In a Tuesday amicus brief, the Buckeye Institute said the U.S. Department of the Treasury's interim final rule on the American Rescue Plan Act
's provision barring states from using federal aid to offset net revenue reductions failed to cure the law's ambiguities. Under the provision, states that use the aid in that way will risk having to return the funds."Even if the executive branch had the power to effect a cure, the interim final rule promulgated by the [Treasury] secretary does not do so," according to the brief. "Confirming the tax mandate's deficiencies, the rule appoints the secretary as a virtual viceroy over the states, with authority to review practically every decision that could potentially affect tax revenue — i.e., potentially any exercise of their tax and police powers — and discretion to approve or reject those decisions."
The brief was filed in support of Ohio, which has sought a permanent injunction against the provision for being unclear and coercive. The provision requires states to return federal aid used to offset tax cuts, claiming that it violates the 10th Amendment of the U.S. Constitution and the Constitution's spending clause
, which allows Congress to attach certain conditions for use of federal funds. The Buckeye Institute's arguments closely matched Ohio's position, including that the law was unclear from the start and only lawmakers, not Treasury, could fix it.Treasury's rule said if net tax revenue hasn't been cut, states fall under a safe harbor rule and the clawback provision doesn't apply. The rule also set up a de minimis standard when the total value of revenue reductions by a government is below 1% of the reporting year's baseline. If below that amount, the clawback would not be triggered, according to the rule.
Additionally, the rule sets the baseline to measure reductions in net tax revenue to 2019 fiscal year tax revenue, indexed for inflation in each year of the covered period. It also outlines how states should track and report their tax changes to Treasury through 2024, when funds must be spent.
It is up to Congress, not agencies, to ensure that it exercises that power within constitutional limits, the Buckeye Institute argued.
"The reason that Congress, and Congress alone, must shoulder the burden of imposing conditions unambiguously is that the power being exercised is Congress', not the executive's," the Buckeye Institute said. "It is Congress' exercise of its spending clause power that has the potential [to] disrupt the careful balance between the federal and state governments."
Additionally, according to the brief, the rule provides no certainty for states because a rule, even a "final" rule, is not final enough for states to order their affairs around it.
"Merely because the secretary has said how she intends to interpret and apply the tax mandate now, does not mean that she will maintain those views going forward, even with respect to policy choices that states are making now and in the coming months," the group said.
Even if Treasury sticks with the current rule, the Buckeye Institute argued that a new Treasury secretary or administration could promulgate a new rule, which would impose an unanticipated cost for states. The group also said that Treasury's rule only highlights the provision's fundamental vagueness, as it still leaves crucial questions unanswered and what is required of states is still unclear.
Representatives for the Buckeye Institute did not immediately respond to a request for comment Wednesday.
Representatives for Treasury did not immediately respond to a request for comment.
The Buckeye Institute is represented by Andrew M. Grossman and Sean Sandoloski of BakerHostetler and Robert Alt of the Buckeye Institute.
Ohio is represented by Attorney General Dave Yost and by Benjamin M. Flowers, Zachery P. Keller and Sylvia May Davis of the Ohio Attorney General's Office.
Treasury is represented by Brian David Netter, Stephen Ehrlich and Charles E.T. Roberts of the U.S. Department of Justice.
The case is Ohio v. Janet Yellen et al., case number 1:21-cv-00181, in the U.S. District Court for the Southern District of Ohio.
--Additional reporting by Paul Williams, James Nani and Maria Koklanaris. Editing by Vincent Sherry.
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