Tag: interstate commerce

California Wants Amazon to Tax Californians

The Los Angeles Times has a good article on California’s move to require Amazon and other out-of-state retailers to collect taxes for it. Good because it accurately portrays what’s happening. Many such stories will say that California is seeking to tax Amazon. In fact, says the headline, “California Tells Online Retailers to Start Collecting Sales Taxes From Customers.”

You see, Californians generally don’t pay their “use taxes“—the alternative to sales taxes, for things brought into the state from outside. If the tax authorities tried to collect use taxes, going door to door to tally up the goods that haven’t yet been taxed, there would be bedlam.

So they want out-of-state companies that sell into California to collect the taxes that the state’s residents would pay. But in 1992, the Supreme Court found in a decision called Quill v. North Dakota that states can’t require out-of-state retailers to collect taxes for them. Doing so would create too great a burden on interstate commerce.

If an Internet retailer has a significant presence in a state, then the state can require the retailer to collect and remit sales taxes. (It’s no longer interstate commerce—get it?) So Amazon and other retailers are doing the sensible thing: shedding ties to California, such as with their affiliate marketers. Reports the Times:

Amazon and online retailer Overstock.com Inc. told thousands of California Internet marketing affiliates that they will stop paying commissions for referrals of so-called click-through customers. … Both Amazon in Seattle and Overstock in Salt Lake City have told affiliates that they would have to move to another state if they wanted to continue earning commissions for referring customers.

The natural result of California doing yet more to make the state uninhabitable for business comes at the end of the story. Californians who earned and spent money in California as part of the Internet remote sales ecosystem plan to move elsewhere:

One affiliate, Ken Rockwell of San Diego, the owner of a 12-year-old photography website, said he planned to move out of state. “Will it be Las Vegas or Scottsdale or Ensenada?” he said. “It’s a question of where, not if.”

In the Quill case, the Supreme Court invited Congress to change the rule that it laid down. If it saw fit, Congress could permit states to export their tax responsibilities to businesses in every other state. But this would cut off the healthy tax competition you see happening in the area of remote sales; both taxes and tax collection burdens would rise.

Profligate and tax hungry states like California are desperate to overturn Quill in the courts or through the Congress. Here’s hoping they fail.

Federalism and Med-Mal Reform

Thanks to star libertarian lawprof and Cato senior fellow Randy Barnett for pointing out something that has needed saying for a while: most proposals in the U.S. Congress to address medical malpractice law run into serious federalism problems.

Most medical malpractice suits go forward in state courts under state law. If the U.S. Congress wishes to impose a nationwide rule on these suits, such as by limiting damages for pain and suffering, it first needs to answer the question: under which of the federal government’s constitutionally prescribed powers is it acting? Even if it can identify such authority, it should also ask: is it a wise idea—consistent with what one might call a prudential federalism—to gather yet more power in Washington at the expense of the states?

Unfortunately, the backers of the current federal med-mal bill have chosen to rely on the Supreme Court’s very expansive “substantial effects” doctrine, which as Barnett explains:

allows Congress to regulate any economic activity in the country that can be said, in the aggregate, to have a “substantial effect” on interstate commerce. This doctrine was unknown before the 1940s, and goes far beyond the original power to regulate trade between states. This is how most of Congress’ regulatory power has been justified since then.

Although it is followed even by conservative justices, Justice Clarence Thomas has long criticized the Substantial Effects Doctrine on the ground that it exceeds the original meaning of the Constitution.

Let’s step back for a moment to review what’s not at issue here. First, this is not an argument over whether liability reform of some sort is a good idea: in fact Prof. Barnett “strongly support[s] reforming our malpractice laws to protect honest doctors from false claims and out-of-control state juries.” (So do I.)

Nor is this an argument over whether the federal government should simply leave the state courts alone as a general proposition, as some late-blooming friends of federalism on the left side of the aisle seem to suggest. Our constitutional scheme of government is entirely consistent with federal-level supervision of state courts when those courts behave in certain ways, as by violating litigants’ due process, impairing the obligation of contract, or abridging the privileges and immunities of citizens of other states, to name but a few. Article IV, Section 1 confers on Congress a broad charter to prescribe to states “by general Laws” how they are to accord full faith and credit to other states’ enactments. That’s not even counting Congress’s genuine interstate commerce power (as opposed to the on-steroids New Deal version) or various other powers.

But observe the pattern. Again and again, the Constitution contemplates federal supervision of state courts when they reach out to assert power over transactions and litigants outside their own boundaries. It has far less to say about intruding upon the authority of those courts over disputes that arose between their own residents and are unmistakably under their own law. That general game plan—oversee the interstate but mostly not the intrastate doings of state courts—comports well with the insight of public choice scholars who point out that states face an ongoing temptation to stack liability proceedings so as to enrich their own citizens at the expense of out-of-state litigants obliged to appear in their courts.

