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On Friday, April 8, 2022, U.S. District Judge Matthew Kacsmaryk agreed with Mississippi, Louisiana, and Texas that the Tax Mandate in the American Rescue Plan Act (ARPA) amounts to “economic dragooning” that exceeded Congress’ Spending Clause authority and violated the anti-commandeering doctrine. The Court permanently enjoined the U.S. Treasury from enforcing it, allowing Mississippi to pursue tax relief just enacted by the State Legislature, as well as utilize federal COVID-19 relief funds, without fear of clawback by the Biden Administration.
“Mississippi has a surplus of funds and our Legislature should be able to give money back to the people without fear of retribution by the federal government,” said Attorney General Lynn Fitch. “It is the people’s elected legislators’ right and duty to determine the best way to spur economic growth following the disruptions of the COVID-19 pandemic. They should be able to do so without heavy-handed coercion from Washington.”
The Tax Mandate is a provision of the American Rescue Plan Act (ARPA), signed into law on March 11, 2021, that bars states from “directly or indirectly” using federal aid granted to states in ARPA for tax cuts. Under the tax mandate, the U.S. Treasury may claw back funds it believes have been misused to provide tax relief.
Attorney General Lynn Fitch, along with the Attorneys General for Louisiana and Texas, filed suit on May 3, 2021, arguing that the Tax Mandate violates the Spending Clause of the U.S. Constitution, commandeers the States’ sovereign authority over their own tax policies in violation of the Constitution’s Tenth Amendment, and is ambiguous and not reasonably related to encouraging post-pandemic economic recovery.
Under ARPA, Mississippi received nearly $2 billion in COVID-19 relief funds, which is roughly equivalent to 31% of Mississippi’s 2021 budget. Governor Reeves signed the Mississippi Tax Freedom Act into law on April 5, 2022. The new law provides more than $500 million in tax relief, eliminating the 4% tax bracket and gradually scaling back the 5% to 4% over 4 years.
“The Mississippi Tax Freedom Act is good for taxpayers and good for Mississippi,” said General Fitch. “It makes our tax code simpler and fairer, and gives us the fifth lowest tax rate in the nation, which not only means that Mississippi families have more money in their family budgets but also that our State is more competitive in attracting new economic growth.”
Mississippi’s suit is one of six filed in federal courts challenging the Tax Mandate. In addition to this case, federal judges have enjoined enforcement in three cases brought by the Attorneys General of Kentucky, Tennessee, Ohio, West Virginia, Alabama, Arkansas, Alaska, Florida, Iowa, Kansas, Montana, New Hampshire, Oklahoma, South Carolina, South Dakota, and Utah. Those rulings have been appealed to the Sixth and Eleventh Circuit Courts of Appeals by the federal government.
Federal judges have ruled against the Attorneys General of Missouri and Arizona, both of whom have appealed their cases to the Eighth and Ninth Circuits, respectively.
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