Amicus Brief: State of West Virginia, et al. v. United States Department of the Treasury, et al.

Washington, DC (January 20, 2023) – The Eleventh Circuit handed down a ruling today in West Virginia v. U.S. Department of the Treasury, upholding the district court’s decision to permanently enjoin the Secretary of the Treasury from enforcing a “Tax Cut Ban” against the 13 states that sued her: West Virginia, Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah. The ruling marks NCLA’s second amicus win on appeal—following Commonwealth of Kentucky and State of Tennessee v. Janet Yellen, et al.—in lawsuits 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, purportedly to mitigate the fiscal effects of the Covid-19 pandemic. But Congress attached an historically unprecedented condition on receiving these funds: states must surrender their core taxing power. A provision in ARPA, the Tax Cut Ban, prohibits states from using 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 authorizes Treasury to claw back any funds spent in violation of the Tax Cut Ban.

In the unanimous panel ruling, Judge Andrew L. Brasher first ruled that the states had standing to challenge ARPA’s ban on direct or indirect reduction of state taxes. He then held that “the condition imposed by the offset provision is not sufficiently ascertainable” to pass constitutional muster. Noting that “money is fungible,” the Eleventh Circuit panel highlighted that the offset provision does not include a baseline standard or benchmark, so state policymakers are in the dark in determining whether their state reduced net tax revenue and what would trigger a federal clawback. NCLA’s amicus curiae brief argued that the ambiguous and indeterminate condition (forbidding taxation policy that directly or indirectly lowers taxes), made the Tax Cut Ban fatally unconstitutional.

NCLA’s brief further argued that Treasury lacked the power to “rule by regulation” when it later promulgated a rule seeking to clarify and thereby save the scheme. An agency cannot exercise legislative power independently of Congress, which alone has the power to tax and spend—not the Executive Branch. So, the court agreed with NCLA that Treasury is not permitted to clarify the Tax Cut Ban’s ambiguous text through regulation. Finally, the panel highlighted that the novelty and grand scope of the Tax Cut Ban “make it even more important that Congress speak with a clear voice,” and said that Congress cannot craft a deal with only some of the strings attached. NCLA commends the U.S. Court of Appeals for the Eleventh Circuit for safeguarding states’ sovereign taxing authority.

NCLA released the following statements:

“With admirable clarity, the unanimous panel has preserved state fiscal autonomy essential to Americans’ self-governance. Further, the court rejected Treasury’s attempt to save this unprecedented federal power grab by arrogating authority to ‘rule by regulation.’ Lawmaking power is vested in Congress, not executive agencies. All circuit courts to have reached the merits of the Tax Cut Ban have now held it unconstitutional.”
— Peggy Little, Senior Litigation Counsel, NCLA

“In addition to holding the ‘indirect offset’ language unconstitutionally ambiguous, the court ruled Treasury lacks authority to clarify ambiguity via regulations. If it were otherwise, unelected bureaucrats could invent and impose their own conditions on states. Agencies routinely rely on statutory ambiguity to impose rules Congress never approved. NCLA applauds the court for stopping Treasury from usurping Congress’ lawmaking powers here.”
— Sheng Li, 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 (November 16, 2021) – The New Civil Liberties Alliance celebrates an amicus victory and commends an Alabama federal court ruling, issued Monday, permanently invalidating the “Tax Cut Ban” provision of the American Rescue Plan Act of 2021 (ARPA). Treasury is permanently enjoined from enforcing the Tax Cut Ban against West Virginia, Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah. ARPA, enacted on March 11, 2021, had included a short—but constitutionally alarming—provision, which impermissibly seized state taxing authority. NCLA filed an amicus brief in State of West Virginia, et al. v. United States Department of the Treasury, et al. to support the Plaintiff States against Congress’ unprecedented attempt to prevent States from using pandemic aid to offset net tax revenue reductions.

U.S. District Judge L. Scott Coogler declared that the Tax Cut Ban is “an unconstitutionally ambiguous condition on the States’ receipt of federal funds” and that it “falls short of the clarity required when Congress exercises its powers under the Spending Clause.” As written, the Tax Cut Ban caused irreparable injuries to the Plaintiff States.

