In NCLA Amicus Win, Fifth Circuit Upholds Permanent Block on Treasury’s Illegal State Tax Cut Ban
26 Junio 2024 - 12:48PM
Late yesterday, the U.S. Court of Appeals for the Fifth
Circuit affirmed a permanent injunction in States of Texas,
Mississippi, Louisiana v. Yellen, shutting down the American Rescue
Plan Act’s (ARPA) Tax Cut Ban condition that required the States to
surrender their ability to decrease state taxes on their citizens
in exchange for receiving federal rescue funds. NCLA filed
amicus curiae briefs supporting the injunction, identifying the Tax
Cut Ban as an attempt by Congress and the Treasury Department to
usurp state legislative powers and prerogatives. The Ban violated
bedrock provisions of the U.S. Constitution that define and
constrain federal lawmaking. The Fifth Circuit ruled that Congress
failed to meet its constitutional duty to make clear rules when it
passed the Tax Cut Ban, finding the statute too ambiguous. The
ruling marks NCLA’s third amicus win on appeal over this
issue—following Commonwealth of Kentucky and State of
Tennessee v. Janet Yellen and West Virginia v. U.S. Department of
the Treasury, in the Sixth and Eleventh Circuits.
ARPA authorized distributing roughly $195
billion directly to States to provide financial assistance to
address the economic disruptions caused by the Covid-19
pandemic. The funds at issue here represented 13 percent of
Texas’s 2021 budget, 31 percent of Mississippi’s budget, and 7
percent of Louisiana’s budget. Those funds were made
available if and only if a recipient State agreed not to
pass any laws or regulations that would decrease state taxes. NCLA
argued that after Congress passed ARPA, it unconstitutionally
delegated authority to the U.S. Department of the Treasury, which
in turn published a Final Rule in January 2022, purporting to
implement the Tax Cut Ban. A State had to consult the
Treasury’s rule to test every policy decision or else risk rescue
funds being clawed back. The Fifth Circuit ruled that the Tax Cut
Ban’s ambiguity made it impossible for a State to knowing accept
the Treasury’s rule, making it unenforceable and thus invalid.
“The federal defendants … argue that any
ambiguity has been eliminated by Treasury’s subsequent
regulations,” Judge Elrod wrote for the Fifth Circuit. “But the
regulations are of no help. In arguing that statutory ambiguity can
be vitiated by regulatory enactments in the context of the Spending
Clause, the federal defendants claim a remarkably broad power for
federal administrative agencies. But this claim is remarkably
wrong.”
The Tax Cut Ban also unconstitutionally
commandeered state officials, and the Treasury’s Final Rule
compounded this violation by forcing state officials to establish
and staff an unwanted and convoluted accounting-and-reporting
bureaucracy. No enumerated power in the Constitution confers
authority upon Congress to pass statutes that direct, let alone
micromanage, state tax and accounting personnel. NCLA commends the
Court for stopping this Congressional abuse of spending powers to
regulate state taxation.
NCLA released the following statements:
“NCLA’s victory means the federal government
cannot abuse its spending power to control States’ ability to set
their own taxes. We are happy to see the Fifth Circuit join its
sister circuits in halting this ham-fisted attempt to abridge State
sovereignty.”— Sheng Li, Litigation Counsel,
NCLA
“The Fifth Circuit joins other circuit courts in
recognizing that Congressional conditions on spending must observe
legal and constitutional constraints essential to federalism—and
must do so with clarity. NCLA is pleased that Judge Elrod’s
decision holds Congress’s feet to that fire.”— Peggy
Little, Senior Litigation Counsel, NCLA
For more information visit
the amicus page here.
ABOUT NCLA
NCLA is a nonpartisan, nonprofit civil rights
group founded by prominent legal scholar Philip Hamburger to
protect constitutional freedoms from violations by the
Administrative State. NCLA’s public-interest litigation and other
pro bono advocacy strive to tame the unlawful power of state and
federal agencies and to foster a new civil liberties movement that
will help restore Americans’ fundamental rights.
Ruslan Moldovanov
New Civil Liberties Alliance
202-869-5237
ruslan.moldovanov@ncla.legal