Tag: D.C. Circuit

IRS Illegally Expands Obamacare

To encourage the purchase of health insurance, the Affordable Care Act added a number of deductions, exemptions, and penalties to the federal tax code. As might be expected from a 2,700-page law, these new tax laws have the potential to interact in unforeseen and counterintuitive ways. As first discovered by Michael Cannon and Jonathan Adler, one of the new tax provisions, when combined with state decisionmaking and Interal Revenue Service rulemaking, has given Obamacare yet another legal problem.

Here’s the deal: The legislation’s §1311 provides a generous tax credit for anyone who buys insurance from an insurance exchange “established by the State.” The provision was supposed to be an incentive for states to create their own exchanges, but only 16 states have opted to do so. In the other states, the federal government established its own exchange, as another section of the ACA specifies. But where §1311 only explicitly authorized a tax credit for people who buy insurance from a state exchange, the IRS issued a rule interpreting §1311 as also applying to purchases from federal exchanges.

This creative interpretation most obviously hurts employers, who are fined for every employee who receives such a tax credit/subsidy to buy an exchange plan when their employer fails to comply with the mandate to provide health insurance. But it also hurts some individuals, such as David Klemencic, a lead plaintiff in one of the lawsuits challenging the IRS’s tax-credit rule. Klemencic lives in a state, West Virginia, that never established an exchange, and for various reasons he doesn’t want to buy any of the insurance options available to him. Because buying insurance would cost him more than 8% of his income, he should be immune from Obamacare’s tax on the decision not to buy insurance. After the IRS expanded §1311 to subsidize people in states with federal exchanges, however, Klemencic could’ve bought health insurance for an amount low enough to again subject him to the tax for not buying insurance.

Klemencic and his fellow plaintiffs argue that they face these costs only because the IRS exceeded the scope of its powers by extending a tax credit not authorized by Congress. The district court rejected that argument, ruling that, under the highly deferential test courts apply to actions by administrative agencies, the IRS only had to show that its interpretation of §1311 was reasonable—which the court was satisfied it had.

Cato and the Pacific Research Institute have now filed an amicus brief supporting the plaintiffs on their appeal to the U.S. Court of Appeals for the D.C. Circuit. While it is manifestly the province of the judiciary to say “what the law is,” where the law’s text leaves no question as to its meaning—as is the case here with the phrase “established by the State”—it is neither right nor proper for a court to replace the laws passed by Congress with those of its own invention or the invention of civil servants. If Congress wants to extend the tax credit beyond the terms of the Affordable Care Act, it can do so by passing new legislation. The only reason for executive-branch officials not to go back to Congress for clarification, and instead legislate by fiat, is to bypass the democratic process, thereby undermining constitutional separation of powers.

This case ultimately isn’t about money, the wisdom of individual health care decisionmaking, or even political opposition to Obamacare. It’s about who gets to create the laws we live by: the democratically elected members of Congress or the bureaucrats charged with no more than executing the laws that Congress passes and the president signs.

Halbig v. Sebelius will be heard by the D.C. Circuit on March 25 (the same day that the Supreme Court hears the Hobby Lobby contraceptive-mandate cases).

Race Has Nothing to Do with the Judicial Nominations Fight

The Congressional Black Caucus has now explicitly attacked Republicans as racist for blocking President Obama’s latest judicial nominees. Not only are they racist, but if you scratch them, you find Confederate gray. 
 
Unbelievable. 
 
Do these elected officials really think that the filibustering of three D.C. Circuit nominees (one of whom is black) has more to do with race than either judicial philosophy or the ongoing battle over whether this underworked court actually needs more judges? Even after Indian-American Sri Srinivasen was confirmed to that same court unanimously in May after Caitlin Halligan (who’s white) was blocked for ideological reasons?
 

The Latest Obamacare Case on Appeal

Last year’s Supreme Court decision holding that Obamacare imposes a “tax” on people who don’t buy health insurance came as a surprise to most Americans. The law doesn’t call it a “tax,” but a “penalty,” and the law’s authors and supporters never called it a “tax” when it was enacted. But Chief Justice Roberts and the four liberal justices held that unlike the penalty in the 1922 case of Bailey v. Drexel Furniture – which was disguised as a tax – what the Patient Protection and Affordable Care Act imposed looked like a penalty but was really a tax.

