Tennessee, Kentucky challenge Biden administration’s state tax plan
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Tennessee, Kentucky challenge Biden administration’s state tax plan

The Attorneys Generals (AGs) of Tennessee and Kentucky filed a lawsuit Tuesday challenging part of President Joe Biden’s American Rescue Plan.

In their complaint, the AGs allege that an aspect of the plan that “prohibits any State acceding federal financial assistance under the Act from lowering the tax burden on its citizens for the next four years.” Kentucky claims to have a jobless rate of 33 percent and a $1 billion dollar revenue shortfall in 2020. Tennessee claims to have lost more than 100,000 jobs, causing large budget shortfalls.

As part of the plan, the federal government will distribute more than $25.5 billion dollars to all 50 states and the District of Columbia based on need. Of that money, Kentucky and Tennessee will likely receive about $2.4 billion and $3.7 billion respectively. There are, of course, limits on how the states can spend the money they receive. Most federal funding given to states comes with conditions. Money distributed through the plan must be spent solely on COVID-19 relief. It expressly forbids states from using the money to “directly or indirectly offset a reduction in the net tax revenue.” Kentucky and Tennessee claim that the language is ambiguous and statements by the federal government have not clarified matters. Further, allege that it renders them unable to change their own tax laws in any way that would reduce revenue.