Judge rejects GOP effort to block tax provision in Biden stimulus bill

A federal judge on Wednesday ruled against an effort by Ohio’s Republican attorney general to temporarily block a provision of President Biden’s coronavirus relief law that forbids states from using federal aid to offset any future tax cuts.

In a narrow victory for the Biden administration, District Court Judge Douglas Cole ruled that Ohio’s lawsuit against the tax provision has merit and may very well succeed in court but that a preliminary injunction against the law’s enforcement would be inappropriate at this stage, when it is unlikely that the Treasury Department would take action against the state.

“The bottom line is this — a preliminary injunction that stands no meaningful prospect of ever being enforced, as the Secretary is unlikely to be in a position to recoup funds while this suit is pending, adds nothing by way of clarity,” wrote Cole, a Trump appointee on the U.S. District Court for the Southern District of Ohio.

“Thus, while the Court finds that irreparable harm likely exists, the requested preliminary injunction does not avoid that harm,” he added.

Ohio Attorney General Dave Yost (R) filed the lawsuit in March against Treasury Secretary Janet Yellen, arguing that offering states federal aid on the condition that they not use it to offset tax cuts is unconstitutional.

Yost’s lawsuit was the first in a series filed by Republican state attorneys general challenging the provision, in one of the GOP’s first concerted legal efforts against Biden’s legislative agenda. 

In March, a group of 21 Republican state attorneys general wrote to Yellen asking for clarity on the provision and expressing concerns about its implications for states’ rights.

“Absent a more sensible interpretation from your department, this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the State through federal usurpation of essentially one half of the State’s fiscal ledgers,” they wrote in the letter. “Indeed, such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic.”

The Treasury Department released regulations this week detailing how the law would be implemented. According to the rules, states would be in violation of the tax mandate if the “recipient government could not identify sufficient funds from sources other than the Fiscal Recovery Funds to offset the reduction in net tax revenue.” 

The lawsuit asked the federal court to impose a preliminary injunction to prevent the provision of the $1.9 trillion American Recovery Plan Act from going into effect.

“Ohio seeks to enjoin federal officials from enforcing the unconstitutional Tax Mandate, and seeks declaratory relief establishing that the State of Ohio, under the Tenth Amendment to the U.S. Constitution, retains the freedom to manage its own tax policy,” the lawsuit reads.

The Ohio attorney general responded to Cole’s order Wednesday by filing a motion to expedite the remaining court proceedings, seeking a final decision in the case by June 4.

Yost said Wednesday that despite not winning an injunction, he was encouraged by Cole’s assessment of his office’s legal arguments against the law.

“The trial court here agreed with our core argument: the federal government does not have the right to tell the states what to do with its tax policy,” Yost said in a statement. “Imagine if a conservative federal government required states to reduce taxes as a condition for receiving emergency funding. We look forward to a final judgment.”

Updated at 2:23 p.m.