Tag: IRS

Ohio, Missouri Introduce the Health Care Freedom Act 2.0

Ohio Reps. Ron Young (R-Leroy Twp.) and Andy Thompson (R-Marietta), and Missouri Sen. John Lamping (R-St. Louis County), have introduced legislation—we call it the Health Care Freedom Act 2.0—that would suspend the licenses of insurance carriers who accept federal subsidies through one of the Patient Protection and Affordable Care Act’s (PPACA) health insurance Exchanges. At first glance, that might seem to conflict with or otherwise be preempted by the PPACA. Neither is the case. Instead, the HCFA 2.0 would require the IRS to implement the PPACA as Congress intended.

Here’s why. Under the PPACA, if an employer doesn’t purchase a government-prescribed level of health benefits, some of its workers may become eligible to purchase subsidized coverage through a health insurance “exchange.” When the IRS issues the subsidy to an insurance company on behalf of one of those workers, that payment triggers penalties against the employer. Firms with 100 employees could face penalties as high as $140,000.

Congress authorized those subsides, and therefore those penalties, only in states that establish a health insurance Exchange. If a state defers that task to the federal government, as 33 states including Missouri and Ohio have done, the PPACA clearly provides that there can be no subsidies and therefore no penalties against employers. The IRS has nevertheless announced it will implement those subsidies and penalties in the 33 states that have refused to establish Exchanges. Applying those measures in non-establishing states violates the clear language of the PPACA and congressional intent. See Jonathan H. Adler and Michael F. Cannon, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” Health Matrix: Journal of Law-Medicine 23 (2013): 119-195.

Whether legal or illegal, those penalties also violate the freedoms protected by the Health Care Freedom Amendment to Ohio’s Constitution, and Missouri’s original Health Care Freedom Act, which voters in each state ratified by overwhelming majorities. The Ohio (HB 91) and Missouri (SB 473) bills would protect employers and workers from those penalties, and thereby uphold the freedoms enshrined in Missouri statute and Ohio’s Constitution, by suspending the licenses of insurance carriers that accept those subsidies.

The question arises whether the PPACA would preempt such a law. It does not. The HCFA 2.0 neither conflicts with federal law, nor attempts to nullify federal law, nor is preempted by federal law.

The HCFA 2.0 concerns a field of law—insurance licensure—that has traditionally been a province of the states under their police powers. In preemption cases, courts “start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.” Wyeth v. Levine, 129 S. Ct. 1187, 1194-95 (2009). Courts then must determine whether the state law in question is nevertheless trumped by express or implied federal preemption.

Politico Has Been Reading My Email

From today’s Politico Pulse:

OBAMACARE LAWSUIT RECRUITMENT 101: START WITH THE INTERNS - Cato Institute’s libertarian mastermind Michael Cannon appealed to former interns of the right-leaning group to join an “exciting” legal challenge to Obamacare. Cannon is among the top proponents of a legal theory that suggests the health law forbids federal subsidies to people accessing insurance through a federally run insurance exchange.

—”To see if you might qualify, have a look at this checklist,” Cannon writes in a “Dear former Cato Intern” letter. “There are income criteria, plus you must live in one of 33 states, prefer to purchase no health insurance (or low-cost catastrophic insurance), et cetera. If you believe you meet the criteria for at least one of the three categories, email me … to learn more about how you can get involved in this exciting legal challenge, and jump on this chance to make history. Feel free to forward this email to others who may be interested.” The checklist: http://bit.ly/12lJ8Yb.

Thanks, guys. Might as well tell everybody, now. (And “right-leaning”? Seriously?)

Issa: IRS Is Violating ObamaCare by Illegally Taxing Employers in 33 States

House Committee on Oversight and Government Reform chairman Darrell Issa (R-CA) writes in the Washington Examiner

To combat the sticker shock of Obamacare’s numerous requirements on health insurance premiums, the law creates expensive subsidies, which take the form of tax credits, for individuals who purchase a government-approved insurance plan. In order to avoid the appearance of a federal takeover of health care, the law ties the availability of these premium tax credits to an “Exchange established by the State.” Importantly, the way the law was written, if tax credits are not available within a state, then the expensive employer mandate tax does not apply to companies within that state.

With so many states refusing to play the role the law’s drafters envisioned, the Obama administration has embarked on a legally dubious effort to bypass the plain language of the law. Obama’s IRS has issued a rule that delivers the expensive subsidies through federally run exchanges as well. If it stands, this extralegal rule will undermine the decision-making role offered to states by Obamacare, and cause hundreds of billions of dollars of taxes and spending not authorized by the president’s health care law…

The language that limits tax credits to state-established exchanges should not now shock Obamacare’s supporters. Early in 2009, legal scholar Timothy Jost, one of Obamacare’s leading proponents, explicitly suggested linking the tax credits to state-established exchanges as a way to encourage states to set up the exchanges.

The Obama administration may be surprised and disappointed that many states have not found the refundable tax credit to be a sufficient incentive to set up their own exchanges, exposing their citizens to the other taxes and penalties associated with the law. But this does not justify the administration’s effort to ignore the plain language of the law that Obama championed and signed.

For more on this issue, see Jonathan Adler’s and my Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.”

If ObamaCare Isn’t Vulnerable, Why Is the President Violating the Law to Save It?

From my oped in today’s Daily Caller, heralding the release of my new Cato white paper, “50 Vetoes: How States Can Stop the Obama Health Law”:

But the surest sign that Obamacare remains vulnerable is that the Obama administration is violating its own statute, congressional intent, and even a Supreme Court ruling in order to save the law.