Where does this leave federal-level liability reform? It suggests a very real difference between areas like product liability and nationwide class actions—in which suits ordinarily cross state lines, and the majority of runaway verdicts are against out-of-state defendants—and more conventional kinds of tort litigation arising from car crashes, slip-and-falls, and medical misadventure, where cases are mostly filed against locally present defendants. As a rough rule of thumb, it’s worth presuming that most of the local suits do not externalize heavy costs across state lines and should accordingly be left alone by Congress unless it is itself vindicating some constitutional right or coordinating the functioning of some constitutionally authorized federal government activity.

That doesn’t mean federal policymakers are to be left with no role at all. For example, if Washington is paying for a large share of hospital stays, it may make sense as a cost containment measure for it to steer beneficiaries into lower-cost ways of resolving disputes over care quality, or even to ask beneficiaries as a condition of treatment to agree not to file certain suits at all. But that would require stepping back toward a more careful—and more Constitutionally appropriate—view of the federal role.

A Life of One’s Own

Since Tuesday’s oral arguments in Virginia v. Sebelius—the first Obamacare challenge to reach the circuit court level, and one in which Cato also filed an amicus brief—the legal blogosphere has been discussing the Fourth Circuit panel’s incredulity concerning the activity/inactivity distinction at the heart of our arguments against Obamacare. As Ilya Shapiro explains, we contend that if Congress’s power to regulate “interstate commerce” reaches the inactivity of not buying health insurance, then there is nothing it does not reach. The Supreme Court will eventually have to grapple with this question and decide whether the distinction is constitutionally meaningful.

As Volokh conspirator Jonathan Adler points out, the activity/inactivity distinction is long-standing. At common law, there was no legally enforceable duty to rescue. In other words, if you didn’t act to create the danger, you would not be liable for your inactivity in not helping. To put it bluntly: you would have no legal liability if you ignored a drowning child.

Legal philosophers have grappled with the meaning of “act” and “omission” for centuries. While there are some difficult issues to ponder, there is also an element of navel-gazing in the question and the Supreme Court may have to gaze long at their navels to answer it. But it is worth remembering why the act/omission distinction matters in a free society. At the risk of getting too philosophical, I will add some thoughts of my own.

Anyone who has been to law school has likely had long conversations, probably in torts class, over whether the act/omission distinction is both meaningful and moral. If your torts class was like mine, your professor lamented the “no duty to rescue” rule as evidence of our individualistic and selfish society. Many law professors believe our slavish adherence to the act/omission distinction not only allows us to let children drown, but that it is just another “Western” belief that holds back a robust welfare state.

The aversion to mandating action, however, is not about letting children drown. I wouldn’t let a child drown and I imagine you wouldn’t either. The extreme hypothetical helps gloss over a meaningful principle for normal, run-of-the-mill cases. Just as bad facts make bad law, bad hypotheticals can blur vital principles. The act/omission distinction helps delineate, albeit imperfectly, the personal sphere of control and the governmental sphere of control.

Despite many who want to equate the two, what is legal is not the same as what is moral. In fact, these two categories can work against each other—performing an act of kindness because you fear authority diminishes the act’s moral character.

But we distinguish between the legal and the moral for deeper reasons as well: it helps maintain the crucial separation between the government and civil society, ensuring that the government doesn’t become the absolute ruler of our lives and the values we choose to hold dear. The theory that there are proper spheres of governmental control and proper spheres of private control is one of the great and under-appreciated victories of Western culture.

The act/omission distinction also matters because resources are scarce. Acting uses resources that could be used for alternate purposes. Omitting uses none. While you can take on a literally infinite set of omissions, you can only take on a finite number of acts. Using resources—time, money, strength, natural resources, etc.—for one thing means they are not being used for something else.

To put this in real-world terms: Obamacare’s individual mandate to maintain minimum health care coverage could eventually cost someone tens of thousands of dollars that they would have spent on other things. One of those things may have been another 50” television. However, it is just as likely that the money may have been spent on sending a child to college (or, given the age of those likely to go without insurance, sending oneself to college), donated to a church or a favorite non-profit, or invested in a fledgling business. Mandating action—that is, the use of scarce resources—overrides individual value preferences and substitutes other values through force. In other words, the government is telling you that your value preferences are wrong.

