Joe Biden facing court setback in bid to control states’ tax-cut policy

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The Biden administration has suffered a setback in its bid to control states’ fiscal policy through the $1.9 trillion coronavirus relief package.

In a little-noticed ruling, a federal judge found that Ohio has a “substantial likelihood of success” in its lawsuit fighting the administration’s restriction on states using their federal aid to offset future tax cuts.

U.S. District Judge Douglas Cole last week cited a 2006 Supreme Court precedent on state sovereignty that says states cannot accept conditions set by Congress that they are “unable to ascertain.”

Ohio is set to receive $5.5 billion from the relief measure that President Biden signed into law in February. But the state sued over the law’s provision that states can’t use the money to help pay for tax cuts, saying the provision violates Congress’ authority under the Constitution’s Spending Clause.

The provision says states can’t use the federal aid to “directly or indirectly offset a reduction” in net tax revenue.

“The court honestly has no idea what an ‘indirect offset’ to net tax revenues may be,” Judge Cole wrote. “It became clear at oral argument that the federal government was largely unwilling to hazard a guess as to what it meant either.”

At least 16 other states have sued the administration to block the restriction on their finances.

Ohio’s lawsuit has received the backing of 74 House Republican lawmakers, including Rep. Kevin Brady of Texas, who has introduced legislation to rescind the provision.

The judge in the Ohio case declined to issue a preliminary injunction against the Treasury Department taking action against the state, saying the merits of the case will likely be decided before that could happen.

But Judge Cole did say it is “not at all clear that the [Treasury] Secretary [Janet Yellen] can ever cure a Spending Clause ambiguity program, even through final regulations.”

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