Judge: Feds can't prohibit Ohio's use of COVID-19 relief funds for tax cuts
A federal court on Thursday ruled that President Joe Biden's Treasury Department cannot enforce a rule prohibiting use of federal COVID-19 relief funds for tax cuts in Ohio, handing a victory to state Republican leaders.
"The Biden administration reached too far, seized too much and got its hand slapped," Ohio Attorney General Yost said in a news release. "This is a monumental win for the preservation of the U.S. Constitution – the separation of powers is real, and it exists for a reason.”
Yost had sued the U.S. Treasury in March over a "tax mandate" provision in the American Rescue Plan Act, a humongous $1.9 trillion spending package to aid the nation in recovery from the COVID-19 pandemic. Ohio's share was around $5.4 billion.
In ARPA, a section states that the relief funds may not be used by states “directly or indirectly” to offset revenue reductions.
Ohio and at least 20 other Republican-led states took issue with that rule, arguing that it violated and infringed upon a state's taxing authority. It also threw a wrench into state Republicans' initial plans nationwide to use some of the extra money for increased tax cuts.
A preliminary injunction to stop the rule was denied partly because Ohio had not opted into ARPA then, but this week, U.S. District Court Judge Douglas Cole granted a permanent injunction.
Cole agreed the tax mandate overstepped Congress' authority, but mostly because it was ambiguous.
"It is only when a state official is 'unable to ascertain' the obligations that a conditional grant imposes, that constitutional problems arise," he wrote in the ruling. "The Tax Mandate, even when read in context, fails to put the State on 'clear notice' of its
obligations."
He pointed specifically to the part where states cannot "indirectly" offset lost revenue from tax cuts as unclear. Subsequent guidance from the treasury department to clear up the ambiguity was not sufficient, he opined.
In addition, the judge said the language does not distinguish between expected and actual tax revenues.
"When Ohio legislators enact a lower rate on a given tax, they may do so based on a belief that actual tax collections will go up," Cole used as an example.
The results of this case are limited to Ohio, however. Declaratory relief was denied, with the judge saying the injunction protected Ohio enough.
“American Democracy once again defeats an attempt to take away states’ rights,” Yost said in celebrating the ruling. “This case is about the separation of power and I am pleased that the court agreed with our position that the Tax Mandate is out of bounds.”
Titus Wu is a reporter for the USA TODAY Network Ohio Bureau, which serves the Columbus Dispatch, Cincinnati Enquirer, Akron Beacon Journal and 18 other affiliated news organizations across Ohio.