Over half of U.S. states have cut taxes in the last two years, but there remains grave risk that the federal government will order the cuts clawed back. Back in 2021, the American Rescue Plan Act (ARPA) included a ban on states using the federal funds provided to "directly or indirectly" cut taxes. Over 20 states have filed lawsuits challenging the provision, and NTUF has been the only organization filing briefs in every case at every level. Two new developments on this front:
On November 14, we filed a brief supporting Missouri's appeal to the U.S. Supreme Court. They lost in the U.S. Court of Appeals for the Eighth Circuit, which ruled that Missouri lacked standing to challenge the federal law. Our brief argues that when states’ budgets are being threatened by federal government requirements, states are being harmed and therefore have the legal standing to challenge the federal law. States suffer concrete harm when they cannot decide what tax cuts they can pass because nobody knows what cutting taxes “indirectly” means. Download our U.S. Supreme Court brief here.
On November 18, the U.S. Court of Appeals for the Sixth Circuit issued its ruling in the Kentucky, Tennessee, and Ohio appeals. The decisions were divided, and I could hardly believe the same judges decided all the cases. The federal provision was declared unconstitutional as to Tennessee. The judges found Kentucky lacks standing to challenge the law, because the alleged violation of the state's sovereignty is insufficient grounds. (Tennessee had additionally alleged costs associated with monitoring compliance.) And for Ohio, they held that Treasury's issuance of regulations mooted the case. As I told Bond Buyer and Law360, these opinions continue the trend of every time a judge reaches the merits of the ARPA provision, they strike it down as unconstitutional. That a state could lack standing to challenge a federal condition on it is a strange view from the panel majority, but doesn't change the fact that Treasury lost here.
Constitutional lawyers often talk about "circuit splits" - how if federal appeals courts disagree on a question, the Supreme Court is more likely to take it. We have that here, but we also have the Sixth Circuit seemingly in conflict with itself! The Supreme Court hears arguments between October and April, and then issues decisions by the summer. It is possible that the Missouri case could be accepted, briefed, and argued before April and a decision issued by the summer. More likely, it will be held (or denied) until the other cases bubble up too, so being heard in 2023-24 with a decision in 2024 is more likely.