One of the problems with that – left unaddressed in the NFIB v. Sebelius ruling – is that the Constitution requires “all bills for raising revenue” to “originate” in the House of Representatives. If the PPACA imposes a tax, then it fails this requirement because it originated in the Senate.

That’s the argument being made in the case of Matt Sissel, a veteran and small business owner represented by the Pacific Legal Foundation (including one of us, Sandefur). In a brief filed yesterday in the U.S. Court of Appeals for the D.C. Circuit, Sissel’s lawyers argue that the Obamacare “tax” originated in the Senate in violation of Constitutional standards.

There’s little case law interpreting the Constitution’s Origination Clause. The leading case is 1911’s Flint v. Stone Tracy Corp., which held that the Clause wasn’t violated when the Senate amended a House-passed bill to add a tax to it. The Court held that the Senate – which has the constitutional authority to “propose or concur with amendments” to House-passed revenue bills – was allowed to do this because that Senate amendment “was germane to the subject-matter of the bill.” It’s hard to see how the “germaneness” requirement was satisfied in the PPACA’s case, though. That law originated in the Senate, which took a House-passed bill on a completely different subject (providing incentives for veterans to buy their first homes), deleted its entire text, and replaced it with the bill that became Obamacare. This “shell bill” tactic is not uncommon in legislatures, but the Supreme Court has never held that it satisfies the origination requirement. A federal trial court threw Sissel’s case out in June, on the grounds that the Senate’s “amendment” satisfied the “germaneness” rule because the original House bill had something to do with taxes. But if the standard is that lax, the Origination Clause would mean nothing: the Senate could originate taxes at any time when they have some extremely broad similarity with some other bill the House has passed. In an age of boxcar-sized omnibus bills, that would be easy to do.

That trial court also said that the Origination Clause doesn’t apply to the Obamacare tax anyway, because, while it’s a tax, it isn’t a “bill for raising revenue.” There are precedents that have exempted certain kinds of taxes from the Origination Clause because they’re not revenue measures, but are instead earmarked for some specific fund, or are actually just enforcement penalties meant to ensure compliance with another law. But funds raised by the PPACA aren’t earmarked – they go into the general Treasury, to be spent as Congress chooses. And in NFIB, Chief Justice Roberts’s opinion specifically held that the provision at issue is not a penalty, but only a tax. It’s the reverse of Drexel Furniture.

These are reasons why the judge-made exceptions to the Origination Clause shouldn’t apply here. But there’s a broader reason why the courts should be reluctant to exempt Obamacare. In their decision last year, the majority of justices expressed a desire to preserve what they saw as democratic lawmaking. “We possess neither the expertise nor the prerogative to make policy judgments,” wrote Roberts. “Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them. It is not our job to protect the people from the consequences of their political choices.” Whatever you might think of this idea, if the courts are concerned about our democratic process, they should not hesitate to enforce a constitutional provision designed to preserve democratic accountability.

The Origination Clause was written to ensure that the power to tax – government’s most pervasive, dangerous, and easily abused power – was kept close to the people’s chamber: the House of Representatives, elected every two years directly by local districts. Had Obamacare been properly proposed in the House as a tax on not buying insurance in the first place, it wouldn’t have survived more than a few days – and as it stands the backlash against the law’s enactment swept out the House majority that supported that law. If the courts are concerned with empowering the will of the voters, that’s all the more reason that procedural requirements like the Origination Clause – that help ensure accountability and transparency, and keep the taxing power as close to the people as possible – are fully enforced.

Federal Contractors Shouldn’t Lose First Amendment Rights

From the Boston Tea Party of 1773 to today’s Tea Party movement, from suffragettes to Occupiers, freedom of political association has always been this country’s hallmark. Importantly, this First Amendment freedom extends to campaign contributions. As the Supreme Court affirmed in the 1976 case Buckley v. Valeo,“the right of association is a basic constitutional freedom that is closely allied to freedom of speech and a right which, like free speech, lies at the foundation of a free society.”

The Buckley ruling has since survived many assaults—including, most notably, Citizens United v. FEC—though Citizens United exposed certain instabilities in Buckley’s frameworkIn any event, challenges continue to arise at the intersection of campaign finance law, political association rights, and the freedom of speech.

