NTUF is back in court this week defending taxpayers from Congress’ provision in the American Rescue Plan Act (ARPA) that has an unconstitutional chilling effect on state tax cuts. NTUF filed an amicus brief with the Fifth Circuit in the case Texas v. Yellenarguing that the ARPA provision violates the Tenth Amendment by being unconstitutionally vague and coercive in restricting a state’s sovereign power to cut taxes.
ARPA passed in March of 2021 and included $200 billion in aid to state and local governments — despite the fact that state budgets had largely already recovered from the pandemic. States were not going to reject $200 billion in federal funds, but the money’s acceptance came with a catch: states had to agree to not use the funds directly or indirectly to cut taxes for five years.
If that sounds unconstitutional, that’s because it is. The Tenth Amendment prohibits the federal government from unduly coercing states through federal funds. Any condition attached to federal funds, like the ARPA tax cut clause, must be unambiguous. But terms like “indirectly” cutting taxes are inherently vague, since money is fungible and anything can have a indirect effect.
Since the passage of ARPA, the tax cut prohibition clause has been subject to six different lawsuits. The provision was found unconstitutionally vague and coercive in four out of the six lawsuits (with the other two other challenges dismissed on procedural grounds). Yet, the Biden Administration will not stop its quest to prevent states from cutting taxes. The Administration lost this case at the district court level and has now appealed it to the Fifth Circuit.
Since the federal government won’t stop its legal appeals in these cases, NTUF will not stop standing up for taxpayers. NTUF’s Taxpayer Defense Center filed a brief in this case at the district court level and has now filed a new brief for the appeal at the Fifth Circuit.
NTUF’s brief argues that the ARPA provision is unconstitutionally vague because nobody knows what using these federal funds “indirectly” for a tax cut means. Does this provision ban all state tax cuts? Does it mean states can cut taxes but only on the condition of surrendering the aid amount dollar-for-dollar for the tax cut? Does it mean states can cut taxes and not have to surrender federal aid so long as revenue is replaced by other funds?
This vagueness makes the ARPA provision unconstitutional because it is impossible for states to know what changes they can make to their own tax systems when they accept the funds. If the federal government is going to give states money, it has to do so in a clear and uncoercive manner. That is the bare minimum of what the constitution requires.
NTUF will continue to file briefs in these ARPA cases for as long as this fight continues.