A federal district court judge in Alabama ruled on Monday in favor of 13 states suing the Biden Administration over an unclear provision of the American Rescue Plan Act (ARPA) that attempts to prohibit states from cutting taxes.  

The State of Iowa joined the lawsuit in March, which challenges a provision of ARPA that prevents states from using ARPA funds to “directly or indirectly” offset tax cuts. The court found that Congress exceeded its authority by attaching vague and ambiguous conditions on receipt of the ARPA funds. 

The court wrote in part:  

“The language of the Tax Mandate makes it impossible for States to make an informed choice about the costs of receiving ARPA funds because it is impossible to know how to exercise taxing authority without putting ARPA funds at risk. Money is fungible, meaning ‘of such a nature that one part or quantity may be replaced by another equal part or quantity in paying a debt or settling an account’ or ‘capable of mutual substitution: interchangeable.’ Thus, any ARPA funds the Plaintiff States receive could be viewed as indirectly offsetting any reduction in net tax revenue from a change in state law or policy." 

“This is a major victory for the State of Iowa and Iowa taxpayers,” said Gov. Reynolds. “The Biden Administration was trying to punish fiscally responsible states like Iowa, which has a record budget surplus, and that’s why we took legal action. With this ruling, Biden’s Administration can’t keep us from cutting taxes and I look forward to doing just that.”  

The Court permanently enjoined this provision of ARPA against the plaintiff states.