State Sues Feds Over Unconstitutional Tax Mandate

March 27, 2021

On Thursday, the Arizona Attorney General’s Office filed a lawsuit against the federal government in an effort to challenge the Tax Mandate portion of the American Rescue Plan Act.

The Act threatens to penalize states by withholding federal COVID-19 relief funding if they lower taxes in any fashion, according to the Attorney General’s Office (AGO).

Thee state argues that the Tax Mandate of the Act is unconstitutional and threatens its sovereignty.

In the lawsuit filed in the U.S. District Court of Arizona, the AGO argues the Tax Mandate is ambiguous and the Treasury has failed to provide Arizona with the proper assurances that states can continue to craft their own tax policies and budgets without fear of federal encroachment, even if those policies are unrelated to relief funds.

Arizona is asking the court to provide both declaratory and injunctive relief.

The Tax Mandate of the Act forbids states from using the relief funds to “directly or indirectly offset a reduction in… net tax revenues.”

The AGO also argues the Tax Mandate represents an “unprecedented intrusion on the separate sovereignty of the States through federal overreach. The Tax Mandate undermines democratic accountability by empowering current governors in ways that violate separation of powers. Because the Act funds are available until 2024, a single governor could bind both the state legislature and a successor governor from providing any tax relief in the future. This would be a clear intrusion by Congress upon the democratic structures of the States.”

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