Yesterday, I noted that 21 State Attorneys General threatened to challenge the American Rescue Plan Act. They alleged that a conditional spending provision was inconsistent with South Dakota v. Dole. Missing from that list was Ohio. Now we know why.
Today, the Ohio Attorney General filed suit against Secretary Yellen and the Treasury Department. The Buckeye State seeks a preliminary injunction.
Here is the introduction:
The Tax Mandate bars States that take money under the Act from using that funding to “directly or indirectly” offset revenue loss from tax reductions. Id. (emphasis added). But since “[m]oney is fungible,” Holder v. Humanitarian Law Project, 561 U.S. 1, 37 (2010), any money that a State receives through the Act will necessarily offset, either directly or indirectly, every tax reduc-tion that the State might pursue. The Tax Mandate thus gives the States a choice: they can have either the badly needed federal funds or their sovereign authority to set state tax policy. But they cannot have both. In our current economic crisis, that is no choice at all. It is a metaphorical “gun to the head.” Nat’l Fed’n of Indep. Bus. v. Sebelius (“NFIB”), 567 U.S. 519, 581 (2012) (op. of Roberts, C.J.).
This coercive offer of federal funds violates the Constitution. The Spending Clause empowers Congress to “provide for”—that is, to spend money in support of—the “general Welfare.” Art. I., §8. c.1. But while “Congress has substantial powers to govern the Nation directly, including in areas of intimate concern to the States, the Constitution has never been understood to confer upon Congress the ability to require the States to govern according to Congress’ instructions.” New York v. United States, 505 U.S. 144, 162 (1992). And Congress may not circumvent that limitation by using its spending power to “indirectly coerce[] a State to adopt a federal regulatory system as its own.” NFIB, 567 U.S. at 578 (op. of Roberts, C.J.). That is precisely what the Tax Mandate attempts to do: it seeks to “drive the state legislatures under the whip of economic pressure into the enactment” of Congress’s preferred tax policies. Stew-ard Mach. Co. v. Davis, 301 U.S. 548, 587 (1937).Congress exceeded its constitutional authority when it passed the Tax Man-date. The Court should enjoin the provision’s enforcement, at least in its application to Ohio.
The relief bill would give Ohio about $5.5 billion, which translates to roughly 7.4% of the Ohio’s total expenditures. Definitely in the 10% ballpark referenced in NFIB.
In NFIB, the Court determined that the Medicaid expansion coerced the States because it “threatened” to deny States funding equal to “over 10 percent of” their “overall budget[s]” unless they agreed to expand their Medicaid programs. 567 U.S. at 582. The Act is similarly coercive: Ohio will be denied funding equal to 7.4 percent of its total expenditure in 2020—funding the State badly needs in an economic crisis—unless it agrees to limits on its power to tax.
The suit also explains that the condition flunks the Pennhurst test:
The Tax Mandate is far from “unambiguous.” What changes to tax policy that cause a decrease in net revenue are “indirectly” offset by funds acquired through the Act? Unless the answer is “every change to tax policy,” neither the English language nor economic theory provides an answer. And how does one know whether a change to tax policy causes a net reduction in revenue? For example, if revenue would have decreased even further but for a tax cut, would the tax cut still violate the Mandate? The Tax Mandate does not answer these questions. As a result, the conditions it imposes are too ambiguous to be upheld under the Spending Clause.
The Biden Administration may not be ready for this suit. At present, there is no confirmed Solicitor General. Poor Acting Solicitor General Prelogar has spent all her time flipping positions before the Supreme Court. I’m sure Roberts is seething. And I have no clue who is running the Office of Legal Counsel. Someone in the White House must know this case is a loser. And even if Secretary Yellen issues some favorable guidance, I don’t think Ohio’s injury will be satisfied. An agency cannot avoid a Pennhurst problem through Chevron deference. In other words, if the spending provision is ambiguous, the government cannot cure that separations of powers problem through guidance documents. The remedy for an ambiguous spending provision is to declare it unconstitutional. Merrick Garland knows all too well how this case will end.
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