Federal judge blocks major provision of Biden-backed bill

A federal judge has ruled in favor of 13 states who sued the Biden administration over a provision of the American Rescue Plan Act that banned states from using federal funding allocated by the bill to enact tax cuts.

Specifically, the legislation — a signature piece of President Joe Biden’s agenda — sought to prohibit states from “directly or indirectly offset[ting] a reduction in net tax revenue,” though it did not detail what an “indirect” offset even was, according to the Tax Foundation.

The restrictions serve as “a federal invasion of State sovereignty,” Judge L. Scott Coogler of the U.S. District Court for the Northern District of Alabama ruled, The Associated Press reported.

“The Tax Mandate’s restriction on direct or indirect state tax cuts pressures States into adopting a particular — and federally preferred — tax policy,” Coogler wrote, which “may disincentive” states “from considering any tax reductions for fear of forfeiting ARPA funds.”

The suit had been filed by the states of Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, Utah and West Virginia.

According to West Virginia Republican Attorney General Patrick Morrisey, the ruling, which effectively blocks the relevant provision of the American Rescue Plan Act from being enforced, “ensures our citizens aren’t stuck with an unforeseen bill from the feds years from now.”

Iowa Gov. Kim Reynolds, a Republican, expressed similar sentiments.

“This is a major victory for the State of Iowa and Iowa taxpayers,” she said in a statement. “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.”

The ruling represents a big win for taxpayers, Americans for Prosperity Iowa State Director Drew Klein told The Center Square.

“The federal government’s attempt in this case to place conditions on funding to the states that would prevent them from enacting any form of tax-relief is unconstitutional and works against the interests of state taxpayers,” Klein said.

“As this case continues to move through the appeals process, we are optimistic that higher courts will agree with today’s ruling.”