Missouri AG Schmitt sues Treasury over tax cut restrictions in COVID stimulus plan
Missouri Attorney General Eric Schmitt, a newly minted candidate for U.S. Senate, announced a lawsuit Monday against the U.S. Treasury Department challenging a provision in the latest COVID-19 stimulus package that prohibits states from using federal aid to cut taxes.
“Missouri should not have to choose between implementing tax policy or receiving federal COVID-19 relief funds, especially as this pandemic has crushed small businesses and individuals,” Schmitt said in a statement announcing the lawsuit.
Schmitt was one of 21 Republican attorneys general to sign a letter the Treasury Department last week to express concerns about the provision, but he’s the only one so far to file a lawsuit.
The provision was a late addition by Senate Democrats to the $1.9 trillion stimulus package as several GOP state legislatures, including Kansas and Missouri, were weighing tax cuts in anticipation of billions in federal aid.
The restriction caused immediate backlash among state-level GOP officials, but it may be easy to circumvent.
Treasury Secretary Janet Yellen said last week that states were still free to pursue tax cuts as long as they weren’t tied directly to the federal aid.
“Nothing in the Act prevents States from enacting a broad variety of tax cuts. That is, the Act does not ‘deny States the ability to cut taxes in any manner whatsoever,’” Yellen told the state attorneys general in a response to their letter.
“It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law,” she said. “If States lower certain taxes but do not use funds under the Act to offset those cuts — for example, by replacing the lost revenue through other means — the limitation in the Act is not implicated.”
However, Schmitt’s complaint, filed Monday in the Eastern District of Missouri, argued that this response by Yellen left open the possibility that the Treasury Department will require states to replace revenue, which he argued extends beyond federal authority.
“If adopted, the broad interpretation of the Tax Mandate would impose a draconian and unprecedented federal restriction on a core aspect of state sovereignty—each State’s authority to set its own tax policy. This interpretation would be plainly unconstitutional,” Schmitt said.
The Treasury Department did not immediately comment on the lawsuit. Yellen told the attorneys general last week that the department was drafting further guidance to address the concerns raised in their letter.
The Missouri and Kansas legislatures are both weighing tax cuts this spring. Missouri will receive $2.8 billion in federal aid, under the stimulus plan. Kansas will receive $1.6 billion.
The proposed income tax cuts in Missouri are tied to the creation of a “Wayfair” tax on internet sales from out of state. It would tax purchases from third party sellers, such as Amazon and eBay.
Missouri state Rep. J. Eggleston, a Maysville Republican, doesn’t anticipate the proposal running afoul of the federal law.
“The federal law says you can’t have an income tax reduction because of the federal money coming in and we don’t. We’ll have an income tax reduction because of the ‘Wayfair’ money coming in, and that was filed long before the federal bill,” Eggleston, the bill’s sponsor, told The Star last week.
“In fact it’s been filed that way on both the (Missouri) House and Senate sides in the last three years. So we’re not doing anything new just because the Rescue Act got passed.”
Schmitt’s lawsuit comes less than a week after he announced his campaign for U.S. Senate. He will face former Missouri Gov. Eric Greitens and any other GOP candidates in the 2022 primary for retiring Republican Sen. Roy Blunt’s seat.
When Schmitt announced his candidacy last week, he noted that he already sued President Joe Biden’s administration and planned to bring more.
This story has been updated to correct the spelling of Eggleston’s home town.
This story was originally published March 29, 2021 at 1:11 PM.