This is how the necessary distinction between government and civil society is slowly eroded. Creating legally enforceable duties to use your resources politicizes resource allocation problems. But our lives are already resource allocation problems, with or without government. How you manage your time and efforts is not just a question for your day-planner, it’s a profound existential quandary. Politics is one of the worst ways that resource allocation problems can be addressed. At the extremes, it becomes dehumanizing. Special interests will fight over your resources and decide how they should be allocated. It’s actually worse than watching sausages get made.

This is why libertarians are treating the Obamacare litigation as a critical moment in constitutional law. Sure we’ve been taxed before, and civil society has already been significantly eroded by government overreach. But we’ve rarely been commanded, particularly in a way so obviously designed to avoid political liability for raising taxes. Our parades of horribles—for example, the hypothetical “buy broccoli mandate”—may elicit eye-rolling from some, but violating the act/omission distinction in principle, as the government threatens to do here, means a principle is no longer standing in the way.  “Just this once” is hardly reassuring.

I understand that much of what I’ve said here, if taken to its logical conclusions, would prohibit any taxation. I am not advocating that. I am only pointing out a subtle and important distinction through which these questions can be viewed. A government that has total power to dictate when, how, and whether resources will be used is a government that has the power to dictate your life-plan and decide for you which things matter the most. The act/omission distinction has helped maintain the crucial line between the private and the public spheres, allowing for the possibility that government can be avoided by keeping to oneself.

The fact that the Fourth Circuit judges were “baffled” by the action/inaction distinction is disturbing to say the least. We lose something very important if they rule for the government, something that generations of enlightenment-era political philosophers articulated as a critical line between freedom and total government control. Let’s hope the Supreme Court doesn’t also forget those lessons.

Yes, Says Virginia, There Are Limits on Federal Power

Today, the Fourth Circuit became the first appellate court in the nation to enter the Obamacare fray.  It heard two very similar cases back-to-back, Liberty University’s, in which the government won in the district court, and the Commonwealth of Virginia’s, in which Judge Henry Hudson struck down the individual mandate back in December.  Going into the hearing, Virginia Attorney General Ken Cuccinelli’s legal team had done a wonderful job setting out the reasons why Hudson was correct and why Congress went too far in asserting the unprecedented power to compel people to enter into contracts with private insurance companies.  I was proud to sign Cato’s brief supporting that position and continue to maintain that the federal government cannot require people to buy goods or services under the guise of regulating interstate commerce.  Moreover, the individual mandate is the linchpin of the overall legislative scheme (as everyone concedes), so if it falls, the rest of the law—at least its central provisions—must fall with it.

Indeed, the Fourth Circuit judges—a Clinton appointee and two Obama appointees, in a random selection unfortunate to the challengers—struggled with the idea that Congress could regulate “inactivity.”  The government—which has now determined that the challenges are so serious as to send the solicitor general to argue in lower courts—claimed that Congress can do anything it wants relating to anything that in any way affects a national market such as that for health care.  Given that decisions not to buy insurance, or to self-insure, or not to pay for health care until presented with a bill, clearly have a substantial effect on interstate commerce, the argument went, Congress can require people to buy health insurance.  The judges seemed to agree to a certain extent but were still troubled by the textual truism that a power to “regulate” implies an active object or activity that is being regulated.  And indeed, if a “decision” not to buy something or the state of not having acquired something is all that is required to invoke congressional jurisdiction, then the Constitution’s enumerations of federal power mean absolutely nothing.

The government is understandably unconcerned with articulating a principled limit on its own power, and this particular panel of judges may find some way to avoid dealing with the activity/inactivity conundrum, but one can only hope that the Supreme Court ultimately rejects the claim that Congress can grant itself unlimited power simply by legislating in an area of great national concern.

Starting at 2pm Eastern, you can stream the oral arguments from the Court’s website here.

Kagan May Well Become “The Liberal Scalia”

More highlights from Day 2 of the Kagan confirmation hearings:

•  In addition to backing away from President Obama’s empathy standard, Elena Kagan, under questioning by Senator Grassley, backs away from her “judicial hero” Aharon Barak, saying that she does not share his judicial philosophy, which involves judges making policy decisions and affirmatively shaping society.  This is an important concession.  Grassley also elicits the statement that only the president and Congress should worry about American influence in the world.

•  The wily Arlen Specter, in his last Supreme Court hearing (unless Justice Ginsburg retires over the summer), treats his questioning as a prosecutor would.  Technical questions and cutting off responses when Kagan begins to expound on the current state of the law, when what he really wants to know is what she thinks about the law.  Unfortunately, Specter accepts Kagan’s statements that she respects Congress but does not press her right when the next question would demand an actual opinion on Citizens United or on Morrison (an important case in which the Court struck down the Violence Against Women Act as beyond Congress’s powers to regulate interstate commerce).  Kagan admits that Citizens United was a “jolt to the system” because states had relied on the pre-existing campaign finance regime.  Unfortunately, this is again an empirical statement rather than a normative one.

