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Brnovich, Republican Attorneys General Ask Treasury For Tax Policy Clarity

Published: Wednesday, March 17, 2021 - 4:48pm

Attorneys general from 21 states, including Arizona’s Mark Brnovich, signed a letter asking the Biden administration to clarify how a provision in the latest coronavirus stimulus package impacts states’ authority over tax policy.

At issue is language stating that states are prohibited from using federal funds from the American Rescue Plan Act to make up for lost revenues, directly or indirectly.

If the Biden administration adopts an “expansive” reading of that policy, Brnovich and other attorneys general warned “it would represent an unprecedented and unconstitutional infringement on the separate sovereignty of the states.”

Particularly troubling for the attorneys general is the prohibition of “indirect” offsets in tax revenue. 

That could be interpreted “to prohibit tax cuts or relief of any stripe, even if wholly unrelated to an independent of the availability of relief funds,” they wrote.

Along those lines, Alan Maguire, an economic policy consultant who advises the Legislature, said the provision could throw a wrench in Gov. Doug Ducey’s proposal to lower Arizona’s income tax rates.

The distinction between direct and indirect is key, he said.

“Money is fungible. So if you tell me I can’t spend money from the recovery act to cut taxes, does that mean I can’t use other money that I have on hand to cut taxes? And if so, how is that enforced,” Maguire said.

Brnovich and other attorneys general asked U.S Treasury Secretary Janet Yellen to confirm that the coronavirus stimulus package does not prohibit states from changing their tax policies, even in ways that would reduce revenue.

If they don’t hear back from Yellen by March 23, the attorneys general wrote they’ll take “appropriate additional action” to ensure states’ autonomy.

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