Topic: Law and Civil Liberties

D.C. Circuit Tosses Out IRS Tax-Preparer Regulation

Faulting the IRS for attempting to “unilaterally expand its authority,” the D.C. Circuit today affirmed a district court decision tossing out the agency’s tax-preparer licensing program. Under the program, all paid tax-return preparers, hitherto unregulated, were required to pass a certification exam, pay annual fees to the agency, and complete 15 hours of continuing education each year.  

The program, of course, had been backed by the major national tax-return preparers, chiefly as a way of driving up compliance costs for smaller rivals and pushing home-based “kitchen table” preparers out of business. Dan Alban of the Institute for Justice, lead counsel to the tax preparers challenging the program, called the decision “a major victory for tax preparers—and taxpayers—nationwide.”

The licensing program was not only a classic example of corporate cronyism, but also of agency overreach. IRS relied on an 1884 statute empowering it to “regulate the practice of representatives or persons before [it].” Prior to 2011, IRS had never claimed that the statute gave it authority to regulate preparers. Indeed, in 2005, an IRS official testified that preparers fell outside of the law’s reach.

But IRS reversed course in 2011. The problem, Judge Kavanaugh’s opinion for the court explains, is not that the agency changed its mind but that its action had no basis in the text of the statute. Preparers are not “representatives” because they have no authority at all to act on behalf of the taxpayer, who is still responsible for signing his or her own return. Preparers also aren’t engaged in “practice…before” the IRS because they do not present any sort of case to the agency, such as in an investigation or hearing. And finally, the court observed that IRS’s broad view of the statute would render superfluous other statutes that do allow the agency to impose penalties on preparers for certain conduct.

Ter Beek v. City of Wyoming: Marijuana Reform Advances

Last week, the Supreme Court of Michigan rejected a legal challenge to the Michigan Medical Marihuana Act (MMMA).  Although limited to the state of Michigan, this precedent helps to build momentum for other states to move in the direction of marijuana legalization.

By way of background, in 2008 Michigan voters approved a state initiative that would allow medical marijuana for certain qualifying patients.  In 2010, the City of Wyoming enacted an ordinance that essentially prohibited marijuana (no medical exceptions).  John Ter Beek is a resident of the City of Wyoming and he claimed that he was a qualified patient under the state law and he argued that the state law preempted the city ordinance.  Lawyers for the City of Wyoming responded with the argument that the state law was itself invalid because it violated the supremacy clause of the Federal Constitution.  That is, since federal law (the Controlled Substances Act (CSA)) prohibits the possession of marijuana, no state can change its law to allow marijuana sales, or even possession.

The Supreme Court of Michigan unanimously sided with John Ter Beek.  Writing for the court, Justice McCormack said, “[The MMMA] provides that, under state law, certain individuals may engage in certain medical marijuana use without risk of penalty…while such use is prohibited under federal law, [MMMA] does not deny the federal government the ability to enforce that prohibition, nor does it purport to require, authorize, or excuse its violation.”  Thus, there is no violation of the federal supremacy doctrine.

Recall that after Colorado and Washington approved initiatives to legalize marijuana, some former DEA administrators argued that those initiatives were invalid under the federal supremacy clause. (One even said it was a ‘no-brainer.’)   The Obama administration declined to bring such a challenge and we will be hearing it less and less as these precedents pile up.

The Cato Institute joined an amicus brief that urged the Michigan Supreme Court to rule in Mr. Ter Beek’s favor.  More here.

IRS Officials Created a New Entitlement Program, Because They Felt Like It

Over at DarwinsFool.com, I summarize a lengthy report issued by two congressional committees on how the Treasury Department, the Internal Revenue Service, and the Department of Health and Human Services conspired to create a new entitlement program that is authorized nowhere in federal law. Here’s an excerpt in which I summarize the summary:

Here is what seven key Treasury and IRS officials told investigators.

In early 2011, Treasury and IRS officials realized they had a problem. They unanimously believed Congress had intended to authorize certain taxes and subsidies in all states, whether or not a state opted to establish a health insurance “exchange” under the Patient Protection and Affordable Care Act. At the same time, agency officials recognized: (1) the PPACA plainly does not allow those taxes and subsidies in non-establishing states; (2) the law’s legislative history offers no support for their theory that Congress intended to allow them in non-establishing states; and (3) Congress had not given the agencies authority to treat non-establishing states the same as establishing states.

