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

AMICUS BRIEF SUMMARY

Never before in the history of the United States has Congress conditioned the receipt of federal funds on state governments’ surrendering inherent and core sovereign taxing powers. As NCLA’s brief puts it, “a Founder who suggested that Congress’ Spending Power meant it could purchase from states the authority to oversee state spending and budgets would have been laughed out of Philadelphia—if not tarred and feathered.”

The American Rescue Plan Act of 2021 (ARPA), enacted on March 11, 2021, includes a constitutionally alarming provision—the “Tax Cut Ban”—which impermissibly seizes taxing authority from every state. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed an amicus curiae brief in the U.S. District Court for the Southern District of Ohio, arguing that the ambiguity at the heart of ARPA cannot be cured by the Department of Treasury’s new guidance seeking to clarify the parameters of the Tax Cut Ban.

ARPA offers state governments approximately $195 billion to assist with recovery from the economic damage inflicted by the Covid-19 pandemic. The much-needed funds, collected from taxpayers across the country, are only available under ARPA to those states that agree not to use the funds “to either directly or indirectly offset a reduction in the net tax revenue.” The Department of Treasury can claw back every dollar used for such an offset. This provision, which is intended to deter states from reducing their taxes, flunks the Constitution’s requirement that Congress spell out clear conditions for state aid. The District Court has already declared that it “has no idea what an ‘indirect offset’ to net tax revenues may be.”

In response to the District Court ruling, Treasury issued an Interim Final Rule that purports to supply the missing clarity. Yet, the 150-page document actually sows greater confusion by mandating an overly complicated and burdensome scheme whereby each state is required to calculate and report the tax and spending effects of every new law, regulation, or administrative interpretation, so Treasury can decide whether to penalize the state. In other words, Treasury conferred on itself power to second-guess every single state government fiscal decision, backed up with the threat of financial sanction. The Constitution does not allow Treasury to wield such boundless power, and the Interim Final Rule, issued in an effort to save the Tax Cut Ban’s constitutionality, is therefore itself unconstitutional.

NCLA argues, in this case and in an amicus curiae brief filed in State of West Virginia, et al. v. United States Department of the Treasury, et al., that the conditions of the Tax Cut Ban are ambiguous and breathtakingly broad. Further, the power of the state governments to tax or not to tax is a core attribute of state sovereignty. Congress cannot coerce states into surrendering taxing powers, especially with a heavy-handed offer-a-state-can’t-refuse for federal pandemic relief funds. The U.S. District Court for the Southern District of Ohio should declare the Tax Cut Ban unconstitutional, enjoin its enforcement, and set aside the Interim Final Rule as unlawful.

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CASE: State of Ohio v. United States Department of the Treasury, et al.

COURT: District Court for the Southern District of Ohio, Western Division

DOCUMENT: No. 41-1

COUNSEL FOR AMICUS CURIAE: Peggy Little, Richard Samp, Sheng Li, Mark Chenoweth

FILED: May 26, 2021

CASE DOCUMENTS

July 1, 2021 | Opinion of the U.S. District Court Southern District of Ohio, Western Division
Click here to read the full document.
May 26, 2021 | Brief for Amicus Curiae the New Civil Liberties Alliance
Click here to read the full document.

PRESS RELEASES

July 2, 2021 | NCLA Commends Federal Court for Permanently Enjoining Enforcement of Tax Mandate in Ohio

Washington, DC (July 2, 2021) – A federal court ruling, filed Thursday, permanently enjoins the Secretary of the Department of Treasury from enforcing the “Tax Mandate” provision of the American Rescue Plan Act of 2021 (ARPA) against the State of Ohio. ARPA, enacted on March 11, 2021, includes the short—but constitutionally alarming—provision, which impermissibly seizes taxing authority from the states. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed amicus briefs in State of Ohio v. United States Department of the Treasury, et al. and in State of West Virginia, et al. v. United States Department of the Treasury, et al. to support petitioner states against the unprecedented attempt by Congress to usurp state taxing authority.

ARPA offers approximately $195 billion to states, but conditions the receipt of desperately needed Covid-19 fiscal recovery funds on the surrender of 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 now serve as Congress’ auditors of state finances, upon potential criminal penalties for those officials. In his ruling, United States District Court Judge Douglas Cole concluded that the Tax Mandate, as written, falls short of the clarity required for Congress’ power to impose spending conditions under the Constitution.

The Court also rejected the Secretary’s argument that the Treasury Department’s Interim Final Rule cures the ambiguity on what an “indirect offset” to net tax revenues may be. The 150-page document actually sowed greater confusion by mandating an overly complicated and burdensome scheme whereby each state is required to calculate and report the tax and spending effects of every new law, regulation, or administrative interpretation. According to Judge Cole, ARPA’s ambiguity was so vast that no Treasury regulation could have provided the requisite clarity.

