San Antonio Express-News (Sunday)
STATE VS. FEDERAL
Smart Money: Does Biden’s relief plan limit states’ ability to control their own finances?
Few, including me, really understand what President Joe Biden’s signature $1.9 trillion American Rescue Plan contains.
We know it included those sweet $1,400 stimulus checks. And it had a $86 billion bailout of union pension funds, which I’ve written about.
It also sparked a kerfuffle about states’ rights, the subject of today’s column.
Although passed in March with zero GOP votes, the COVID-19 stimulus package is popular with a swath of Republican voters, though not a majority, according to polls.
One group very much not happy with at least one provision of the law is Republican attorneys general from 21 states. They claimed in a letter to Treasury Secretary Janet Yellen that it contains a tax provision that is “the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”
Those are some fighting words right there.
It’s worth digging into their claim a bit to see if the attorneys general are right.
(Brief aside: It’s possible I wrote this entire column so I could continuously write the plural “attorneys general.” I love plurals like that. Like surgeons general. Noms de guerre. Culs de sac.)
We start with the fact that a big part of the stimulus bill involves a transfer of federal dollars to states, counties and cities in grants totaling $350 billion. The aim was to cover budget shortfalls resulting from COVID-19’s impact on local economies through 2024.
A key provision — the part that had the 21 attorneys general in a high dudgeon — says that the same cities, counties and states may not use the funds for tax cuts.
On the face of it, that seems entirely reasonable. We Americans wouldn’t like to award Oklahoma an extra $20 billion in federal dollars to cover its budget deficit, only to have the state turn around and cut state taxes by $20 billion. That seems patently unfair. (Unless you’re from Oklahoma. In which case, it’s totally fair!)
States or local governments that violate the law would have to refund their grant money to the federal government. Reports on uses of funds are meant to ensure compliance with the law.
The prohibition on state or local governments doing a tax offset starts out fair. But it also includes a reference to “indirect” tax offsets — which, the attorneys general claim, possibly would make any tax reduction between now and 2024 impossible. That’s the part that, in their words, “would represent an unprecedented and unconstitutional infringement on the separate sovereignty of the States.”
Basically, if state legislatures cannot set tax policy, including lowering taxes at times, then the federal government has usurped state policy. The federal government, in their view, overstepped its bounds, wielding undue power over states.
Conservative columnist George Will weighed in with a history lesson on how the Supreme Court has jealously guarded states’ rights to set their own fiscal policies, in light of the 10th Amendment. It states that “the powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
As Will explains, Congress has at times used fiscal coercion: over the national drinking age (against South Dakota) and sometimes over a state’s right to dispose of radioactive waste (against New York). In this fight, Will sides with the attorneys general, seeing in the provision a progressive drive to increase the size and scope of the federal government against the states.
On the other side, however, is the reasonable expectation that it’s not fair to beggar the federal government to reward certain state residents with tax cuts. And in the past, the Supreme Court has backed Congress’ ability to set limits and restrictions on federal grants, as long as the conditions are closely linked to the purposes of the funds. There’s a “reasonableness” versus “coercion” standard that the Supreme Court references in these cases.
Bitter fights over state versus federal power are as old as the union. Historically, “states’ rights” claims have been used to justify the worst racist policies. States’ rights was the principledsounding claim of slaveholding states in the decades before the Civil War and when they formed the Confederacy. States’ rights sounded like a reasonable constitutionalist argument for postReconstruction Jim Crow laws. To forget that context for states’ rights arguments is to forget our history.
And yet, state and local leaders should jealously guard their right to set fiscal policy in this scenario. Unlike many historical states’ rights fights, this one truly seems to be about money — and who gets to set up rules for its use.
Treasury Secretary Janet Yellen replied to the attorneys general and attempted to lower the rhetorical temperature.
Her promise is that Treasury will be careful in weighing whether state tax policy specifically offsets the stimulus money. Further, Treasury will consider the limits of tax offsets, meaning a small tax cut does not require a full refund of the state’s stimulus money.
The rhetoric is heated. But I’m pretty sure nobody called each other demeaning names over Twitter. For my part, I prefer this kind of wonky fiscal policy fight to the scorched-earth, tribal wars we’ve witnessed in Washington in recent years.