The $1.9 Trillion Stimulus Package: A Rescue Plan or a State Sovereignty Attack?
April 2021 | Edgar Nicolas Garcia, Associate Editor
From a new wave of stimulus checks to an injunctive complaint sued by several states over its tax provision, the $1.9 trillion stimulus package signed into law by President Joe Biden has a myriad of support but is also being countered by critics. More than a year after the initial COVID-19 outbreak and its various state-mandated lockdowns, the country and its economy as a whole has dramatically suffered. To alleviate this dilemma, the 117th Congress has successfully passed H.R.1319, or more popularly known as the “American Rescue Plan Act.” It has a monumental price tag of 1.9 trillion dollars that encompasses over 50 discrete provisions.[1] It is one of the largest economic rescue packages in US history, even though it was only passed with Democratic Party members’ votes. Opponents to this legislation argue that it intrudes state sovereignty, which is the power of a state to act within its federalist rights and to govern itself. Biden defends it by explaining that, “This historic legislation is about rebuilding the backbone of this country and giving people in this nation — working people, middle-class folks, people who built the country — a fighting chance.”[2] Altogether, the American Rescue Plan Act aims to perpetuate a boost in economic growth, extend economic impact payments, improve financing for COVID-19 testing and vaccination programs, and impose a tax mandate on states to adhere within the confines of the legislation. Nonetheless, there are questions and grievances against the legality of the act, as some states have brought charges to the judicial branch in regards to its invasion of state sovereignty.
The majority of the coronavirus relief spending package is uncontested by state and local governments, as it will likely boost economic growth and counteract the recession from the statewide effects of the pandemic in the past year. For starters, some of the most notable provisions from this act include the third wave of economic impact payments to individuals and an extension to unemployment benefits. In particular, the legislation contains $1,400 stimulus checks for each individual and child making less than $75,000 annually, with phased-out amounts for people with higher incomes.[3] At the same time, persons who have lost their jobs due to the pandemic are greeted with an enhanced unemployment insurance act in the form of an additional $300 weekly check until early September.[4] These increases in funding would continue to help pay the bills for Americans who are greatly in need. Moreover, the American Rescue Plan deliberately finances more COVID-19 testing and vaccination programs. Notably, the bill would provide “$46 billion in funding for the Department of Health and Human Services to use for COVID-19 testing, contact tracing, and mitigation initiatives.”[5] Thus, medical experts can better understand the true gravity and scope of the pandemic in order to administer an appropriate response. Vaccine development would also get a boost of about $20 billion, which goes to federal biomedical research for a vaccine and therapeutic manufacturing and procurement.[6] Collectively, the new law is greatly received for its focus on supporting millions of people still out of work and for granting more opportunities for healthcare providers to assist in the fight against the virus, which inevitably benefits the country.
Nevertheless, some aspects of the American Rescue Plan Act are also seen as an attack on state sovereignty. Questions of legality arise as the legislature, under the Payments to Territories section, would provide “$350 billion to state and local governments whose coffers have been hit by a loss of tax revenue during the pandemic, causing many to plan cuts to services and warn of tax increases to allow them to balance their budgets.”[7] In essence, there would be aid and bailouts coming from the federal government, but its main restriction is that state and local governments cannot use that money to “indirectly or directly” offset the cost of cutting taxes.[8] On one hand, opponents to this restriction labeled this section as a “Tax Mandate”, which bars states that take money under the Act from using that funding to compensate revenue loss from tax reductions. As a result, 21 Republican state attorney generals sent a letter to the Biden Administration threatening to sue over the tax-cut rules.[9]
In particular, Ohio Attorney General Dave Yost filed a lawsuit explaining that the Tax Mandate violated states’ rights to set their own tax policy. The State of Ohio is entitled to claim about $5.5 billion, but if Ohio accepts that money, it will have to accept the conditions that come with it. Many states across the country are in dire need of the money because of the economic pandemic lows, yet there are incentives to use the money to cut taxes. According to the current lawsuit, “the Tax Mandate thus gives the states a choice: they can have either the badly needed federal funds or their sovereign authority to set state tax policy. But they cannot have both. In our current economic crisis, that is no choice at all.”[10] In other words, the necessary funds are perceived to be held hostage. States such as Ohio feel as if they have no choice but to adhere to the unconstitutional restrictions of the Act at the cost of their sovereignty and economic demise.
