Amicus Brief: State of Texas, et al. v. Janet Yellen, in her official capacity as Secretary of the Treasury, et al.

Washington, DC (April 13, 2022) – The U.S. District Court for the Northern District of Texas handed down a ruling on Friday in Texas, et al. v. Yellen, et al. that permanently prohibits the Secretary of the Department of Treasury from enforcing an unconstitutional “Tax Cut Ban” against the states of Texas, Louisiana, and Mississippi. The ruling marks the third consecutive amicus win for the New Civil Liberties Alliance at the District Court level in suits over this law—including Ohio v. Yellen, et al. and West Virginia, et al. v. Yellen, et al.—contesting Congress’s attempt to usurp state taxing authority.

On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law, allocating nearly $200 billion to states to mitigate the fiscal effects of the Covid-19 pandemic. But in an historically unprecedented move, Congress attached a condition on the receipt of ARPA funds: the states must surrender their core taxing power. A provision in ARPA, the Tax Cut Ban, prohibits states from using ARPA funds “to either directly or indirectly offset a reduction in the net tax revenue … resulting from a change in law, regulation, or administrative interpretation … that reduces any tax.” ARPA further authorizes Treasury to claw back any funds spent in violation of the Tax Cut Ban.

In his ruling, U.S. District Court Judge Matthew Kacsmaryk found “Congress exceeded its Spending Clause authority and violated the anti-commandeering doctrine when it enacted [the Tax Cut Ban].” Judge Kacsmaryk held that Congress cannot order states to waive a sovereign power through “a conditional offer a State cannot refuse.” The Supreme Court has determined that financial inducement crosses over into unconstitutional coercion when the amount is so large that it puts “a gun to the head” of recipients. Here, the ARPA funds dangled in front of the states are approximately 22 percent of all states’ annual general-fund budgets. Accordingly, Congress has unlawfully coerced states into accepting a spending condition by offering a massive amount of funding.

Judge Kacsmaryk further concluded that “of all the powers the Constitution reserves to the States, there is no power more central to state sovereignty than the power to tax.” Congress may tax and spend, but Congress’s spending power has limits, and the Tax Cut Ban’s spending condition on the states exceeds Congress’s authority under the Spending Clause. The Court found that the Plaintiff states have met the conditions for injunctive relief to prevent the ongoing harm that this constitutional violation is causing. Thus, the Court permanently enjoined the Secretary from enforcing the Tax Cut Ban against the states of Texas, Louisiana, and Mississippi.

NCLA released the following statement:

“All federal courts to have reached the merits to date have held that Congress cannot use its spending power to intrude upon the states’ sovereignty and dictate to them that they may not cut state taxes, even indirectly. These courts have fulfilled their duty to enforce the Constitution and stop Congress from controlling state budget matters leagues beyond the enumerated powers conferred upon the national legislature by the Constitution.”
— Peggy Little, Senior Litigation Counsel, NCLA

For more information visit the amicus brief 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.

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Washington, DC (October 4, 2021) – The “Tax Cut Ban” provision within the American Rescue Plan Act of 2021 (ARPA) upends the structure of American Constitutionalism as we know it. Today, the New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed an amicus brief in State of Texas, State of Louisiana, and State of Mississippi v. Yellen, et al. in the U.S. District Court for the Northern District of Texas. NCLA argues that the conditions of the Tax Cut Ban violate several aspects of the Constitution, commandeer state officials, eviscerate federalism, and deny Americans a Republican form of state government. Further, the ban’s conditions are ambiguous and the regulations issued by Treasury cannot cure the nondelegation problem created by an ambiguous statute. Simply put, Congress cannot purchase states’ sovereign power of taxation.

ARPA, enacted on March 11, 2021, led to the U.S. Department of Treasury’s guidelines for the Tax Cut Ban, which impermissibly restrict states that receive aid from using the funds to “either directly or indirectly offset a reduction in the net tax revenue.” The stimulus package offers approximately $200 billion to states to assist with recovery from the economic damage inflicted by the COVID-19 pandemic. For most states, the ARPA funds represent 20-30% of a state’s overall budget. The unprecedented need for assistance arising from the COVID-19 pandemic, combined with the dramatic financial incentive ARPA funds represent, makes it impractical for the Plaintiff states to refuse funds raised from their own taxpayers to which they are entitled.

In New York v. United States, 505 U.S. 144 (1992), the Supreme Court recognized that “Where Congress exceeds its authority relative to the states, … the departure from the constitutional plan cannot be ratified by the ‘consent’ of state officials.” Looking at it through the lens of enumerated powers, the Court concluded, “[s]tate officials … cannot consent to the enlargement of the powers of Congress beyond those enumerated in the Constitution.” The Supreme Court also recognized, in NFIB v. Sebelius, the clear danger posed to federalism by the unfettered use of federal tax and spending powers.

Two federal court rulings have already permanently enjoined the Secretary of the Treasury from enforcing the Tax Cut Ban provision of ARPA in Ohio, Tennessee, and Kentucky. NCLA filed an amicus brief in State of Ohio v. United States Department of the Treasury, et al. In the lawsuit, U.S. District Court Judge Douglas Cole noted Treasury conceded “the Tax Mandate may be ambiguous” as written and found that “[d]espite poring over this statutory language, the Court cannot fathom what it would mean to ‘indirectly offset a reduction in the net tax revenue’ of a State, by a ‘change in law … that reduces any tax.’” But Treasury cannot resolve the Tax Cut Ban’s ambiguities through regulations. Congress would need to lay out clear statutory boundaries. U.S. District Court Judge Gregory Van Tatenhove concluded in a separate action filed by Kentucky and Tennessee that the Tax Cut Ban was unconstitutionally coercive.

The U.S. District Court for the Northern District of Texas should declare the Tax Cut Ban unconstitutional and enjoin its enforcement in the Plaintiff states.

NCLA released the following statements:

“In the boldest power grab in recent history, Congress is attempting to seize state taxing authority from the states and coerce them not to reduce taxes. This wildly unconstitutional arrogation of power to prevent Texas, Louisiana and Mississippi from providing their residents with state tax relief is lawless, to say nothing of politically tone-deaf in times of pandemic.”
— Peggy Little, Senior Litigation Counsel, NCLA

“This law empowers unelected bureaucrats at the Department of Treasury to police tax and budgetary policies of every state, eviscerating federalism and the separation-of-powers structure that undergirds the Constitution. The potential for arbitrary and abusive enforcement against politically disfavored states is immense.”
— Sheng Li, Litigation Counsel, NCLA

For more information visit the case 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.

Download the full document