U.S. District Judge Douglas R. Cole from the District Court for the Southern District of Ohio ruled that the tax mandate in the America Rescue Plan Act (ARPA)—which seems to tie the relief fund to the states’ authority to reduce tax—exceeds the Congress’s authority under the Spending Clause due to its ambiguity.
The Interim Final Rule (IFR) issued by the Treasury Department intended to clarify the tax mandate “does not cure that constitutional violation,” the judge stated.
“Accordingly, this Court GRANTS Ohio’s Motion for a Permanent Injunction (Doc. 38), and enjoins the [Treasury] Secretary from seeking to enforce the Tax Mandate, 42 U.S.C. § 802(c)(2)(A), against Ohio,” reads the ruling (pdf).
The judge also expressed concerns that the tax mandate has breached the separation-of-powers principles laid down by the framers.
The Ohio Attorney General Dave Yost applauded the ruling and criticized the Biden administration for overreaching.
“The Biden administration reached too far, seized too much, and got its hand slapped,” Yost said. “This is a monumental win for the preservation of the U.S. Constitution—the separation of powers is real, and it exists for a reason.”
The Epoch Times reached out to the White House and the Treasury Department for comments.
A stipulation in the $1.9 trillion sweeping relief package has caused considerable disputes between red states and the Biden administration.
“A State or territory shall not use the funds provided under this section … to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase,” the bill reads.
Several red states argued that this paragraph may deprive their authorities to reduce tax after receiving the relief.
Ohio became the first state to sue Biden’s administration over his pandemic rescue plan, arguing on March 17 that the provision holds a “gun to the head of states” by blocking them from cutting taxes, and exceeds the authority of Congress.
Thirteen states followed Ohio and launched legal action against the tax mandate provision.
The lawsuit (pdf) by the 13 states says the provision is “one of the most egregious power grabs by the federal government” in the nation’s history. It argues that the provision, by stipulating how states use federal funds with regard to tax cuts, is akin to forcing states to relinquish control of their taxing authority, which is not allowed under the Tenth Amendment.
The lawsuit also accuses the federal government of violating the conditional spending doctrine and the anti-commandeering doctrine.
The tax mandate “disables States from decreasing taxes on their citizens for a period of over three years” and in doing so, “usurps” the ability of the states to reduce their tax burdens, the states alleged in the lawsuit.
Treasury Secretary Jenet Yellon asserted back in March that the American Rescue Plan Act doesn’t prevent states from enacting a broad variety of tax cuts.
“That is, the Act does not ‘deny States the ability to cut taxes in any manner whatsoever.’ It simply provides that funding received under the Act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law,” Yellen wrote in a letter responding to 21 attorneys general. “If States lower certain taxes but do not use funds under the Act to offset those cuts—for example, by replacing the lost revenue through other means—the limitation in the Act is not implicated.
The Treasury Department issued an IFR (pdf) accordingly on May 7, 2021.
Isabel Van Brugen and Mimi Nguyen Ly contributed to the report.
From The Epoch Times