Tag: IRS

End the Personal Bribes Members of Congress Are Getting Not to Reopen ObamaCare

The U.S. Constitution vests the legislative, executive, and judicial powers in separate branches of the government that are supposed to police each other. But what if one of those branches violates the law in a manner that personally benefits the members of another branch? That’s what has been happening since the day ObamaCare became law in 2010. For more than five years, the executive branch has been issuing illegal subsidies that personally benefit the most powerful interest group in the nation’s capital: members of Congress and their staffs. A decision today by the Senate Small Business & Entrepreneurship Committee not to investigate those illegal subsidies shows just how difficult it can be to prevent one branch of the government from corrupting members of another branch.  

It is no secret that executive-branch agencies have broken the law, over and over, to protect ObamaCare. King v. Burwell challenges the IRS’s decision to offer illegal premium subsidies in states with federally established health-insurance Exchanges. University of Iowa law professor Andy Grewal recently revealed the IRS is illegally offering Exchange subsidies to at least two other ineligible groups: certain undocumented immigrants and people who incorrectly project their income to be above the poverty line. Treasury, Health and Human Services, and other executive-branch agencies have unilaterally modified or suspended so many parts of the ACA, it’s hard to keep count – and even harder to know what the law will look like tomorrow. Even some of the administration’s supporters acknowledge its actions have gone too far

The longest-running and perhaps most significant way the administration has broken the law to protect ObamaCare is by issuing illegal subsidies to members of Congress.

Actually, Justice Kennedy, IRS Did Tell Congress Section 36B Contains “Contradictory Language”

During oral arguments in King v. Burwell on Wednesday, Justice Anthony Kennedy expressed skepticism about the government’s claim that the Supreme Court should defer to the Internal Revenue Service’s interpretation of the Patient Protection and Affordable Care Act as allowing certain taxes and subsidies in all states, when the statute authorizes those measures only in states that have an “Exchange established by the State.” Specifically, Kennedy expressed skepticism that the IRS interpretation was eligible for so-called Chevron deference, telling Solicitor General Donald Verrilli:

And it seems to me a little odd that the director of Internal Revenue didn’t identify this problem if it’s ambiguous and advise Congress it was.

Actually, the IRS commissioner did tell Congress the statute was ambiguous.

IRS Commissioner Douglas Shulman

In August 2012, IRS commissioner Douglas Shulman testified before Congress. The hearing was largely devoted to the very IRS rule now before the Supreme Court. Rep. Scott DesJarlais (R-Tenn.) interrogated Shulman, in relevant part:

Dr. DESJARLAIS. Do you agree that when authorizing these premium assistance tax credits the Internal Revenue Code, Section 36B, explicitly refers to health insurance exchanges established by the States under Section 1311?

Mr. SHULMAN. I think 36B has some contradictory language in it.

[…]

Mr. SHULMAN. I very much agree with you that there is some contradictory language…

Dr. DESJARLAIS. You are not agreeing with me. I don’t think it is ambiguous, sir. I don’t think it is ambiguous. I think it is very clear.

This is notable for a few reasons:

First, the head of the IRS testified to Congress that there is in fact language in the act that contradicts the government’s argument before the Supreme Court in King v. Burwell that the statute unambiguously authorizes the disputed taxes and subsidies in states with federal exchanges.

Second, neither the IRS’s proposed rule nor its final rule claimed the statute was either clear or ambiguous on this question.

Third, the proposed and final rules identified no statutory support at all for the IRS’s interpretation.

Fourth, the IRS commissioner made this concession before the IRS rule had been challenged in court. The hearing was in August 2012 and the first challenge was filed in September 2012.

Fifth and consequent(ial)ly, this evidence further demonstrates the government’s arguments in King are post-hoc rationalizations for a rule promulgated without reasoned decisionmaking.

Seize First, Question Later: The Institute for Justice’s New Report on the IRS’ Abusive Civil Forfeiture Regime

Considering the growing controversy over the abuse of civil asset forfeiture at the federal and state levels, the Institute for Justice’s newly released report on the IRS’ questionable use of the practice is perfectly timed.

