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21 GOP-Led States Threaten to Sue to Use COVID Relief on Tax Cuts

The Biden administration wanted to ensure the money was invested in local economies, not used to underwrite tax cuts.

President Joe Biden walks out with Vice President Kamala Harris, Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi to deliver remarks on the American Rescue Plan in the Rose Garden at the White House on March 12, 2021, in Washington, D.C.

In the decade following the passage of the Affordable Care Act (ACA), Texas and 18 other Republican-led states took the extraordinary step of refusing free money — namely, rejecting an infusion of federal funds that would have allowed them to expand Medicaid coverage for many of their uninsured residents.

Now, the GOP is attempting to orchestrate a redux of this cruel politics. This time around, in pandemic-era 2021, a coalition of 21 states is ginning up a lawsuit to prevent implementation of a key part of the $1.9 trillion American Rescue Plan (ARP), namely a $350 billion investment in local and state governments.

Back when it was Medicaid expansion that was on the line, there was no good reason for Republican states to block the infusion of federal cash other than sheer orneriness, and a deep-seated aversion to using government resources to improve the prospects of those at the bottom of the social and economic ladders. It wasn’t as if the Medicaid expansion envisioned by the ACA was dumping the problem on states; quite the contrary — it was providing vast federal subsidies to the states to make the lives of their poorer residents a little bit easier. In fact, Medicaid expansion was as close a free lunch for the states as exists in U.S. politics. And yet, GOP states resisted signing on — and in February 2018, many ultimately joined with Texas in suing to overturn the entire Affordable Care Act, a lawsuit the Trump administration signed onto.

As a result of this ideological intransigence, millions of Americans who would otherwise have been under health care umbrellas were left without stable and regular medical coverage — with devastating results in poor regions, as the COVID-19 crisis has shown. Each year, even absent a deadly pandemic, tens of thousands of Americans die not because their diseases can’t be treated, but because they lack the insurance that would allow them to access that treatment. In 2019, the U.S. Census Bureau reported that more than 17 percent of Texans — 5 million people — lacked health insurance. By the middle of last year, as the pandemic ravaged the state, that number had grown by an additional 659,000.

The ARP’s $350 billion to the cities and state wouldn’t lead to simply a few marginal investments and minor grants that remain largely “out of sight, out of mind” for the public. Instead, sums of money this large represent an infusion of so much cash that it has the potential to transform infrastructure very much in the public eye: school systems, public transport and housing infrastructure, public health systems, environmental support networks, and many other critical services and systems for decades to come. The Brookings Institute recently published a report on how cities and states could spend the money; among other conclusions, it recommended massively shoring up the country’s public health infrastructure, bulking up affordable housing, and creating regional recovery coordinating councils to bring in both the public and private sectors in reimagining local economies.

The immediate impetus for sending such large sums of money to local and state governments was to protect services and public workers during a period when, because of the pandemic, upwards of 1.4 million of these workers had been laid off. But, beyond simply protecting existing jobs, the sums of money involved are large enough to allow for important investments that, for decades, cash-strapped governments have been unable to make. The American Society of Civil Engineers recently awarded the United States a C- grade for the quality of its aging infrastructure — and that was actually an improvement over the D grades the society has handed out in previous years. That a country as affluent and resource-rich as the U.S. can fail so dismally when it comes to maintaining or developing state-of-the-art infrastructure has nothing to do with an innate lack of resources and everything to do with political failings and an inability to raise enough tax revenues to make such projects possible.

Biden’s ARP is ambitious in many ways, and arguably nowhere more so than in its belief that injecting enough money into cities and states will be able to kick-start these long-delayed societal improvements.

There is, however, a catch. The ARP’s authors were aware of the political temptations states and cities would face to use the funds to pad their general funds and then seek political capital with voters by handing out tax cuts. And so, to minimize this risk, the monies distributed to local and state governments under the ARP come with a caveat: While they can be used to build private-public partnerships, they cannot be used simply to cut taxes.

That’s where the Republican attorneys general have stepped in. Such a restriction is, they are arguing, an infringement on basic constitutional rights that states have to set their own tax rates. Last week, Ohio became the first of the 21 states to sue the Biden administration over this provision. In the coming weeks, other states will likely follow suit.

There is more than a whiff of hypocrisy to these lawsuits. For, even though every GOP member of the Senate voted against the ARP, there’s no indication that, if the tax-provision was removed, Republican-led states and cities would reject the money. Rather, after lambasting Democrats for what they call a “bailout” of “mismanaged” blue cities and states, they now want to be able to use at least part of those funds to continue their decades-long rollback of taxes, especially those levied against high-earning individuals and companies. They want to retain the right to do so even if those tax-breaks — giveaways aimed at consolidating local support for the GOP — come at the expense of social programs urgently needed by those at the bottom of the economy. And, to that end, they are willing to ask the courts to spike the entire $350 billion unless they get their way on taxes.

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