Infamously, the American Rescue Plan (ARP) included language that barred states from “directly or indirectly” reducing tax burdens with the federal money they received. This vague, over-broad restriction left it unclear whether any state tax cut that occurred after the bailout could be challenged by the federal government.
This spurred lawsuits from coalitions of states over the ‘no tax cut’ mandate. On July 2nd, a federal judge sided with Ohio in a lawsuit over restrictions in the American Rescue Plan – a big victory for taxpayers.
Ohio and Arizona have spearheaded separate legal challenges, joined by other states to the language in the blue-state bailout package. This comes at a time when Americans need tax relief as the country returns to work after the pandemic.
The Ohio lawsuit asserts that the federal government overstepped its bounds by issuing the “tax mandate” in the ARP. The judge agreed, ruling that the prohibition of tax cuts with relief funds “falls short of the clarity required by Supreme Court precedent”. Further, the Judge ruled that the tax mandate meets the requirements for injunctive relief, meaning the law will, at least temporarily, no longer apply. This comes as a win to Ohio taxpayers, and signals that other states may find success in their efforts to cut taxes with ARP funds.
Arizona has also filed suit against the ARP’s tax mandate. After receiving over $4.9 billion dollars from the ARP, Arizona cut the state’s income tax by $1.9 billion dollars, putting much needed cash back in the hands of hardworking Arizonans. In the currently pending case, Arizona is arguing that the Federal Government offers a coercive amount of money in the ARP and is attempting to commandeer the state’s policy making process through the tax mandate.
The court victory for Ohio taxpayers is a positive signal for Arizona’s lawsuit to protect their taxpayers. The tax mandate is a display government overreach, as the ARP attempts to interfere in the constitutionally prescribed domain of the states. This ruling is vital for protecting the states from the federal government trying to micromanage their budgets.