Louisiana Attorney General Jeff Landry announced Tuesday that he joined a lawsuit against the U.S. Treasury Department, arguing against a provision in the American Rescue Plan Act that prohibits states from using federal pandemic relief money to cut taxes.
Landry joined the lawsuit with two other Republican attorneys general from Mississippi and Texas. The filing names as defendants Treasury Secretary Janet Yellen, Inspector General Richard Delmar, the U.S. Treasury Department, and the United States of America. According to his press release, Landry disagrees with the act’s tax mandate, which congress included in the American Rescue Plan to try to ensure state legislatures use the money directly on critical health and economic needs and not to cut taxes.
The mandate does not prevent states from cutting taxes but says they can’t use federal dollars to do so, whether directly or indirectly. Congress reasoned that if a state can afford to enact policy that reduces its net tax revenue, then that state shouldn’t need a federal handout and, per the mandate, must return the money to the U.S. Treasury, according to the Center on Budget and Policy Priorities. Opponents argue that the mandate circumvents states’ sovereignty and interferes with each states’ own views on how to handle pandemic relief.
“In exchange for badly needed funds to assist the States of Texas, Mississippi, and Louisiana and their citizens in recovering from the ongoing pandemic — the American Rescue Plan Act attempts to obligate these states to exercise their core sovereign power of taxation in the way the federal government prefers,” Landry said. “Specifically, the Act prohibits the states from reducing net tax revenue on pain of forfeiting up to billions of dollars in federal funding.”
Landry said the tax mandate applies “regardless of the state’s current rate of COVID-19 infections, its current unemployment rate, or its views on the best way to alleviate the economic burdens associated with the pandemic.”
Louisiana’s legislative leaders have already committed to enacting “revenue neutral” tax reform this year, meaning the policy will not decrease the state’s net revenue. Only net tax cuts run afoul of the mandate, so a state could, for example, cut taxes for the poor while increasing taxes for the wealthy as long as the cut is offset and total net revenues are not reduced.
Landry said he believes the tax mandate violates the federal spending clause, the anti-commandeering doctrine, and the equal sovereignty principle.