Topic: Health Care & Welfare

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.

The Court’s Consequential Concerns: King v. Burwell

Among the countless analyses now going on of today’s 84 minutes of oral argument before the Supreme Court in King v. Burwell, perhaps none is more perceptive than that offered by SCOTUSblog’s Lyle Denniston, the dean of Supreme Court reporters. As many of us feared, however, it appears that the focus of several of the justices, perhaps a majority, was less on the law than on the “dire consequences” that would follow if the Court decided that the law was clear and that, accordingly, the government should lose. (See here for background on the case.)

Here’s Denniston:

From the time that the Supreme Court agreed in November to hear the challenge to subsidies on the thirty-four insurance exchanges set up by the federal government instead of by the states, the Obama administration and its supporters have talked darkly about the collapse of the entire ACA if that challenge succeeded. … The uncertain thing, as the hearing approached, was whether that message would get through to the nine members of the Court who would be the deciders.  If there was one dominant theme at the actual hearing, aside from how to read a complex federal statute, it was that a victory for the challengers would come at perhaps a serious loss—perhaps a constitutional loss, but at least a human and social loss in the end of the most ambitious (and audacious) health care plan ever enacted in America.

The point should not be missed. For “the Obama administration and its supporters,” the question was not whether the challengers should succeed on the law—but what will happen if they do. In a court of law, no less, the Obama team wants policy to trump law.

Denniston reports that it looks like the government has the Court’s more liberal members in its pocket, while Justices Scalia, Thomas, and Alito are likely with the challengers. Chief Justice Roberts said relatively little. That leaves Justice Kennedy, not surprisingly, who “sort of leaned toward the idea that the language of the ACA” was clear and thus the government should lose. “But in a broader sense,” Denniston continues, Kennedy was concerned with “a difficult constitutional question”: “that Congress should ordinarily not be allowed to coerce the states into doing something that Congress wants,” which arguably it did when it told the states to create exchanges or their citizens would be ineligible for federal tax credits for their health insurance, which would “send the insurance market into a death spiral.”

But what follows from that “difficult constitutional question,” sounding in federalism? Scalia put his finger on it, asking rhetorically, Denniston writes, “whether, if a correct reading of a law creates a constitutional problem, the Court has the authority to rewrite it.” In other words, is the Court simply one more legislative branch, to which the government turns when Congress has botched its job (“We need to pass the law to find out what’s in it,” the lady said.”)? Or is it a court of law, charged with saying what the law is, even when Congress has made a mess of things and should, by rights, face the music of the people for having done so? If consequences are indeed our concern, let’s focus on the most fundamental of them, starting with those that follow from abandoning the rule of law.

Obamacare’s Fate Turns on Whether Roberts and Kennedy Think State and Federal Exchanges Are the Same

It all depends on what the meaning of “by” is.

The four liberal justices clearly believe that an exchange established “for” or “in” a state by the federal government is the same as an exchange “established by the state,” to quote the relevant statute. Justices Scalia and Alito (and presumably the silent Thomas) equally firmly believe that words mean what they say.

So this case, as expected, turns on the views of Chief Justice Roberts and Justice Kennedy, who gave very little away at oral argument. If the government wins here, then not only will Obamacare continue to be rewritten by the IRS, but any executive agency – and any future president – will be able to rewrite any law. Accordingly, for the sake of the rule of law, I fervently hope that Roberts and Kennedy decide to enforce the Affordable Care Act as written and let Congress clean up its own mess.

Bottom 90% Pretax Pretransfer Income is no Proxy for Median After-Tax Income

bottom 90 percent vs CBO median

This graph illustrates a few points made in my recent Wall Street Journal article.  First of all, the Piketty & Saez mean average of bottom 90% incomes per tax unit is not a credible proxy for median household income, particularly since the big reductions in middle-class taxes from 1981 to 2003.

Second, the red bars claiming bottom 90% incomes in the past six years have been no higher than they were in 1980 (Sen. Warren) or even 1968 (see the graph) is literally unbelievable.  If that were true then all other income statistics – including GDP – would have to be completely false.  