An important one comes from three individuals who have business contracts with the federal government. Under the Federal Election Campaign Act’s section 441c(a), “any person who is negotiating for, or performing under, a contract with the federal government is banned from making a contribution to a political party, committee, or candidate for federal officer.” Accordingly, the three plaintiffs are prohibited from making their intended campaign contributions and thus from an important form of political participation. This rule applies even to someone like name plaintiff Professor Wendy E. Wagner, who derives only a fraction of her income from the federal contract.

Together with the Center for Competitive Politics, Cato last week filed an amicus brief with the U.S. Court of Appeals for the D.C. Circuit, arguing that the plaintiffs should be able to exercise their right to political association and speech by contributing to political campaigns. Specifically, we argue that section 441(c) is unique in that it entirely bans contributions by a class of individual citizens. 

In McConnell v. FEC,the only case where the Supreme Court addressed an outright ban on contributions by a class of individuals—the ban on campaign contributions by minors originally in the McCain-Feingold campaign finance “reform,” which McConnell otherwise substantially upheld—the Court struck it down as overly broad and because the government didn’t give sufficient justification. What’s clear from that ruling is that for a ban on political speech and association to be constitutional, the government must show that its targeted class of people is somehow too dangerous to be allowed to participate in the political process, and also that the ban applies only to that set of uniquely dangerous people. Section 441(c) doesn’t meet this test.

If the government wants to ban her from this important form of political participation, then it must give more than bare assertions of the specter of potential corruption.

The D.C. Circuit will hear argument in Wagner v. FEC on September 30.

FCC Takes Eye Off Ball, Leaves Court in Defeat

On Tuesday, the U.S. Court of Appeals for the D.C. Circuit served the Tennis Channel a crushing blow, essentially holding that government agencies cannot tell cable operators what networks should be disseminated to consumers.  

The court found that the FCC had made an unforced error in ruling that Comcast had acted illegally against the Tennis Channel by refusing to distribute it as widely as Comcast’s own sports networks, Golf Channel and Versus.  This was a challenge based on Section 616 of the Communications Act, which gives the FCC authority to prevent “multichannel video programming distributors” from restraining the ability of unaffiliated “video program vendors” from competing “fairly by discriminating” – a broad power that the FCC still managed to abuse here.

Initially, the Tennis Channel contracted with Comcast to distribute its content on Comcast’s less broadly distributed sports tier.  It later approached Comcast with a proposal to reposition the channel onto a tier with broader distribution.  Comcast backhanded this proposal, citing financial impracticability – a basic analysis of whether such a move would make sense given ratings, market demand, etc.  An FCC administrative law judge, without citing contrary financial studies (or even a video replay) then corrected what he deemed to be marketplace “discrimination” and ordered Comcast to pay $375,000 to the government and make the Tennis Channel more widely available to consumers.

On appeal, the D.C. Circuit smashed that finding of unlawful discrimination. Indeed, substituting the judgment of an administrative agency for a freely agreed distribution deal for no good reason flouts basic principles of administrative and contract law.  Even in this day of government overreach, it’s just not cricket!

Judge Brett Kavanaugh’s concurring opinion warrants special attention – and applause.  He concluded that Section 616’s prohibition on discrimination only applies when a distributor possesses market power and that Comcast has no such advantage in the national video programming distribution market. According to Kavanaugh, applying Section 616 to a video programming distributor that lacks market power is not only outside the lines of the Communications Act, but the First Amendment as well.

That is, when Comcast distributes specific channels, it’s transmitting speech.  Overruling a cable operator’s programming choices thus interferes with editorial discretion to select and transmit a protected form of speech.  Courts should continue to umpire federal agencies that grant themselves the power to distort the marketplace of ideas.

For more on this case and the important First Amendment and rule of law issues it raises, see Randolph May of the Free State Foundation.

Slow and Steady Progress on TSA Strip-Search Policy

Having pled before the D.C. Circuit Court of Appeals that doing a notice-and-comment rulemaking on its strip-search machine policy is difficult and expensive, the Transportation Security Administration is dropping a cool quarter-billion dollars on new strip-search machines. That’s quite a fixation the TSA has, putting spending on new gadgets ahead of following the law.

