With this dangerous Biden Administration policy defeated, Iowa lawmakers can now move forward with even greater confidence to deliver tax relief in the coming legislative session.
From the moment President Biden signed the American Rescue Plan Act (ARPA) into law last March, states have struggled to come to grips with a provision aimed to prevent states from using any of the funds to pay for tax relief. This provision has been widely criticized as extremely vague and a massive overreach by the federal government.
In response to President Biden’s signature on the bill, Governor Reynolds joined 12 other states in a lawsuit fighting back against this historic assault on the division of political power between the states and the federal government.
Eight months later, a federal district court in Alabama has now ruled in favor of the 13 state lawsuit and prohibited the Biden Administration from enforcing the terms of this brazen attempt to undermine states’ rights. In the decision, the judge wrote that “the tax mandate has and will continue to inflict irreparable injury on the Plaintiff States, who are all either faced with or bound by an unconstitutionally ambiguous “deal” that is intruding on each State's ability to exercise its “indispensable” sovereign power to tax.”
Otherwise stated, an individual state’s sovereign power to tax and to determine the level of those taxes is at the very core of our constitutional framework.
Not only has ARPA itself added to our exploding federal debt and contributed to the recent surge in inflation, one particular clause trampled on the sovereign authority of states to craft their own tax policies.
The offending provision of the ARPA reads:
“A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”
In response to the court ruling, Governor Kim Reynolds clearly signaled her intentions. “This is a major victory for the State of Iowa and Iowa taxpayers,” said Gov. Reynolds. “The Biden Administration was trying to punish fiscally responsible states like Iowa, which has a record budget surplus, and that’s why we took legal action. With this ruling, Biden’s Administration can’t keep us from cutting taxes and I look forward to doing just that.”
Governor Reynolds’ commitment to tax relief will leave more money in the pockets of Iowa taxpayers and boost Iowa’s economy. Iowa is on track to hold roughly $2 billion of excess taxpayer money at the end of the current fiscal year. Instead of government sitting on this massive stockpile of taxpayer money, these funds should be used for permanent, structural income tax relief.
With this dangerous Biden Administration policy defeated, lawmakers can now move forward with even greater confidence to deliver tax relief in the coming legislative session.