17 Errors & Omissions in Vox’s Otherwise Excellent History of King v. Burwell

This week, the Supreme Court will hear oral arguments in King v. Burwell, one of four legal challenges to an IRS regulation that purports to implement the Patient Protection and Affordable Care Act, but in fact vastly expands the IRS’s powers beyond the limits imposed by the Act. Just in time for oral arguments before the Court, Vox’s Sarah Kliff has produced what I think may be the best history of King v. Burwell and related cases I’ve seen. Still, there are a few important errors and omissions, listed here in rough order of importance.

Government Sends Wrong Tax Form to Nearly One Million Obamacare Enrollees

Fresh off another victory lap last week, Obamacare supporters awoke last Friday to the news that the government had given nearly one million exchange enrollees incorrect tax forms that could significantly affect their tax returns. 800,000 enrollees in the federal exchange and roughly 100,000 in California were given the wrong forms, called 1095-As, which provide a monthly account of the premium subsidies exchange enrollees receive. The government uses that information to determine that the subsidy amounts are correct (although a pending Supreme Court case raises questions about the legality of any subsidies offered through the federal exchange). Enrollees using the wrong information when filing their taxes would make it impossible for the government to verify that they got the right amount of subsidies.

Government officials will now try to remedy their mistake by sending out new forms to the affected customers. These tax documents contained the wrong price for the ‘benchmark plan’, the second-lowest cost silver plan available that is used to calculate the exchange subsidy amount. A post on the HealthCare.gov blog explains that the erroneous forms included the benchmark plan premiums for 2015 instead of 2014, which led to the wrong subsidy amount being displayed on the forms people use to file their taxes. The errors are not confined to one area, so incorrect forms were sent throughout the country, making it harder for enrollees to know if they are affected. Those given the wrong form will be able to access their corrected one sometime in early March, according to the report. 50,000 people in this group have already filed their taxes using the incorrect tax information. Officials are now in the process of trying to contact this group, and they will likely have to resubmit their tax returns. Enrollees who already filed will not find much help at HealthCare.gov for now, which only reads: “Additional information will be provided shortly.” Overall, nearly one million exchange enrollees could see delays in getting their income tax refunds, or find that their size of the refund has changed due to corrections in the tax form. Many of these people depend on this tax refund, and unanticipated problems could have significant adverse consequences.

Filing taxes is already a cumbersome and aggravating process. Obamacare has made it even more arduous as people have to attest to having health insurance coverage and how much they receive in exchange subsidies. Even worse, it nearly one in five HealthCare.gov customers was sent the wrong forms, and these people will have to delay filing their taxes, or even resubmit them. While this blunder will not cause the law to spiral out of control, it does reveal the potential for ongoing problems with its implementation. Following the news, HealthCare.gov CEO Kevin Counihan told reporters “We’re not doing any victory laps.” Other Obamacare supporters should take this lesson to heart.

Bipartisan Baloney About Top 1 Percent Income Gains

In the State of the Union address on January 20, President Obama said, “those at the top have never done better… Inequality has deepened.”  The following day, Fox News anchor Brett Baier said, “According to the work of Emmanuel Saez, a professor at the University of California, Berkeley, during the post-recession years of 2009-2012, top earners snagged a greater share of total income growth than during the boom years of 2002-2007. In other words, income inequality has become more pronounced since the Bush administration, not less.” 

Senator Bernie Sanders agrees that “in recent years, over 99 percent of all new income generated in the economy has gone to the top 1 percent.”  And Senator Ted Cruz likewise confirmed that, “The top 1 percent under President Obama, the millionaires and billionaires that he constantly demagogued earned a higher share for our income than any year since 1928.” 

When any statistic is so politically useful and wildly popular among left-wing Democrats and right-wing Republicans you can be pretty sure it’s baloney.  Bipartisan baloney.

In November 2013, I wrote that, “Because reported capital gains and bonuses were…shifted forward from 2013 to 2012 [to avoid higher tax rates], we can expect a sizable drop in the top 1 percent’s reported income when the 2013 estimates come out a year from now. The befuddled media will doubtless figure out some way to depict that drop as an increase.” As predicted, the New York Times took one look at a 14.9% drop in top 1% incomes and concluded that “The Gains from the Recovery are Still Limited to the Top One Percent” That involved slicing the same old baloney very badly.