ARPA offers approximately $195 billion to States, as a part of a $1.9 trillion economic stimulus bill, to alleviate the economic impact of the COVID-19 pandemic. However, the Tax Cut Ban provision of ARPA conditions the States’ receipt of these recovery funds—which represent approximately 25% of the thirteen Plaintiffs’ annual budgets—on the surrender of their inherent and core sovereign taxing power.

Under ARPA, Congress alone can provide tax relief to Americans for three or more years. State taxes are frozen. Worse, state officials must serve as Congress’ auditors of state finances, upon potential criminal penalties for those officials. In his ruling, Judge Coogler concluded that the Tax Cut Ban “raises concerns of federalism and the protection of our nation’s dual system of governing” and said that there are limits on Congress’ power to impose spending conditions.

NCLA released the following statements:

“Congress’ use of federal pandemic relief funds taken from all Americans to treat States like vassals who must obey their federal overlords and keep state taxation at pre-pandemic levels is a betrayal of our dual-sovereign political design. All three courts to have reached the merits of the Tax Cut Ban have held it unconstitutional now.”
— Peggy Little, Senior Litigation Counsel, NCLA

“It is unsurprising that every court to analyze the Tax Cut Ban on the merits—first Ohio, then Kentucky, and now Alabama—has found it to be unconstitutional. Congress’ misguided attempt to use its own tax-and-spending powers to control States’ tax policy is a clear violation of the Constitution’s federalism structure, which exists to safeguard personal liberty from unwanted government intrusion.”
— 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 document

Washington, DC (April 30, 2021) – In the boldest federal power grab in recent memory, Congress is attempting to usurp the sovereign powers of the States and seize their taxing authority. The American Rescue Plan Act of 2021 (ARPA), signed by President Biden on March 11, includes a Tax Cut Ban that requires States receiving federal rescue funds to give up their ability to decrease taxes for three or more years.

The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed an amicus brief today in the U.S. District Court for the Northern District of Alabama against the U.S. Department of Treasury, arguing that the Tax Cut Ban is an unprecedented and unconstitutional seizure of state taxing power by Congress. The Ban is unconstitutional because it places a coercive condition on spending, commandeers state government officials in violation of the Tenth Amendment, and assaults a core component of state sovereignty that is pre-Constitutional.

ARPA authorizes distributing roughly $195 billion directly to States to provide financial assistance to address the economic disruptions caused by the COVID-19 pandemic and other infrastructure and broadband initiatives. But those funds, which represent in many cases 20-30% of a State’s overall budget, are available if and only if a recipient State agrees not to pass any laws or regulations that would decrease state taxes. Any action taken by a recipient State that directly or indirectly reduces state tax revenue subjects them to a federal clawback of the rescue funds. Given the well-understood fungibility of money, and the ambiguous and illogical condition forbidding taxation policy that directly or indirectly lowers taxes, the Tax Cut Ban is forbidden by the Constitution. Providing economic relief to the States bears no reasonable relation to a Tax Cut Ban. The power of taxation is a core power of state legislatures, which are far better positioned, responsive, and nimble in determining what sectors of their economy would benefit from a tax cut.

ARPA’s enforcement provisions, along with the broad and ambiguous scope of the Tax Cut Ban, effectively freeze state tax law and policy for over three years, against the will of the state legislatures. This Ban takes away Americans’ rights to govern themselves under the clause of the Constitution that guarantees the States a Republican form of state government. Congress instead has arrogated to itself the power to determine a national taxation response. Congress can’t do that, so the Tax Cut Ban cannot stand.

NCLA released the following statements:

“Congress has no power to control how the sovereign states tax—or provide tax relief to—their residents. It cannot acquire that power by making it a condition of receiving federal taxpayer dollars—money collected from the States’ citizens. This unprecedented—even breathtaking—seizure of power undermines the entire structure of American government power and should be swiftly declared unconstitutional and enjoined by the courts.”
— Peggy Little, Senior Litigation Counsel, NCLA

“The ban on state tax cuts bears no relation to Congress’ goal, which is to provide economic relief to individuals still reeling from the Covid-19 pandemic. Preventing a State from lowering those individuals’ taxes has the opposite effect; those suffering economic hardship would surely welcome a cut in their tax bills.”
— Rich Samp, Senior 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.

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