Senators introduce bills to amend American Rescue Plan

Senate Democrats are sponsoring legislation to safeguard stimulus payments from debt collectors, while Republicans want states to be able to use funds from the new relief package for tax cuts.

Sen. Sherrod Brown, D-Ohio, who chairs the Senate Committee on Banking, Housing and Urban Affairs, joined Senate Finance Committee chairman Ron Wyden, D-Oregon, Sen. Bob Menendez, D-New Jersey, and Chris Van Hollen, D-Maryland, in introducing a bill Thursday to protect the $1,400 Economic Impact Payments provided in President Biden’s American Rescue Plan from garnishment by private debt collections agencies. On the other side of the aisle, Sen. Mike Crapo, R-Idaho, ranking member of the Senate Finance Committee, and Sen. Jim Risch, R-Idaho, introduced the State Fiscal Flexibility Act on Wednesday, which would eliminate a provision in the American Rescue Plan that keeps states from employing stimulus funds to cut taxes.

The bills reflect the rushed process for passing the $1.9 trillion American Rescue Plan Act earlier this month. The Biden administration used a budget reconciliation procedure to pass the bill in the Senate, where Democrats and independents hold a razor-thin margin of 50-50, thanks to a tie-breaking vote from Vice President Kamala Harris, only a few days ahead of the expiration of enhanced unemployment benefits on March 14. Because of parliamentary rules in the Senate, Democrats were unable to include some provisions, such as raising the minimum wage. Republicans, for their part, complained they were sidelined from negotiations over the bill and voted unanimously against it. During the marathon vote-a-rama session where they were allowed to introduce amendments to the bill, their proposals were largely defeated along party-line votes.

Doug Mills/Bloomberg

Nevertheless, some issues remain sticking points, including protection from debt collectors and the flexibility for states to make choices about how they use the $350 billion in funds provided under the new law for state and local governments. The Internal Revenue Service has already agreed not to reduce the Economic Impact Payments it is sending out with offsets of outstanding federal tax debts (see story).

“We passed the American Rescue Plan to put money in people’s pockets so they can pay their bills, not to line the pockets of predatory private debt collectors,” Brown said in a statement. “Our bill would mean American workers and their families don’t have to worry their stimulus checks will be gobbled up by financial predators, and the House should pass it immediately.”

He and Wyden are hoping to get support for the bill from Republicans. “Millions of American families are hanging on by a thread,” said Wyden in a speech Thursday on the Senate floor. “They are counting on these payments to pay rent and buy groceries. Now, Senator Brown and I wanted to include these protections in the American Rescue Plan — just like was done in the December relief bill — but Senate rules didn’t allow it. If the Senate doesn’t pass this bill, predatory debt collectors will continue to seize relief payment s for everything from credit card to medical debt.”

He pointed out that similar protections were included in the COVID-19 relief package passed in December, with Republicans fully supporting them. “Families’ financial situations haven’t changed so I hope that my Republican colleagues would continue to support this commonsense policy,” said Wyden.

Last July, Congress also passed Brown’s legislation to protect CARES Act recovery payments from garnishment by private debt collectors.

Republicans, for their part, are asking for more flexibility from Democrats. The State Fiscal Flexibility Act aims to allow states to use the relief funds provided under the American Rescue Plan to cut taxes.

“If a state like Idaho wants to provide tax relief in the interest of economic recovery, and to help people return to earning their livelihoods, the American Rescue Plan says it will be financially punished by the federal government,” Crapo said in a statement. “This infringes on states’ authority to design their own fiscal policies, and invites partisan politics into federal and state relations.”

He complained that “poorly managed states” will receive a windfall from the relief package while “fiscally responsible states” like Idaho are prohibited from providing tax relief to their citizens. The American Rescue Plan allows funds to be used for virtually anything a state chooses, but with two restrictions. A state can’t use the funds “for deposit into any pension fund,” and any state that wants to provide tax relief may do so only at a punishable cost. The State Fiscal Flexibility Act would eliminate the latter provision, giving power back to states to decide which fiscal policies best serve their citizens.

Ohio Attorney General Dave Yost filed suit Wednesday seeking a preliminary injunction against the provision and asked a court to rule it as unconstitutional. “The federal government should be encouraging states to innovate and grow business, not holding vital relief funding hostage to its preferred pro-tax policies,” Yost said in a statement.

A group of 21 other Republican attorneys general sent a letter this week to Treasury Secretary Janet Yellen complaining about the provision. “This provision might have been intended merely to prohibit states from expressly taking COVID-19 relief funds and rolling them directly into a tax cut of a similar amount," they wrote. "But its prohibition on 'indirectly' offsetting reductions in tax revenue, combined with the list of prohibited kinds of tax reductions (rate cuts, rebates, deductions, credits, or 'otherwise'), could also be read to prohibit tax cuts or relief of any stripe, even if wholly unrelated to and independent of the availability of relief funds. After all, money is fungible, and states must balance their budgets. So, in a sense, any tax relief enacted by a state legislature after the state has received relief funds could be viewed as 'using' those funds as an 'offset' that allows the state to provide that tax relief."