•  Kagan does express a firm opinion in favor of televising Supreme Court proceedings (this is one of Specter’s bugaboos).  “I guess I’ll have to have my hair done more often,” she says.

•  Lindsey Graham is definitely worth the price of admission.  First he prompts Kagan to admit that “my political views are generally progressive” after she declined to characterize herself in anyway in response to previous senators’ queries.  Then he gets her to endorse her classmate Miguel Estrada for the Supreme Court (which may be of interest to General Petraeus, who testified before another Senate committee today).  Finally, in questioning regarding the Christmas Day bomber, he provokes an ethnic love-in after his question about where Kagan was on Christmas Day elicits the response, “well, like all Jews, I was probably at a Chinese restaurant.”  As he did with Sotomayor, Graham makes clear that he is likely to disagree with many of Kagan’s judicial decisions, but will vote for her regardless.

•  John Cornyn is the first senator to push the size and scope of government as a major line of questioning.  He asks her one of my pet questions: What limits are there on government?”  Kagan replies by reciting the Commerce Clause standards set forth in existing precedent, that Congress cannot touch activity that is not economic or that is left traditionally to state power. Well, that’s progress, but of course it raises the question of whether forcing someone to buy health insurance involves regulating economic activity and whether health care regulation is a traditional state responsibility.

•  Tom Coburn picks up where Cornyn left off, proposing a hypothetical bill requiring everyone to eat three fruits and three vegetables per day.  Kagan considers that a “dumb law” but says that “courts would be wrong to strike down laws simply because they are senseless.”  Well, ok, but is that particular senseless law unconstitutional?  Kagan seems pained (in real psychic discomfort) but Coburn lets her off the hook in reading from the Federalist Papers—a nice edition that should make for a good picture in the Oklahoma papers—and talking about the explosive growth of government.  Kagan shrugs off this discursion by citing Marbury v. Madison—“the role of the courts is to say what the law is”—and concluding that deficits aren’t a problem courts can resolve, at which point Coburn’s time runs out.  We will revisit this issue.

In short, Kagan is without doubt smarter, wittier, and more collegial than Sonia Sotomayor.  Unfortunately, that means she is likely to be more dangerous, a true “liberal Scalia.”  We now know that two of the catchphrases from these hearings will be that “I’m not going to grade cases”—why not?—and that everything the Court has ever decided is “well-settled law.”  In my mind, Kagan has not yet met the burden of persuasion regarding constitutional limits on government, which is my focus at these hearings.  I would look for Senators Sessions, Cornyn, and Coburn to hit this issue hard on the next go-around.

CP at Townhall

Ask Kagan about ObamaCare

Senate Judiciary Committee members should be sure to ask Solicitor General and Supreme Court nominee Elena Kagan, during her upcoming confirmation hearings, whether she or her office played any part in crafting ObamaCare or the administration’s defense to the lawsuits challenging that law.  If Kagan helped to craft either, that would present a conflict of interest: when those lawsuits reach the Supreme Court, she would be sitting in judgment over a case in which she had already taken sides.

Though the Solicitor General deals with appellate matters, it is certainly possible that Kagan was consulted during the drafting of the law or the administration’s legal strategy for defending it.

The Senate Democrats who drafted ObamaCare took pains to protect it from a constitutional challenge.  The law contains several pages of findings designed to show that the Constitution’s commerce clause authorizes Congress to force Americans to purchase health insurance.  It would have been prudent for Senate Democrats to ask the government’s top appellate lawyer, who belongs to the same political party, whether they had done all they could to protect the “individual mandate” from a constitutional challenge.

Opponents began filing legal challenges to ObamaCare just minutes after President Obama signed it into law, and seven weeks before he announced Kagan’s nomination.  On Tuesday, the Obama administration filed its first response, to a private lawsuit.  According to the Associated Press, that filing “is to be followed in coming weeks and months by federal government court responses to lawsuits filed by many states.”  Regarding the case filed by 13 (soon to be 20) state attorneys general, The New York Times reports, “Some legal scholars, including some who normally lean to the left, believe the states have identified the law’s weak spot and devised a credible theory for eviscerating it.”  It is not certain, but it is certainly possible that the Office of the Solicitor General was consulted on the government’s response to lawsuits that would likely reach the Supreme Court.

If Kagan played a role in drafting ObamaCare or formulating the administration’s legal defense, and is confirmed by the Senate, propriety would dictate that she recuse herself from any challenges to that law that reach the high court.  Supporters and opponents alike should be interested to know whether the Court will judge ObamaCare with nine justices on the bench, or eight.