NTUF Urges Sixth Circuit to Strike Down ARPA Ban on State Tax Cuts

Today, we filed a brief in the U.S. Court of Appeals for the Sixth Circuit in the ongoing challenge to President Biden’s American Rescue Plan Act (ARPA) provision prohibiting states from cutting taxes. In our brief, we urge the appeals court to affirm the decision of the lower court striking down the provision as unconstitutional. Our brief argues that the federal restriction is an unconstitutionally intrusive condition on state governments and so ambiguous that enforcement will be arbitrary.

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. We focus especially on the word "indirectly" as subsuming state tax policy and beyond federal power. As we write in the brief: “By empowering the Treasury Secretary with the power to approve or disapprove of state tax cuts, even where federal funds are not directly used, Congress is regulating powers reserved to the states.”

Since Congress enacted the provision, and Treasury issued regulations that require states to explain all tax cuts to the federal government, states have faced federal intervention and lack of clarity as to what is permissible and what is impermissible. 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” without federal funds; if persuasive evidence does not exist or is not presented, Treasury says they will recoup the funds. This in turn has had a chilling effect, deterring support for state tax cuts or reducing their size. Taxpayers deserve better.

All told, NTUF has now filed 10 briefs in six cases brought by 20 states on the issue of the ARPA ban on state tax cuts. We have also sent requests to the Treasury Department for better guidance and continue to work with federal and state policymakers on solutions. Two judges have ruled the provision unconstitutional, two judges have dismissed the states’ cases for lack of standing, and the remaining cases are pending.

These cases are moving very quickly and 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. NTUF has promised to make sure the voice of taxpayers is represented at every stage of these vital cases.