NCLA Amicus Contests Tax Cut Ban that Unlawfully Strips States of Core Taxing Powers

Washington, D.C., Oct. 31, 2022 (GLOBE NEWSWIRE) -- The American Rescue Plan Act of 2021 (ARPA) includes a Tax Cut Ban condition that requires States receiving federal rescue funds to give up their ability to decrease state taxes. This attempt by Congress to usurp state legislative powers violates bedrock provisions of the U.S. Constitution that define and constrain federal lawmaking. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed an amicus curiae brief today in State of Texas, et al. v. Janet Yellen, et al., arguing against the state Tax Cut Ban, because it places a coercive condition on spending, commandeers state government officials in violation of the Tenth Amendment, and assaults a core component of state sovereignty that is pre-Constitutional.

ARPA authorizes distributing roughly $195 billion directly to States to provide financial assistance to address the economic disruptions caused by the Covid-19 pandemic. The funds at issue here represent 13 percent of Texas's 2021 budget, 31 percent of Mississippi's budget, and 7 percent of Louisiana's budget. Those funds are available if and only if a recipient State agrees not to pass any laws or regulations that would decrease state taxes. After Congress passed the coercive ARPA legislation, it unconstitutionally delegated authority to the U.S. Department of Treasury, which in turn published a Final Rule on January 27, 2022, purporting to implement the Tax Cut Ban. A State must consult Treasury's rule to test every policy decision or else risk the clawback of rescue funds. But without full state control over tax and spending policy, the Constitution's guarantee of dual sovereignty is doomed to devolve into a "Mother may I" relationship between the subservient States and the federal government master.

Because money is fungible, any ARPA funds the Plaintiff States receive could be viewed as indirectly offsetting any reduction in net tax revenue from a change in state law or policy. When Congress purports to tell States by law or regulation what their tax policies must—or cannot—be, it violates state sovereignty. This structural violation of the Constitution intrudes upon the States' core capability to direct their own fiscal affairs and make choices about how to tax their residents. The inescapable conclusion is that Congress has used revenue raised through federal taxation of States' residents and businesses to purchase States' sovereign taxation power.

The Tax Cut Ban unconstitutionally commandeers state officials, and Treasury's Final Rule compounds this violation by forcing state officials to establish and staff an unwanted and convoluted accounting-and-reporting bureaucracy. No enumerated power in the Constitution confers authority upon Congress to pass statutes that direct, let alone micromanage, state tax and accounting personnel. The U.S. Court of Appeals for the Fifth Circuit must not allow Congress to abuse its spending powers to regulate state taxation.

NCLA released the following statement:

"This law purports to empower unelected bureaucrats at the Department of Treasury to police tax and budgetary policies of every state, eviscerating federalism and the vertical separation-of-powers structure that undergirds the Constitution. The potential for arbitrary or abusive enforcement against politically disfavored states is immense."
Sheng Li, Litigation Counsel, NCLA

For more information visit the amicus page here.


NCLA is a nonpartisan, nonprofit civil rights group founded by prominent legal scholar Philip Hamburger to protect constitutional freedoms from violations by the Administrative State. NCLA's public-interest litigation and other pro bono advocacy strive to tame the unlawful power of state and federal agencies and to foster a new civil liberties movement that will help restore Americans' fundamental rights.


Judy Pino
New Civil Liberties Alliance
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