Treasury Secretary Janet Yellen’s broad interpretation of a provision in the American Rescue Plan Act (P.L. 117-2) that restricts states from using the aid the act provides to offset reductions in net tax revenue is unconstitutional, according to Missouri’s attorney general.
In an October 15 reply brief in Missouri v. Yellen, Missouri Attorney General Eric Schmitt (R) argues that his state is entitled to a preliminary injunction blocking Treasury from enforcing the provision because the relief would ensure that state lawmakers aren’t “unlawfully deterred from enacting the state’s preferred tax policy due to the imminent threat of recoupment of ARPA funds.”
Schmitt filed an appeal in July with the Eighth Circuit seeking to reverse the U.S. District Court for the Eastern District of Missouri’s dismissal of the state’s case over the provision, arguing that the lower court erred in its ruling and that the circuit court should instruct it to enter a preliminary injunction.
The lawsuit was filed over a provision in section 9901 of ARPA that restricts federal aid provided under the act from being used by a state or territory to “either directly or indirectly offset a reduction in the net tax revenue of such state or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”
The case was dismissed on grounds that the state lacked standing and the challenge was not yet ripe.
However, Schmitt argues in the reply brief that Missouri has now accepted funds under ARPA and is thus “directly subject to the tax mandate’s intrusion on its sovereignty (under Secretary Yellen’s unconstitutional broad interpretation) and the Secretary’s onerous accounting and reporting requirements.”
Schmitt has previously argued that the Department of Justice, while defending Yellen in court, agreed with Missouri that a narrow reading of the provision — prohibiting “only the deliberate and express use of ARPA funds to pay for tax cuts” — was the best reading of the law and constitutional.
But the state asserts that the federal government and attorneys at the Justice Department have provided two further readings of the provision, including that Yellen views the law “as prohibiting policies that reduce net tax revenue” — the broad interpretation that prompted Missouri’s lawsuit.
The federal government argued in a September 17 brief that Missouri’s fear that Treasury might interpret the provision broadly to deny states the ability to cut taxes is inconsistent with the plain text of the provision, adding that “the government has repeatedly disavowed” that interpretation. It also argued that the “statute establishes, and the Department’s implementing regulations confirm, that tax cuts alone do not contravene” the provision, but the provision restricts only the use of federal aid provided by the act “to offset the revenue effects of tax cuts.”
Schmitt accused the federal government of reversing its position and of “backpedaling furiously from its position in the district court,” saying it “now claims the broad interpretation — as embodied by the interim final rule — is correct.”
Eventually published May 17 in the Federal Register, the rule was released May 10, a day before the district court issued its final judgment.
Missouri argues that the disagreement over the meaning of the provision proves its standing.
The suit is among six filed by state attorneys general over the provision.
The Justice Department did not respond to a request for comment by press time.