Attorney General Ken Paxton filed a lawsuit against the Biden Administration over a provision in the federal government’s American Rescue Plan Act. Though the Act generally assists Texans recovering from the COVID-19 pandemic, one provision—the Tax Mandate—specifically demands that Texas not use funds received through the Act to “directly or indirectly” offset tax revenue reduction caused by changes in tax policy. This condition prohibits Texas and other states with similar low-tax models of governance from cutting taxes for years to come on pain of losing billions in COVID-19 relief.

“This is yet another attempt by the federal government to unlawfully exert control over how sovereign states operate. While hiding behind a deceptively friendly name, the Act effectively removes Texas’s ability to lower taxes while granting Secretary of the Treasury Janet Yellen power to take back federal aid funds if they disagree with state tax policies. For Texas, which successfully operates on a low-tax model and continually finds ways to reduce tax burdens on citizens, the Tax Mandate is particularly intrusive,” said Attorney General Paxton. “By design, Congress lacks the power to assert control over states and cannot coerce a state into adopting a policy. The Tax Mandate, which does precisely that, blatantly violates the Constitution and cannot stand.” 

The threat created by the Tax Mandate not only prohibits Texas from eliminating taxes, reducing tax rates, or increasing tax credits, it also prohibits the adoption of enforcement policies regarding taxes that would lead to reduced revenues. For example, if Texas decided not to enforce a given unemployment or payroll tax against a struggling small business or to reduce property taxes in a district, the state would be stripped of funding meant to assist those recovering from the pandemic.  

Read a copy of the filing here