An excerpt from the executive summary:

Federal civil forfeiture laws give the Internal Revenue Service the power to clean out bank accounts without charging their owners with any crime. Making matters worse, the IRS considers a series of cash deposits or withdrawals below $10,000 enough evidence of “structuring” to take the money, without any other evidence of wrongdoing. Structuring—depositing or withdrawing smaller amounts to evade a federal law that requires banks to report transactions larger than $10,000 to the federal government—is illegal, but more importantly, structured funds are also subject to civil forfeiture.

Civil forfeiture is the government’s power to take property suspected of involvement in a crime. Unlike criminal forfeiture, no one needs to be convicted of—or even a charged with—a crime for the government to take the property. Lax civil forfeiture standards enable the IRS to “seize first and ask questions later,” taking money without serious investigation and forcing owners into a long and difficult legal battle to try to stop the forfeiture. Any money forfeited is then used to fund further law enforcement efforts, giving agencies like the IRS an incentive to seize.

Data provided by the IRS indicate that its civil forfeiture activities for suspected structuring are large and growing…

For the uninitiated, under the Bank Secrecy Act of 1970, financial institutions are required to report deposits of more than $10,000 to the federal government.  The law also makes it illegal to “structure” deposits in such a way as to avoid that reporting requirement.  Under the IRS’ conception of the law, “structuring” may be nothing more than making several sub-$10,000 deposits, without any further suspicion of particular wrongdoing.  For obvious reasons, many small businesses and individuals can find themselves on the wrong side of this law without any criminal intent.

When the structuring law is combined with the incredibly low burdens required for the federal government to seize assets through civil forfeiture, the potential for abuse is self-evident.  While the lack of criminal intent may protect against criminal structuring charges, it is no barrier to the government’s overbroad power to initiate civil proceedings against the money itself.

IJ’s report, authored by Dick M. Carpenter II and Larry Salzman, goes in depth to reveal the history and unbelievable breadth of the IRS’ civil forfeiture regime, the perverse incentives it creates for government agencies, and the individual livelihoods it threatens and destroys.  IJ makes the case for much stronger protections for private property rights (including the outright abolition of civil forfeiture as a government power).

Be sure to check out the full report, as well as the Institute for Justice’s other work on asset forfeiture and private property here.

For more of Cato’s recent work on civil forfeiture, see Roger Pilon’s recent National Interest  article here, my blog post here, and a recent podcast here.

 

Senate Leaders Demand Treasury, HHS Inform Consumers About Risks Of HealthCare.gov Coverage

The Obama administration is boasting that 2.5 million Americans have selected health insurance plans for 2015 through the Exchanges it operates in 36 states under the Patient Protection and Affordable Care Act, and that they are well on their way to enrolling 9.1 million Americans in Exchange coverage next year. But there’s a problem. The administration is not warning ObamaCare enrollees about significant risks associated with their coverage. By mid-2015, 5 million HealthCare.gov enrollees could see their tax liabilities increase by thousands of dollars. Their premiums could increase by 300 percent or more. Their health plans could be cancelled without any replacement plans available. Today, the U.S. Senate leadership – incoming Majority Leader Mitch McConnell (R-KY), Majority Whip John Cornyn (R-TX), Conference Chairman John Thune (R-SD), Policy Committee Chairman John Barrasso (R-WY), and Conference Vice Chairman Roy Blunt (R-MO) – wrote Treasury Secretary Jacob J. Lew and Health and Human Services Secretary Sylvia M. Burwell to demand the administration inform consumers about those risks.

First, some background.