In “50 Vetoes,” a study released today by the Cato Institute, I explain the administration is so afraid of a sticker-shock fueled backlash that it is preparing to spend more than $600 billion that Congress never authorized to numb consumers to the costs of this law. Along the way, the administration will impose roughly $100 billion in illegal taxes on employers and individuals (including some legal immigrants below the poverty level), and deny millions of individuals the right to purchase low-cost “catastrophic plans.”

To cement the law’s Medicaid expansion in place, the administration is also violating the Supreme Court’s ruling in NFIB v. Sebelius. The Court prohibited the federal government from coercing states into implementing the expansion. Yet HHS is still threatening every state with the loss of all federal Medicaid funds if they fail to implement parts of the expansion. These are not the actions of an administration that feels its health care law is secure.

Finally, supporters forget that President Obama and congressional Republicans have already repealed important parts of the law, including Obamacare’s third entitlement program — a long-term care program known as the CLASS Act, repealed as part of the “fiscal cliff” deal. President Obama is already repealing his law one provision at a time.

Obamacare supporters may scoff at repeal. But if vulnerable Democratic senators start hearing from their constituents about the chaos and sticker shock they experience later this year, the scoffing will cease.

Read the whole paper.

Health Matrix Releases “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA”

Health Matrix: a Journal of Law-Medicine at Case Western Reserve University School of Law has released “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” a paper I coauthored with CWRU law professor Jonathan Adler. From the abstract:

The Patient Protection and Affordable Care Act (PPACA) provides tax credits and subsidies for the purchase of qualifying health insurance plans on state-run insurance exchanges. Contrary to expectations, many states are refusing or otherwise failing to create such exchanges. An Internal Revenue Service (IRS) rule purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own. This rule lacks statutory authority. The text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds. Because tax credit eligibility can trigger penalties on employers and individuals, affected parties are likely to have standing to challenge the IRS rule in court. 

This paper led to one of the most important (and ongoing) legal challenges related to the PPACA. Access the full paper here.

The ‘National Taxpayer Advocate’ at the IRS Is Advocating for the Government, not Taxpayers

I’m not a big fan of the Internal Revenue Service, though I try to make sure that politicians get much of the blame for America’s convoluted, punitive, and unfair tax code.

Heck, just look at these three images—here, here, and here—and you’ll find startling evidence that politicians make the tax system worse with each passing year.

But there is an office at the IRS that ostensibly exists to defend the interests of taxpayers. The Taxpayer Advocate Service is, according to the government website, “an independent organization within the IRS and helps taxpayers resolve problems with the IRS and recommend changes that will prevent the problems.” The head of this office, Nina Olson, has the title of National Taxpayer Advocate.

Sounds good, right?

Well, not so fast. The TAS does some good things, but Ms. Olson spends at least part of her time advocating for the government.

The TAS just released its annual report, and here’s some of what the bureaucracy recommended, according to a Bloomberg story.

Among the other problems Olson identifies in the report are … the underfunding of the Internal Revenue Service … The IRS, which Olson compares to the accounts receivable department of a company, should be fenced off from more budget cuts by Congress, she writes in the report.

Don’t rub your eyes or clean your glasses. You read correctly. The folks at the IRS who supposedly are advocating for you are instead advocating for a bigger IRS budget.

I debunked this silly argument last year, explaining why Congress should reject the Obama Administration’s assertion that more money for the IRS would be an “investment” that would yield big returns.

But I want to be fair. Some of what the TAS does is worth applauding. The report also discusses the grotesque levels of complexity in the code. Here’s more of the Bloomberg story:

ObamaCare Implementation News

Here’s some ObamaCare implementation news from around the interwebs:

  • Minnesota Facing Bigger Bill For State’s Health Insurance Exchange”: Kaiser Health News reports Minnesota has increased its spending projections for operating the state’s ObamaCare Exchange by somewhere between 35-80 percent for 2015. Spending on the Exchange will rise by another 19 percent in the following year.
  • The Wall Street Journal  defends the 25-30 states that aren’t gullible enough to create an Exchange and therefore take the blame for ObamaCare’s higher-than-projected costs.
  • Arizona Gov. Jan Brewer (R) has announced she will not implement an Exchange. That creates another potential state-plaintiff, millions of potential employer-plaintiffs, and (by my count) 430,000 potential individual plaintiffs who could join Oklahoma attorney general Scott Pruitt in challenging the IRS’s illegal ObamaCare taxes. It also means that Arizona can start luring jobs away from tax-happy California. There are four Hostess bakeries in California that might be looking to relocate.
  • I’m enjoying a friendly debate with The New Republic’s Jonathan Cohn and University of Michigan law professor Samuel Bagenstos over whether the those taxes really do violate federal law and congressional intent (spoiler alert: they do). I owe Bagenstos a response.
  • PolitiFact Georgia rated false my claim that operating an ObamaCare Exchange would violate Georgia law. I explain here why it is indeed illegal for Georgia (and 13 other states) to implement an Exchange.
  • ThinkProgress.org reports, “Romney’s Transition Chief Is Encouraging States To Implement Obamacare.” A better headline would have been, “Government Contractor Encourages More Government Contracts.”
  • The Washington Examiner editorializes, “In California…state regulators have warned…insurance premiums will rise by as much as 25 percent once the exchange comes online…That’s the best-case scenario.” And, “In 2014, seven Democratic Senate seats will be up for grabs in states Mitt Romney carried (Alaska, Arkansas, Louisiana, Montana, North Carolina, South Dakota and West Virginia). Unless Obama’s HHS bureaucrats pull off an unprecedented miracle of central planning, Obamacare could well sink Democrats again in 2014, the same way it did in 2010.”