But the writing is on the wall for the practice of putting travelers through strip-search machines and prison-style pat-downs at the government checkpoints in American airports.

On Tuesday, the D.C. Circuit ruled against a petition to have the court force TSA to move forward with taking public comments as required by law. The language of the order signals the court’s expectation, though, that the TSA will get this done, quoting the TSA’s language and, well, saying as much.

ORDERED that the petition for writ of mandamus be denied in light of the Government’s representation that “the process of finalizing the AIT Rulemaking documents so that the NPRM may be published is expected to be complete by or before the end of February 2013.” Accordingly, we expect that the NPRM will be published before the end of March 2013.

Generous court — it gave the TSA an extra month.

I imagine the folks at EPIC are preparing a filing for April 1st. No foolin’, there will be a public push to go along with it, as large or larger than the most recent.

The TSA knows it can only carry on so long in contempt of the law and the court. I expect the rulemaking documents will issue by midnight on March 31st, even if a special Sunday edition of the Federal Register has to be published to do it.

The court’s ruling is technically adverse to the petitioners, but it is better than a flat denial. The court was not going to cancel a policy that is arguably an important security measure. The best outcome was some kind of date certain with consequences for failure to act. The TSA delivered a date certain, which the court has adopted. Leaving the consequences unstated could embolden TSA to more contumacy, but I doubt it.

Once the rulemaking is in place, the strategy I laid out a year ago kicks in.

The TSA will have to exhibit how its risk management supports the installation and use of strip-search machines. How did the TSA do its asset characterization (summarizing the things it is protecting)? What are the vulnerabilities it assessed? How did it model threats and hazards (actors or things animated to do harm)? What are the likelihoods and consequences of various attacks? Risk assessment questions like these are all essential inputs into decisions about what to prioritize and how to respond.

When the insufficiency of its policymaking is shown, the policy will be ripe for review under the Administrative Procedure Act’s “arbitrary and capricious” standard and there will be a record sufficient to justify a Fourth Amendment challenge to the policy of prison-style searches of all American travelers.

Yes, the challenge to this policy is taking a long time, but pressing back on all fronts against the invasive, unneeded security state is a joy even when it requires patience.

TSA Should Follow the Law

A year ago this coming Sunday, the U.S. Court of Appeals for the D.C. Circuit ordered the Transportation Security Administration to do a notice-and-comment rulemaking on its use of Advanced Imaging Technology (aka “body-scanners” or “strip-search machines”) for primary screening at airports. (The alternative for those who refuse such treatment: a prison-style pat-down.) It was a very important ruling, for reasons I discussed in a post back then. The TSA was supposed to publish its policy in the Federal Register, take comments from the public, and issue a final rule that responds to public input.

So far, it hasn’t done any of those things.

The reason for the delay, stated in a filing with the court last year, was the complexity and expense of doing a rulemaking in this area. But CEI’s Ryan Radia, at work on a legal brief in the case, notes that the TSA has devoted substantial resources to the PreCheck program during this time, rolling it out to additional airports. How can an agency pour resources into its latest greatest project yet claim poverty when it comes to complying with the law?

So on Monday, I started a petition on Whitehouse.gov. It says the president should “Require the Transportation Security Administration to Follow the Law!

By the end of the day yesterday, the petition had garnered the 150 signatures needed to get it published on Whitehouse.gov. The petition says:

Defying the court, the TSA has not satisfied public concerns about privacy, about costs and delays, security weaknesses, and the potential health effects of these machines. If the government is going to “body-scan” Americans at U.S. airports, President Obama should force the TSA to begin the public process the court ordered.

That’s not a huge request. Getting 25,000 signatures requires the administration to supply a response, according to the White House’s petition rules.

The response we want is legal compliance. The public deserves to know where the administration stands on freedom to travel, and the rule of law. While TSA agents bark orders at American travelers, should the agency itself be allowed to flout one of the highest courts in the land? If the petition gets enough signatures, we’ll find out.

Signing the petition requires an email for confirmation, but it does not sign you up for any mailing list unless you volunteer for that. If you’re quite concerned about sharing an email, you can create a throwaway email on AOL or Yahoo! and use it once.

Please pass the word about the petition. If it gets to 25,000 people, the Obama administration will owe the public a response. I’ll report on it, and whether or not it’s satisfactory, right here.