Yellen says tax cut restrictions in aid package a ‘thorny’ issue as lawsuits brew

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Janet Yellen said that the Treasury Department is working to develop guidance about a provision added to the $1.9 trillion spending package that could spark a major legal battle for the Biden administration.

The secretary spoke at a Wednesday hearing before the Senate Banking Committee alongside Federal Reserve Chairman Jerome Powell. Yellen was asked about the provision, which targets $350 billion in aid for state and local governments but bars states from using the funding to offset tax cuts or credits “directly or indirectly.”

“There are a host of thorny questions that we have to work through,” Yellen said.

Last week, Ohio Attorney General Dave Yost filed a lawsuit against the Biden administration, alleging that the provision is unconstitutional because it exceeds the authority the federal government has over state tax policy and thus affects how it can spend its aid.

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Additionally, 21 Republican attorneys general signed an open letter to Yellen calling for clarification about the provision and menaced legal action if a proper response was not issued by Tuesday.

Since then, Arizona Attorney General Mark Brnovich said he will be pursuing the matter in court, with a spokesperson for the office telling the Washington Examiner on Wednesday that Yellen’s response “was ambiguous and failed to provide the assurances that states can craft their own tax policies.”

Yellen said during the hearing that the Treasury Department has 60 days from when the law was enacted to issue guidance on how the funds can be spent. She said her department is working on crafting that guidance “24/7 to get it out as rapidly as we possibly can.”

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“We will have to define what it means to use money from this act as an offset for tax cuts, and given the fungibility of money, it’s a hard question to answer,” Yellen said. “But that’s what we’re required to do, and we will do our best to offer guidance on it.”





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