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Judge tosses Missouri AG Eric Schmitt’s tax cut lawsuit against Biden administration

A federal judge on Tuesday threw out Missouri Attorney General Eric Schmitt’s lawsuit against the Biden administration over a provision against using federal COVID aid to pay for state tax cuts.

Henry Autrey, a U.S. District Court judge in St. Louis, wrote that Schmitt’s office had not proven Missouri would be harmed by the federal law.

“The alleged harm to Missouri is too speculative, abstract, and remote” to hear the case, Autrey wrote.

Chris Nuelle, a spokesman for Schmitt’s office, said the office is “considering all potential options, including a motion to reconsider.”

“We’re still in this fight,” Nuelle said.

Schmitt filed the lawsuit on behalf of Missouri against the U.S. Treasury Department in March, days after announcing he was running for U.S. Senate. A group of other state attorneys general followed with their own lawsuit that week.

Schmitt has filed several lawsuits against the federal government in recent months, targeting such Biden administration actions as the lifting of Trump immigration policies and cancellation of the Keystone XL pipeline permits. He told Republican supporters last month that he will “take a blowtorch” to Biden’s agenda.

The Treasury suit targeted a provision in the American Rescue Plan that prohibits states receiving the federal money from using it to “directly or indirectly offset a reduction in net tax revenue” resulting from adopting tax cuts.

The measure was a late addition by Senate Democrats to the $1.9 trillion stimulus package as several GOP state legislatures, including Kansas and Missouri, were weighing tax cuts in anticipation of billions in federal aid.

The restriction caused immediate backlash among state-level GOP officials. But Treasury Secretary Janet Yellen told a group of state attorneys general including Schmitt that the law does not prevent states from enacting tax cuts as they wish.

“If States lower certain taxes but do not use funds under the Act to offset those cuts — for example, by replacing the lost revenue through other means — the limitation in the Act is not implicated,” she wrote in a letter to the attorneys general.

State lawmakers pushing the tax cuts were similarly unconcerned about the federal provision. Proposed income tax cuts in Missouri are tied to the creation of a “Wayfair” tax on Internet sales from out of state.

“The federal law says you can’t have an income tax reduction because of the federal money coming in and we don’t. We’ll have an income tax reduction because of the ‘Wayfair’ money coming in, and that was filed long before the federal bill,” Rep. J. Eggleston, a Maysville Republican and a sponsor of the cuts, said in March.

Still, Schmitt sued over “the threatened unconstitutional application” of the law and argued the Treasury Department could require states to replace revenue. He called the issue “a draconian and unprecedented federal restriction on a core aspect of state sovereignty— each State’s authority to set its own tax policy.”

Autrey wrote that claim “is based upon contingent future events that may not occur,” including the state legislature passing the tax cuts. He noted that Treasury had not issued rules yet on potential revenue replacements in a way that would affect Missouri.

“It is readily apparent that this case would benefit from further factual development,” he wrote.

The tax cut bills in Missouri have yet to pass. Eggleston’s House version failed to clear a Senate committee on Monday, but a Senate version is awaiting final action in the House.

Missouri will receive $2.7 billion from the American Rescue Plan. The Treasury on Monday released guidance allowing states to use the money on a wide range of economic or public health needs not eligible for funding in prior federal packages, but Gov. Mike Parson said he’s not planning to spend any of it until next year.