Yellen: Treasury faces 'thorny questions' about restrictions on state tax cuts

Republicans are upset over the provision that states, the District of Columbia, territories, and tribal governments cannot use the $ 220 billion Congress granted them to indirectly or directly support tax cuts.

Ohio has already sued the Biden government over the provision, declaring it unconstitutional and more lawsuits may follow, likely from other red states. West Virginia Attorney General Patrick Morrisey tweeted Tuesday, “We are preparing for court now,” saying the Biden administration’s response to a request for clarification on the issue was “unacceptable.”

Senator Mike Crapo, R-Idaho, told Yellen that states were “under pressure” and “this is an issue that requires immediate clarification”.

Yellen noted that 60 days after the law President Joe Biden signed on March 11 went into effect, the Treasury Department “has time to complete this work, to receive the money for distribution to the state and local governments, and there are a number of delicate questions that we have to work through in order to relate to the problem just mentioned. “

“We’ll just have to try to create instructions during this time,” she said. “We’re working around the clock to get them out as soon as possible.”

Crapo, who is co-funding legislation to lift the tax cut restrictions under the law, told Yellen, “I will encourage you to do everything in your power to answer these sensitive questions in a way that gives maximum flexibility for the States and municipalities. “

Tax officials have found that the federal government often sets terms and conditions for states’ funding. You also said that states are still free to cut taxes but not use money to pay for federal pandemic aid.

Even so, Crapo said it wasn’t a dry topic. For example, he noted that some states could follow the lead of the federal government in exempting some unemployment benefits from taxes. He asked Yellen if this would be “a fine the state would have to pay for if it did”.

Yellen said the Treasury Department had “been asked this question by a number of states” and “we are carefully considering this question”.

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