Strange and Dangerous Attacks on the Recovery Plan’s Condition on State Tax Cuts

David Super

                Quite remarkably, some Republican state officials are attacking the constitutionality of the new section 602(c)(2)(A) of the Social Security Act added by section 9901 of the recently-enacted American Recovery Plan Act (ARPA).  This provision reduces federal fiscal aid to states by the amount of any state tax cuts.  Congress included the ARPA provision at a time when several Republican governors were advocating dramatic tax cuts despite the economic weakness caused by the pandemic. 

The assertion that this condition is unconstitutional is remarkable in at least two ways.  First, it is utterly without foundation on even the most aggressive reading of the Constitution and the Supreme Court’s precedents. 

And second, this theory’s implications, far from being an advance of states’ rights, are utterly devastating for the autonomy and independence of states.  Those making this claim therefore are privileging the sugar-high of tax cuts over principles of federalism that the Republican Party once insisted were sacrosanct.  When combined with widespread Republican acceptance of the Trump Administration’s flippant federalism, this suggests that we are entering an era when neither of the country’s two major political parties have any deep commitment to protecting the prerogatives of the states.  That shift could transform the structure of this country’s governance. 

On the merits, the challenge to the ARPA condition is absurd.  Nothing in the Constitution limits the federal government’s ability to transfer funds to the states to promote the general welfare, and nothing prohibits it from imposing conditions on receipt of those funds.  The federal government has been making conditional grants to the states for a very long time.  For a textualist or an originalist, that ought to be enough to dismiss this claim out of hand. 

Caselaw provides no support for this claim, either.  The Supreme Court has recognized limits to Congress’s authority to command state or local governments to carry out a federal agenda against their will.  But ARPA does not command anything:  it merely attaches a condition to money being offered to states. 

And the ARPA tax-cut provision falls well within the range of what the Court has accepted as funding conditions.  The post-New Deal Supreme Court brushed aside challenges to Congress’s ability to make conditional grants to states, ushering in the modern era of cooperative federalism.  It also upheld congressional efforts to influence state tax policy, approving sections of the Social Security Act that effectively increase a federal tax on employers whose states do not assess them a state tax to support unemployment compensation benefits. 

Numerous social welfare, transportation, environmental, law enforcement, and other programs have operated on the basis of conditional federal grants.  Quoting Chief Justice Burger, Chief Justice Rehnquist noted that incident to its spending power, “Congress may attach conditions on the receipt of federal funds, and has repeatedly employed the power ‘to further broad policy objectives by conditioning receipt of federal moneys upon compliance by the recipient with federal statutory and administrative directives.’"  He also reiterated a pre-New Deal holding that “the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution. Thus, objectives not thought to be within Article I's enumerated legislative fields, may nevertheless be attained through the use of the spending power and the conditional grant of federal funds.”

More recently, the Court has recognized three limitations on Congress’s ability to condition funding to states.  None of these limitations, however, comes anywhere near causing a problem for the ARPA provision.  First, the Court has held that conditions must be open and obvious so that states know to what they are committing when they accept the funds.  The tax-cut condition appears explicitly on the face of ARPA:  the fact that it has become controversial days after enactment, long before any state submitted the certifications required to receive Fiscal Recovery Funds, demonstrates how open and obvious the condition is. 

Second, the Court has held that conditions on funding must be reasonably related to the purpose of the funding.  Congress probably could not condition Medicaid funding on a state changing its state bird.  In an opinion by Chief Justice Rehnquist, however, the Court upheld conditioning federal highway funding on adoption of a 21-year-old drinking age.  The Court found that Congress was reasonable in its belief that allowing younger persons to purchase and possess alcohol could increase drunk-driving deaths.  The Court brushed aside the state’s argument that controlling the sale of liquor was a core state power secured by the Twenty-First Amendment, noting that Congress had not denied the state that power but merely reduced its support for highways that it believed would be more dangerous as a result of a particular choice.  The ARPA condition has an even closer substantive relationship to the funding provided than does the drinking age that the Court upheld:  it constrains how the very funds being provided are spent.

Finally, in the Court’s first case on the Affordable Care Act (NFIB v. Sebelius), it held that Congress could not suddenly increase the conditions on federal Medicaid funding by requiring states to expand eligibility to large populations that the program previously had not served.  The problem, Chief Justice Roberts wrote, was that states had become so dependent on Medicaid funding that opting out was no longer a plausible option for them.  With states in this position, Congress effectively put “a gun to the head” of any state wanting to deny Medicaid to non-elderly adults without a disability or pregnancy.  With no other federal program providing remotely as much money to states, the “gun-to-the-head” standard may not apply outside of the Medicaid context.  But it certainly does not apply to money that states have no legal right to receive and in fact have not been receiving. 

This is where the Republican officials’ argument becomes so remarkable.  To invoke the NFIB principle, they essentially must argue that denying states fiscal relief in this crisis is pointing a gun to the states’ heads.  The Court found the ACA’s Medicaid expansion condition coercive only because it found that states had become so dependent on Medicaid funding that they had developed an implicit right to have it continue.  ARPA’s fiscal relief is not continuing funding at all:  states received some fiscal relief under last year’s CARES Act, but congressional Republicans and President Trump steadfastly opposed providing any more, reportedly sinking potential bipartisan agreements on further coronavirus relief measures because they so adamantly opposed Democrats’ insistence on more fiscal relief.  Had the Democrats not won the two Georgia senatorial run-offs, states almost certainly would not be receiving any further fiscal relief, conditional or otherwise.  To say that states were so dependent on this money that it cannot legitimately be conditioned is quite detached from its recent history. 

These attacks also posit a model of federal-state relations radically at odds with the states’ rights position Republicans have taken for the past half-century.  The model Republican attorneys general seem to advocate is one under which states reduce their own revenue-raising and rely on federal funds instead.  This is hardly consistent with states as fully equal sovereigns.  And this hardly seems a model that the Supreme Court’s conservative majority would want to embrace. 

Even an obsessive focus on state tax cuts funded by state program cuts leaves more and more problems unaddressed, eventually leading to greater federal involvement.  But insisting that states have a constitutional right to unconditional federal fiscal assistance to fund state tax cuts is very difficult to square with any coherent conception of federalism and would leave states increasingly as spending agents for the federal government.  That leading Republicans are making this argument suggests that their party is ceasing to be a consistent defender of states’ role in our system in favor of a relentless pursuit of tax cuts (and other its other substantive priorities). 

Although the Democrats did steadfastly press for state fiscal relief, I do not see that party taking up the states’ banner on any consistent basis, either.  In a political environment where loyalties to parties are far stronger than those to particular institutions of government, having neither major party deeply committed to states’ vitality could result in a lasting weakening of their position in our system.  Whether or not one believes the states’ traditional roles should be maintained, that is a big change. 

@DavidASuper1