Supreme Court Won’t Hear Ohio’s Lawsuit Over Using Pandemic Relief for Tax Cuts

Supreme Court Won’t Hear Ohio’s Lawsuit Over Using Pandemic Relief for Tax Cuts
U.S. Supreme Court nominee Brett Kavanaugh listens during the first day of his confirmation hearing in front of the U.S. Senate on Capitol Hill in Washington on Sept. 4, 2018. (Saul Loeb/AFP/Getty Images)
Matthew Vadum

The Supreme Court refused on June 12 to hear Ohio’s argument that the American Rescue Plan Act (ARPA) unconstitutionally prevents states from using COVID-19-related pandemic relief funding to offset tax cuts.

This is the second time this year that the court has turned down a state’s petition challenging a tax-related provision in ARPA.

The $1.7-trillion American Rescue Plan Act, signed by President Joe Biden in March 2021, was a response to the economic downturn associated with the COVID-19 pandemic. ARPA provided $195 billion in aid to state governments, along with $130 billion in aid to local governments. Ohio accepted about $5.4 billion.

On Jan. 17, the Supreme Court took a pass on an appeal by Missouri challenging a ban on states using federal pandemic-relief funds to offset state revenue reductions, such as those attributed to tax cuts or other policy changes.

The new decision is a victory for the Biden administration, which had urged the court to refuse Ohio’s petition.

The case is Ohio v. Yellen, court file 22-880. Janet Yellen was sued in her official capacity as secretary of the U.S. Department of the Treasury.

The court denied Ohio’s petition in an unsigned order and did not provide reasons for its decision, which is its usual practice when turning down a case.

Justice Brett Kavanaugh voted to hear the case but did not explain why. For the court to hear an appeal, at least four of the nine justices have to vote to grant the petition.

Ohio sued in 2021 after 21 attorneys general in other states sent a letter (pdf) to Yellen asking her to clarify that ARPA did not preclude states from using their own discretion as to how to spend the funds. Among the states signing were Georgia, Arizona, West Virginia, Texas, and Florida.

Specifically, the officials asked Yellen to “take immediate action to confirm that certain provisions of the American Rescue Plan Act … do not attempt to strip States of their core sovereign authority to enact and implement basic tax policy.”

The language in the act “could be read to deny States the ability to cut taxes in any manner whatsoever—even if they would have provided such tax relief with or without the prospect of COVID-19 relief funds.”

Without “a more sensible interpretation from your department, this provision would amount to an unprecedented and unconstitutional intrusion on the separate sovereignty of the States through federal usurpation of essentially one half of the State’s [sic] fiscal ledgers (i.e., the revenue half).”

“Indeed, such federal usurpation of state tax policy would represent the greatest attempted invasion of state sovereignty by Congress in the history of our Republic,” the letter stated.

The Supreme Court ruling leaves intact a November 2022 decision by the U.S. Court of Appeals for the 6th Circuit, which held that Ohio “failed to establish a justiciable controversy.” Justiciability refers to the ability of a court to decide a case according to legal principles.

Ohio’s legal standing to bring the lawsuit was also challenged but the 6th Circuit ruled that “regardless of standing, the controversy is moot.”

The circuit court reversed an earlier permanent injunction issued by a federal district court that barred the Treasury Department from enforcing the offset provision against Ohio.

The district court found that the case was not moot even though the Treasury Department’s rule implementing the offset provision was so ambiguous that it “cast a pall over legislators’ abilities to contemplate … tax changes.”

Ohio had argued in court papers that part of ARPA violated the U.S. Constitution.

Congress enacted the “tax mandate” provision in ARPA “in hopes of pressuring States not to cut taxes,” Ohio stated in its petition (pdf) filed with the Supreme Court on March 10. The mandate “prohibits States from using Rescue Plan funds to ‘directly or indirectly offset’ any ‘reduction in [their] net tax revenue’ caused by a tax cut.”

Congress has the power under the U.S. Constitution’s Spending Clause “to offer States federal money with conditions attached,” but “those conditions must be clear, and the offers must be non-coercive.”

The tax mandate “is unconstitutional both because it is hopelessly ambiguous and because Congress coerced the States into accepting its terms,” according to the petition.

An official at the Buckeye Institute, a pro-free market think tank based in Columbus, Ohio, said it would continue fighting in the courts. The organization filed a friend-of-the-court brief in the case in April.

David C. Tryon, Buckeye’s director of litigation, said, “The federal mandate unlawfully usurps power from the states over their taxing authority. Despite the U.S. Supreme Court’s decision not to hear Ohio v. Yellen, there are other opportunities for the high court to reign in this sweeping usurpation of state policymaking power.

“Justice Kavanaugh signaling that he would have heard the case is important. Justice Kavanaugh and his colleagues will have other opportunities to address the tax mandate, and The Buckeye Institute will be there advocating tirelessly for the proper respect of state taxing authority,” Tryon said.

The Epoch Times asked the office of Ohio Attorney General Dave Yost, a Republican, for a comment but had not received one at the time of publication.

The Epoch Times also reached out for comment to the U.S. Department of Justice, which represented Yellen in the case, but had not received a reply as of press time.