NTUF Files Additional Briefs in Challenge to Federal Ban on State Tax Cuts

This week, National Taxpayers Union Foundation filed briefs in two cases challenging President Biden’s American Rescue Plan Act (ARPA) provision prohibiting states from cutting taxes. The briefs, authored by NTUF Vice President Joe Bishop-Henchman, argue that the federal restriction is an unconstitutionally intrusive condition on state governments and so ambiguous that enforcement will be arbitrary.

"States had to and have to consider this pending federal intervention and the lack of clarity as to what is permissible and what is impermissible, and this in turn has had a chilling effect in deterring support for state tax cuts or reducing their size," Bishop-Henchman writes in the briefs. "Taxpayers deserve better."

The federal provision bans states from using ARPA funds, directly or indirectly, to “offset reductions in net tax revenue,” and since ARPA’s passage in March, multiple states have filed suit to challenge the provision. NTUF has focused especially on the word "indirectly" as subsuming state tax policy and beyond federal power.

NTUF filed one brief in the U.S. Court of Appeals for the 9th Circuit in Arizona v. Yellen, appealing a lower court ruling that Arizona lacked standing to bring the lawsuit. NTUF's brief explains the harm Arizona has suffered from the provision: "Under the Treasury’s framework, each of these states must now provide evidence in the form of a report to the Treasury Department that the tax cuts were “paid for” by other than federal funds; if persuasive evidence does not exist or is not presented, Treasury says they will recoup the funds."

NTUF filed the other brief in the U.S. District Court for the Northern District of Texas in Texas v. Yellen, a lawsuit brought by three states (Texas, Mississippi, Louisiana) against the Treasury Secretary. 

All told, NTUF has now filed 9 briefs in 6 cases brought by 20 states on the ARPA ban on state tax cuts issue, as well as sending requests to the Treasury Department for better guidance and working with federal and state policymakers on solutions.

"These cases are moving very quickly," Bishop-Henchman said. "It is likely that the issue of how far Congress can go on attaching vague conditions to federal funds will ultimately reach the U.S. Supreme Court."

To discuss the cases and the NTUF amicus briefs with Joe Bishop-Henchman, please contact Kevin Glass, NTUF Vice President of Communications, at 703-299-8670 or at kglass@ntu.org.