Treasury sees biggest rebuff yet to offset provision
3 min read
The Department of Treasury has been handed its biggest loss yet in its fight to uphold the American Rescue Plan Act’s offset provision after the Eleventh Circuit Court of Appeals permanently enjoined the Secretary of the Treasury from enforcing the tax cut ban.
The opinion, issued by Eleventh Circuit Judges Robert Luck, Andrew Brasher and Ed Carnes was the latest and most serious blow to Treasury’s position on behalf of West Virginia, Alabama, Alaska, Arkansas, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota and Utah.
“First, the states have suffered irreparable harm,” the opinion said. “The Rescue Plan’s offset provision has affected the states’ sovereign authority to tax by binding them to a deal with ambiguous terms and placing them on the hook for billions of dollars in potential recoupment actions. Second, money damages cannot adequately compensate the states because the federal government enjoys immunity from suit. Third, the states’ inability to promulgate their own tax policies–and the attendant financial consequences–outweigh any inconvenience to the Secretary from the district court’s injunction. Fourth, the injunction serves the public interest.”
“All four elements weigh in favor of granting a permanent injunction,” the opinion concluded.
The decision is being lauded by many as a win for states’ rights and an important check on what has been viewed by some as Treasury overstepping its constitutional authority in mandating how states allocate tax dollars.
“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,” said Peggy Little, senior litigation counsel at New Civil Liberties Alliance.
The move follows Treasury’s recent request to the 6th Circuit Court of Appeals that they rehear the decision that granted standing to Tennessee after they advanced the argument that the provision would unconstitutionally burden the state with compliance costs.
“In addition to holding the ‘indirect offset’ language unconstitutionally ambiguous, the court rules Treasury lacks authority to clarify ambiguity via regulations. If it were otherwise, unelected bureaucrats could invest 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 power here,” said Sheng Li, litigation counsel for New Civil Liberties Alliance.
The states’ argument that the tax mandate exceeds Congress’s authority was upheld by the district court, which permanently enjoined enforcement of the provision but was swiftly appealed by secretary Yellen.
Yellen argued that the case does not present a justiciable controversy and that the posture of the suit is unprecedented, making two arguments. She first argued that the States lack standing because she has not initiated a recoupment action against any of them and secondly suggested that the states’ challenge is moot because the Secretary’s recent regulation makes it unlikely that the offset provision will be enforced against the states.
“Although we recognize these arguments carry some persuasive force, we conclude that the States have standing and that the Secretary’s regulation does not moot their ascertainability challenge,” the opinion said.
That the challenged ARPA provision has been declared “not ascertainable and does not provide clear notice about how to comply with it, rendering it unconstitutional,” the opinion said, will likely influence cases still ongoing including in Ohio, Kentucky, Tennessee and Arizona.
“The Sixth, Ninth and Eleventh Circuits have now ruled in favor of the states on both standing and the merits. The Eight Circuit went the other way on standing and didn’t reach the merits. Judges simply aren’t buying the argument that this statute is clear (and if it’s not the regulations fix it). The statute’s phrase ‘indirectly offset a reduction in the net tax revenue’ is gibberish and a narrowing attempted rewrite by the Treasury Department does not save it from being unconstitutional,” said Joseph Bishop-Henchman, executive vice president at National Taxpayers Union Foundation.
