Tag: Anti-Inunction Act

Fourth Circuit’s Liberty Ruling Deals a Hidden Blow to Obamacare

Obamacare had a rough day in court yesterday. In Liberty University v. Lew, the Court of Appeals for the Fourth Circuit ruled against Liberty University’s challenge to various aspects of the law. One might think, as SCOTUSblog reported, this was a victory for the Obama administration. 

In the process, however, the Fourth Circuit undercut three arguments the administration hopes will derail two lawsuits that pose an even greater threat to Obamacare’s survival, Pruitt v. Sebelius and Halbig v. Sebelius

The plaintiffs in both Pruitt and Halbig claim, correctly, that Obamacare forbids the administration to issue the law’s “premium assistance tax credits” in the 34 states that have refused to establish a health insurance “exchange.” The Pruitt and Halbig plaintiffs further claim that the administration’s plans to issue those tax credits in those 34 states anyway, contrary to the statute, injures them in a number of ways. One of those injuries is that the illegal tax credits would subject the employer-plaintiffs to penalties under Obamacare’s employer mandate, from which they should be exempt. (The event that triggers penalties against an employer is when one of its workers receives a tax credit. If there are no tax credits, there can be no penalties. Therefore, under the statute, when those 34 states opted not to establish exchanges, they effectively exempted their employers from those penalties.)

The Obama administration has moved to dismiss Pruitt and Halbig on a number of grounds. First, it argues that those penalties are a tax, and the Anti-Injunction Act (AIA) prevents taxpayers from challenging the imposition of a tax before it is assessed. Second, the administration argues that the injuries claimed by the employer-plaintiffs are too speculative to establish standing. Third, shortly after announcing it would effectively repeal the employer penalties until 2015, the administration wrote the Liberty, Pruitt, and Halbig courts to argue that the delay should (at the very least) delay the courts’ consideration of those cases. In Liberty, the Fourth Circuit rejected all of those claims.

In discussing whether the “assessible payment” that the employer mandate imposes on non-compliant employers falls under the AIA, the court writes:

Obamacare Challenge Not Barred By a Weird Technicality

Cato’s third Supreme Court brief in the Obamacare litigation concerns the issue of whether the federal tax Anti-Injunction Act prevents federal courts from timely reviewing Congress’s most egregious attempt to exceed its power to regulate interstate commerce. The AIA bars courts from enjoining “any tax” before that tax is assessed or collected.

One would think that such a law would have no application to the penalty that enforces the individual health insurance mandate, which is not a tax but rather a punishment for not complying with the mandate. Accordingly, most of the courts to consider the issue have found the AIA to be inapplicable to individual mandate challenges. Moreover, the government itself has long conceded that the AIA does not bar these suits.

A Fourth Circuit majority and the dissenting Judge Brett Kavanaugh in the D.C. Circuit, however, reached a contrary conclusion, reasoning that the AIA applies to all exactions assessed under the Internal Revenue Code, including “penalties.” Out of an abundance of caution, and because the AIA may be a jurisdictional bar, the Supreme Court appointed an amicus curiae to argue for the position that the AIA bars these suits.

The plaintiffs here — the 26 states, the National Federation of Independent Business, and several individuals — have advanced several strong arguments for why the AIA doesn’t apply. Cato’s brief expands on one of those arguments: that the words “any tax” in the AIA do not include “penalties” simply because they may be codified in the Code.

First, we demonstrate that the Supreme Court has always held that “taxes” and “penalties” are not interchangeable for AIA purposes. Second, we show that, with one exception, all of the cases cited in the amicus briefs filed by two former IRS commissioners, Mortimer Caplin and Sheldon Cohen — which appear to have heavily influenced the Fourth Circuit and Judge Kavanaugh — concerned penalties that were statutorily defined as taxes. This refutes the commissioners’ erroneous claim that those cases concerned penalties that were not defined as taxes. As we say in our brief, “the influence of Amici Caplin & Cohen’s [D.C. Circuit] brief is surpassed only by its misdirection.” The one exception is the Mobile Republican case (Eleventh Circuit 2003), which we explain is properly understood as applying the AIA to penalties that enforce substantive tax provisions.

In short, the AIA cannot bar suits to enjoin the individual mandate penalty because that penalty neither is defined as a tax nor enforces a substantive tax provision.

Thanks very much to Cato legal associate Chaim Gordon for taking the lead in drafting this brief and helping me with this blogpost.