  • The PPACA directs states to establish health-insurance Exchanges and requires the federal government to establish Exchanges in states that fail to do so.
  • The statute authorizes subsidies (nominally, “tax credits”) to certain taxpayers who purchase Exchange coverage. Those subsidies transfer much of the cost of ObamaCare’s many regulations and  mandates from the premium payer to the taxpayer. For the average recipient, Exchange subsidies cover 76 percent of their premium.
  • But there’s a catch. The law only authorizes those subsidies “through an Exchange established by the State.” The PPACA nowhere authorizes subsidies through federally established Exchanges. This makes the law’s Exchanges operate like its Medicaid expansion: if states cooperate with implementation, their residents get subsidies; if not, their residents get no subsidies.
  • Confounding expectations, 36 states refused or otherwise failed to establish Exchanges. This should have meant that Exchange subsidies would not be available in two-thirds of the country, and that many more Americans would face the full cost of the PPACA’s very expensive coverage.
  • Yet the Obama administration unilaterally decided to offer Exchange subsidies through federal Exchanges despite the lack of any statutory authorization. Because those (illegal) subsidies trigger (illegal) penalties against both individuals and employers under the PPACA’s mandates, the administration soon found itself in court.
  • Two federal courts have found the subsidies the administration is issuing to 5 million enrollees through HealthCare.gov are illegal. The Supreme Court has agreed to resolve the issue. It has granted certiorari in King v. Burwell. Oral arguments will likely occur in February or March, with a ruling due by June.
  • If the Supreme Court agrees with those lower courts that the subsidies the administration is issuing through HealthCare.gov are illegal, the repercussions for enrollees could be significant. Their subsidies would disappear. The PPACA would require them to repay the IRS whatever subsidies they already received in 2015 and 2014, which could top $10,000 for many enrollees near the poverty level. Their insurance payments would quadruple, on average. Households near the poverty level would see even larger increases. Their plans could be cancelled, and they may not be able to find replacement coverage.
  • The Obama administration knows it is exposing HealthCare.gov enrollees to these risks. But it is not telling them.

Halbig v. Burwell: House Oversight Committee Subpoenas IRS

This was a long time coming.

Those who follow Halbig v. Burwell and similar cases know the IRS stands accused of taxing, borrowing, and spending billions of dollars contrary to the clear language of federal law. The agency is quite literally subjecting more than 50 million individuals and employers to taxation without representation.

Congressional investigators have been trying to figure out how the IRS could write a rule that so clearly contradicts the plain language of the Patient Protection and Affordable Care Act. Unfortunately, the agency has been largely stonewalling their efforts to obtain documents relating the the development of the regulation challenged in the Halbig cases.

Fortunately, finally, last week the House Committe on Oversight and Government Reform used its subpoena power to demand the IRS turn over the documents that show what whent into the agency’s decision.

We’ll see if the IRS complies, or if another of the agency’s hard drives conveniently crashes.

I’ve got a fuller write-up over at Darwin’s Fool.

Cato Keeps Challenging an Illegal IRS Rule Regarding Obamacare

Last month, Cato filed a brief in the D.C. Circuit case of Halbig v. Sebelius, supporting a challenge to the IRS’s unilateral and unauthorized decision to extend tax credits to individuals who purchased health insurance from exchanges that were not established by their state. Now we’re continuing out advocacy in this area by filing a brief, joined by the Pacific Research Institute and the American Civil Rights Union, supporting the challengers in a similar Fourth Circuit case.

Here’s the background: 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 rules have the potential to interact in unforeseen and counter-intuitive ways. As first discovered by Michael Cannon and Jonathan Adler, one of these new tax provisions, when combined with state decision-making and IRS rule-making, has given Obamacare yet another legal problem. The legislation’s Section 1311 provides a generous tax credit for anyone who buys insurance from an insurance exchange “established by the State”—as an incentive for states to create the exchanges—but only 16 states have opted to do so. In the other states, the federal government established its own exchanges, 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 hurts individuals like David King, a 63-year-old resident of Virginia.

Because buying insurance would cost King more than 8% of his income, he should be immune from Obamacare’s tax on the decision not to buy insurance (the “tax” that you’ll recall Chief Justice Roberts devised in his NFIB v. Sebelius opinion). After the IRS expanded § 1311 to subsidize people in states with federal exchanges (like Virginia), however, King could have bought health insurance for an amount low enough to again subject him to the Roberts tax. King argues that he faces these costs only because the IRS exceeded the scope of its powers.

In our latest brief, we argue that the IRS’s decision wasn’t just unauthorized, it was a blatant invasion of the powers exclusively awarded to Congress in Article I of the Constitution. This error was compounded by the district court’s holding that the IRS actions were lawful because, even if Obamacare explicitly restricts the availability of tax credits to states which set up their own exchanges, the expansion of tax-credit availability serves the law’s general purpose of making healthcare more affordable. By elevating its own perception of congressional purpose over the statutory text, the district court ignored the cardinal principle that legislative intent must be effected by the words Congress uses, not the words it may have meant or should have chosen to use.

In other words, if Congress wants to extend the tax credit, 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 decision-making, 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.

The U.S. Court of Appeals for the Fourth Circuit (based in Richmond) will hear argument in King v. Sebelius in May.

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