Supreme Court Rejects Appeal to Use Covid Funding for Tax Cuts

January 17, 2023

The Supreme Court on Tuesday rejected an appeal by the state of Missouri to overturn a measure in the federal Covid-19 aid package banning states from using economic relief money to offset tax cuts.

President Biden signed the $1.9 trillion American Rescue Plan into law in March 2021. The plan was to provide $1,400 in direct payments to individuals making up to $75,000 annually, $350 billion in aid to state and local governments and $14 billion for vaccine distribution. The bill provided $130 billion to elementary, middle and high schools to assist in their safe reopening.

The plan also includes a so-called “tax mandate,” which bars a state from using their federal grants to “either directly or indirectly offset a reduction” in its net tax revenue. If a state does not use its fiscal recovery money in compliance with the law, the Treasury Department can recoup the funds.

Missouri Attorney General Eric Schmitt and officials from 20 other states challenged the provision in federal courts across the country. Schmitt argued that the law prohibits only “deliberate use” of American Rescue Plan funds to pay for a tax cut, and that the Treasury Department’s broad interpretation of the tax mandate exceeded Congress’ power and thus was unconstitutional under the 10th Amendment.

The Biden Administration petitioned the Supreme Court not to take the case, arguing in part that Missouri’s challenge is an “especially undesirable candidate for resolving any constitutional issues,” and considering the merits would be “premature.”

Missouri is set to receive a total of $2.7 billion in pandemic assistance.

The Court’s rejection of the case is a victory for the Biden White House, which is fighting legal battles across the country over the tax restriction. The Cincinnati-based 6th Circuit Court of Appeals said in November that the provision was too vague to be enforced. 

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