NCLA released the following statements:

“As we approach the Fourth of July, NCLA is delighted to celebrate the decision by United States District Court Judge Douglas Cole to enter a permanent injunction preventing Congress from telling the states that they cannot cut state taxes as a condition of receiving federal funds. As Judge Cole held, ‘this is not division for division’s sake.’ At its founding, the Framers insisted upon these state and federal checks and balances to protect and preserve individual liberty.”
Peggy Little, Senior Litigation Counsel, NCLA

“Judge Cole’s well-reasoned rejection of the Treasury Department’s Interim Final Rule confirms what should have been obvious from the start: unelected bureaucrats cannot exploit Congress’ vague language to dictate tax policy to states under the guise of ‘providing clarity.’”
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

May 27, 2021 | NCLA Amicus Brief Challenges Congress’ Brazen Gambit to Seize State Governments’ Taxing Authority

Washington, DC (May 27, 2021) – Never before in the history of the United States has Congress conditioned the receipt of federal funds on state governments’ surrendering inherent and core sovereign taxing powers. As NCLA’s brief puts it, “a Founder who suggested that Congress’ Spending Power meant it could purchase from states the authority to oversee state spending and budgets would have been laughed out of Philadelphia—if not tarred and feathered.”

The American Rescue Plan Act of 2021 (ARPA), enacted on March 11, 2021, includes a constitutionally alarming provision—the “Tax Cut Ban”—which impermissibly seizes taxing authority from every state. The New Civil Liberties Alliance, a nonpartisan, nonprofit civil rights group, filed an amicus curiae brief in the U.S. District Court for the Southern District of Ohio, arguing that the ambiguity at the heart of ARPA cannot be cured by the Department of Treasury’s new guidance seeking to clarify the parameters of the Tax Cut Ban.

ARPA offers state governments approximately $195 billion to assist with recovery from the economic damage inflicted by the Covid-19 pandemic. The much-needed funds, collected from taxpayers across the country, are only available under ARPA to those states that agree not to use the funds “to either directly or indirectly offset a reduction in the net tax revenue.” The Department of Treasury can claw back every dollar used for such an offset. This provision, which is intended to deter states from reducing their taxes, flunks the Constitution’s requirement that Congress spell out clear conditions for state aid. The District Court has already declared that it “has no idea what an ‘indirect offset’ to net tax revenues may be.”

In response to the District Court ruling, Treasury issued an Interim Final Rule that purports to supply the missing clarity. Yet, the 150-page document actually sows greater confusion by mandating an overly complicated and burdensome scheme whereby each state is required to calculate and report the tax and spending effects of every new law, regulation, or administrative interpretation, so Treasury can decide whether to penalize the state. In other words, Treasury conferred on itself power to second-guess every single state government fiscal decision, backed up with the threat of financial sanction. The Constitution does not allow Treasury to wield such boundless power, and the Interim Final Rule, issued in an effort to save the Tax Cut Ban’s constitutionality, is therefore itself unconstitutional.

NCLA argues, in this case and in an amicus curiae brief filed in State of West Virginia, et al. v. United States Department of the Treasury, et al., that the conditions of the Tax Cut Ban are ambiguous and breathtakingly broad. Further, the power of the state governments to tax or not to tax is a core attribute of state sovereignty. Congress cannot coerce states into surrendering taxing powers, especially with a heavy-handed offer-a-state-can’t-refuse for federal pandemic relief funds. The U.S. District Court for the Southern District of Ohio should declare the Tax Cut Ban unconstitutional, enjoin its enforcement, and set aside the Interim Final Rule as unlawful.

NCLA released the following statements:

“The Tax Cut Ban is a constitutionally prohibited condition on spending. Congress has delegated powers to Treasury that it could never enact in a statute—essentially the right to serve as dictator, arbiter, auditor and adjudicator of state fiscal and tax policy. The Tax Cut Ban’s provisions offend state sovereignty, federalism and anti-commandeering principles, the Constitution’s guarantee of a republican form of government and the Tenth Amendment, and it should be declared unconstitutional for these reasons.”
Peggy Little, Senior Litigation Counsel, NCLA

“The Interim Final Rule is a fig leaf that cannot save the Tax Cut Ban from invalidation. One would have thought it impossible to make the Tax Cut Ban any more ambiguous than it already was. But the Interim Final Rule manages to worsen the statute’s clarity in multiple ways. Treasury offers up a black box of loopholes that would let it usurp core state taxing powers and shred the Constitution.”
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

OPINION