A federal court ruled in favor of Alabama in a dispute against the U.S. Department of Treasury over a provision in the Biden administration's $1.9 trillion American Rescue Plan (ARP) that would have punished states for cutting taxes.
Initially, the ARP required states to report any tax revenue reductions to the Treasury. The Treasury could reclaim any funds if Treasury officials determine the state used the money to offset tax cuts.
Alabama Attorney General Steve Marshall confirmed Monday morning that the U.S. Court of Appeals for the 11th Circuit affirmed the state's victory over the Treasury by ruling the tax mandate a violation of the Constitution. According to the court, the Treasury can't use federal aid from the ARP to prohibit states from cutting taxes.
The ARP sent $350 billion in aid to states, counties and municipal governments around the country to reimburse COVID-19 expenses. However, the governments can also use the funds for infrastructure projects like broadband expansion and sewer projects.
"This federal tax mandate was an unprecedented and unconstitutional assault by the federal government on state sovereignty and an attempt to commandeer the State of Alabama's sovereign power to tax and spend," Marshall said. "The authority of states to determine their own fiscal policies is a core tenet of our federalist system. I am thrilled to announce that the 11th Circuit agreed."
Alabama led the lawsuit against the Treasury in conjunction with West Virginia and Arkansas, but other states eventually joined, including Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah.
Alabama has one of the most significant revenue surpluses in state history between the state's Education Trust Fund and State General Fund budgets, leaving some Alabamians eager for a tax rebate bill in the upcoming legislative session.
Though state legislators have not yet introduced a tax rebate bill, lawmakers might seek to use $500 million of the state's $3 billion surplus to provide rebates to taxpayers from $200 to $500. However, a tax rebate is just a temporary measure. A tax cut would permanently lower taxes in the future.
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