Ohio claims that their standing to sue comes from the Spending Clause of the Constitution, which empowers Congress to “provide for”—that is, to spend money in support of—the “general Welfare;’ but “Congress may not circumvent that limitation by using its spending power to indirectly coerce a State to adopt a federal regulatory system as its own.”[11] In their perspective, the Tax Mandate goes contrary to the fact that legislation enacted according to the Spending Clause must be in pursuit of the “general welfare.” Yost argues that when Congress enacts a law as such, “‘pressure turns into compulsion, the legislation runs contrary to our system of federalism,” and the law is unconstitutional.[12] As a whole, Ohio believes that Congress exceeded its constitutional authority when it passed the Tax Mandate. States are currently in a vulnerable position where state legislatures are forced under economic pressure into the enactment of Congress’s preferred tax policies.
On the other hand, the Democratic-dominated federal government defends the Tax Mandate as within the constitutional powers of Congress. Treasury Department spokesperson Alexandra LaManna explains that the restrictions are well within its rights to “establish reasonable conditions on how states should use federal funding.”[13] In this perspective, the federal government believes it is acting within its powers of the Spending Clause to impose conditions on grant funds. It is important to note that the federal government has always imposed conditions on assistance, such as on funding for freeways. Essentially, the American Rescue Plan Act does not prohibit all tax cuts, but simply mandates that states have to replace the revenue in some other way and that they cannot use stimulus funds to do it.[14] LaManna adds that “states are free to make policy decisions to cut taxes — they just cannot use the pandemic relief funds to pay for those tax cuts.”[15] Simply put, if state and local governments use the money in some way, such as a tax cut, they have to compensate the Treasury back for the cost up to the amount of the lost revenue.
In conclusion, the American Rescue Plan Act is a comprehensive and tremendous act that is filled with criticism. At its core, it aims to stimulate the economy by providing economic assistance to the unemployed and everyday Americans. It also bolsters the funding for healthcare services such as COVID-19 testing and vaccination programs. Nonetheless, its opposition has filed suit against the perceived belief that its Tax Mandate prohibits the use of federal grants for tax cuts and inherently coerces vulnerable states to adhere to Congress’s preferred tax policies. The question of whether or not the American Rescue Plan has underlying attempts to undermine state sovereignty is now put on trial, but its verdict would most likely still take some time. If the suit is ruled in favor of Ohio, the judge could strike down the limit on tax cuts while still leaving the rest of the act intact. On the contrary, even if the case is ruled against the state, the District Attorney could potentially bring the case up to the United States Court of Appeals for the Sixth Circuit or even the Supreme Court in order to gain a ruling that could amend or uphold the Constitution.
Sources
H.R.1319. American Rescue Plan Act of 2021.
Egan, Casey, et al. "$1.9 Trillion Pandemic Relief a Temporary Boost as Economy Awaits Full Recovery." SNL European Financials Daily (Mar 11, 2021).
Rubin, Gabriel T. "Stimulus Package: What's in Joe Biden's 'American Rescue Plan'? Democrats' $1.9 Trillion Relief Package Includes Stimulus Payments, Jobless Benefits, Vaccine Funding and More." Wall Street Journal (Online), Feb 26, 2021.
Romm, Tony. "Congress Adopts $1.9 Trillion Stimulus, Securing First Major Win for Biden." WP Company LLC d/b/a The Washington Post.
Egan, Casey, et al. "$1.9 Trillion Pandemic Relief a Temporary Boost as Economy Awaits Full Recovery." SNL European Financials Daily (Mar 11, 2021).
Ibid.
Rubin, Gabriel T. "Stimulus Package: What's in Joe Biden's 'American Rescue Plan'? Democrats' $1.9 Trillion Relief Package Includes Stimulus Payments, Jobless Benefits, Vaccine Funding and More." Wall Street Journal (Online), Feb 26, 2021.
H.R.1319. American Rescue Plan Act of 2021.
Tobias, Andrew J. “Ohio Attorney General Dave Yost Sues over Federal Rules on Billions in State Funding Contained in Stimulus Bill,” March 17, 2021.
State of Ohio v. Janet Yellen, Case No. 1:21-cv-181 (S.D. OH 2021), 1.
Ibid, 2.
Ibid, 9.
Romm, Tony. “Ohio Attorney General Sues Biden Administration over $1.9 Trillion Stimulus.” The Washington Post. WP Company, March 17, 2021.
Faler, Brian. “Biden Administration Defends Curbs on State Tax Cuts In Covid Bill as OHIO SUES,” March 18, 2021.
Ibid.