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Thursday, December 9, 2021
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President Biden’s Restriction On State Tax Cuts Challenged In Court By Multiple Attorneys General

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The American Rescue Plan Act (ARPA), the $1.9 trillion spending package signed into law by President Joe Biden on March 11, is being met with lawsuits as predicted. Ohio Attorney General David Yost filed a lawsuit on March 17 making the case that the ARPA provision seeking to block state tax relief is an unconstitutional infringement on state sovereignty. Other attorneys general have since followed suit.

“Ohio’s argument with the federal government is not about cutting taxes; it is about whether the federal government may use its disbursal of funds to dictate state policy — about this or any other subject that is not the province of the federal government under the Constitution,” Attorney General Yost explained in a column for National Review. “The Supreme Court has held that, when the federal government wants to attach strings to the money it sends back to the states, a few thin strings are okay; coercion is not.” 

Even though state lawmakers in Attorney General Yost’s state are not planning any major tax cuts this year — as is the case in West Virginia, Arizona, North Carolina, and other states — the ARPA prohibition on state tax relief still interferes with Buckeye State officials’ authority and discretion to set state fiscal policy.  

“The tax mandate in the American Rescue Plan Act uses the federal spending power to compel state tax policy, effectively enacting a tax floor though 2024,” Yosts adds. “Ohio’s lawsuit will set a marker on the limits of federal power and protect the safe space in which states may operate. Attorneys general of both parties should support this effort.”

Attorney General Yost’s call for his counterparts in other states to join him is being met. In fact, West Virginia Attorney General Patrick Morrisey, perhaps the first state official to denounce the ARPA prohibition on state tax relief, has also made clear that he will sue to overturn this federal restriction. 

Attorney General Morrisey and 20 other attorneys general gave Treasury Secretary Janet Yellen until March 23 to provide assurances that Treasury’s implementing regulations for ARPA would not be written in such a way as to prohibit tax relief like the income tax cuts that West Virginia state lawmakers and Governor Jim Justice have been planning since last year, or the income tax relief in the works in Arizona and elsewhere. That deadline came and went without the requested assurances from Treasury. 

“Secretary Yellen’s response is simply unacceptable,” West Virginia Attorney General Morrisey said on March 24. “We will now take the final steps necessary to meet the Biden administration in court. West Virginia cannot accept the statute’s ambiguity, and given the administration’s failure to correct this problem, we are left with no option other than seeking a court order to protect West Virginia’s interests.” 

Attorney General Morrisey’s state has played a key role in the invention and enactment of ARPA’s controversial prohibition on state tax relief. Senate Majority Leader Chuck Schumer (D-N.Y.) added that prohibition to the $1.9 trillion spending package as an amendment late in the process. That amendment was requested by Senator Joe Manchin (D-W.V.), who reportedly sought the provision as a way to block the state income tax phaseout that Governor Jim Justice and West Virginia lawmakers have been working on for months. 

As in West Virginia, in Arizona Governor Doug Ducey (R) and members of the Republican-led state legislature have been planning a 2021 income tax relief package that has been in the works since before President Biden was elected last November. Like his counterparts in West Virgina and Ohio, Arizona Attorney General Mark Brnovich has filed a lawsuit to overturn the ARPA restriction on state tax relief. 

Lawmakers in many states are proceeding as though ARPA’s prohibition on state tax relief will either be struck down by a judge, or not be so broadly interpreted by Treasury as to preclude all state tax cuts, only those funded with ARPA money. Yet even such a narrow interpretation is unacceptable to many, most of all the attorneys general suing to overturn this ARPA provision. 

Without the clarity provided by a court ruling on this provision, “Arizona’s legislature would have to determine whether to pass its planned tax cuts without knowing whether it will cost the state federal dollars by doing,” Jeremy Duda reported in the Arizona Mirror, adding that “Brnovich noted that the American Rescue Plan Act includes no mechanism for a state to dispute a finding by the Treasury Department that it impermissibly used the relief funds to reduce taxes.” 

W.B Yeats once noted, “in legislation intention is nothing, and the letter of the law everything,” which is why Attorneys General Brnovich, Morrisey, Yost, and their colleagues in other states are moving to strike down the portion of ARPA that seeks to block state tax relief. The letter of the law, as written, could be construed so broadly as to prevent a state from setting its own tax policy. That’s why these attorneys general are suing the Biden administration and expect to triumph in court. 

“The fact that those politically allied to enact the Act cannot even agree with each other as to what the Tax Mandate means provides powerful evidence that it is subject to multiple potential interpretations. Indeed, the language of the Tax Mandate is patently ambiguous, and even borderline incoherent,” Attorney General Brnovich’s lawsuit reads. “This ambiguity alone renders the Tax Mandate unconstitutional.”

If Senator Manchin wishes to stop income tax cuts in his state, all he has to do is lobby his own state legislators in Charleston, all of whom would gladly take a call from their senior senator in Washington. Instead, in an effort to thwart tax relief for his own constituents, Senator Manchin has forced attorneys general in other states to sue the Biden administration in order to protect their sovereignty to set state fiscal policy as they see fit and provide tax relief for their constituents if they wish to do so. This is another example of how the Biden White House calls for unity while pursuing policies that stoke division.

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