Nevertheless, agency officials agreed, again with apparent unanimity, to impose those taxes and dispense those subsidies in states with federal Exchanges, the undisputed plain meaning of the PPACA notwithstanding. Treasury, IRS, and HHS officials simply rewrote the law to create a new, unauthorized entitlement program whose cost “may exceed $500 billion dollars over 10 years.” (My own estimate puts the 10-year cost closer to $700 billion.)

The full post includes details some pretty stunning examples of how agency officials were derelict in their duty to execute faithfully the laws Congress enacts.

‘Libertarian Paranoia’ Strikes Deep?

In case you missed it, in his Bloomberg column last week, law professor and former Obama administration OIRA head Cass Sunstein offered tips on “How to Spot a Paranoid Libertarian.” They’re people who “have a wildly exaggerated sense of risks to liberty, who adopt a presumption of bad faith on the part of government, who have a sense of victimization, who ignore the problem of tradeoffs, and who love slippery-slope arguments.” I probably know some folks who resemble that remark.

In the column and a follow-up blogpost, Sunstein distinguishes between “Paranoid Libertarians” and libertarians in general, who are “speaking on behalf of an important strand in America’s political culture.” And he’s right that virtually all ideologies, libertarianism included, attract some swivel-eyed, conspiratorial adherents who use too much ALLCAPS in their emails. 

What Sunstein doesn’t have is anything resembling a case that “libertarian paranoia” is worth worrying about. In fact, beyond a few anodyne statements like “paranoia isn’t a good foundation for public policy,” he barely tries to make one.  

But, Sunstein suggests, something of what he’s getting at can be found in a 2005 paper on “Libertarian Panics” by his colleague Adrian Vermuele.

I remember that paper very well, having blogged a fairly lengthy critique of it when it came out. It hasn’t improved with age.

The basic argument is plausible enough: Vermuele holds that the same biases and cognitive flaws that can make Americans hysterical about the risk of terror can also make us hysterical about the risks of government abuse. Thus, the salience of past examples of government overreaction to security threats—like WWII Japanese Internment—could lead us to overreact to liberty threats from government in the same way we might overreact to terrorist threats to security.

But when Vermuele gets to specific examples of destructive “libertarian panics,” there’s very little there there. The paper offers two: the American Revolution and the PATRIOT Act. 

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).

When the Levee Breaks: How the SAFE Act Could Unconstitutionally Strip States of FEMA Funding

The Strengthen and Fortify Enforcement (SAFE) Act (HB 2278) is part of the House’s attempt to split up comprehensive immigration reform into individual bills. The Act suffers from the fundamentally misguided belief of many Republicans that enforcement has to come before any attempt to rationalize our broken immigration system. Of course, if we fix our Kafka-esque immigration system, then many of the problems with unauthorized immigrants will greatly diminish, if not disappear. Focusing on enforcement is like someone saying during prohibition, “before we can talk about legalizing alcohol we first need to stop all these bootleggers and gangsters.”

The SAFE Act is also a constitutional boondoggle with many dangerous and suspect provisions that guarantee the act will be tied up in court battles, not to mention to litany of expected civil liberties abuses that will arise if the Act is ever enforced. The ACLU and the Center for American Progress have already pointed out many of the civil liberties concerns, as well as the bad policies that animate the Act.

Gone unnoticed is a large and consequential problem that has constitutional ramifications: the Act denies law enforcement and Department of Homeland Security funding to states or municipalities that have policies or practices that “prohibit law enforcement officers of a state…from assisting or cooperating with Federal immigration law enforcement[.]” If a state or municipality has such a policy then they “shall not be eligible to receive…any…law enforcement or Department of Homeland Security grant.” (Section 114).

California has just such a law. The TRUST Act, signed by Governor Brown in October 2013, prohibits California state officials from detaining people when U.S. Immigration and Customs Enforcement (ICE) issues a “hold” request (in order to transfer them to federal immigration authorities) if they have been convicted of only minor crimes.

Police Misconduct — The Worst Case in January

Over at Cato’s Police Misconduct web site, we have identified the worst case for January.  It is the case of a Boiling Springs Lake, NC officer who shot a 90-pound, mentally-ill teenager while two other officers held the teen down.  Keith Vidal’s parents called the police because their son was having a schizophrenic episode and they needed assistance subduing him.  Keith had a small screwdriver in his hand when the first police unit arrived.  The officers tased Keith and were holding him down when an officer from the second unit, which had arrived about a minute later, shot between the two officers holding Keith down, saying, “We don’t have time for this.”  The officer claimed he was defending the life of one of the officers holding Keith down because Keith still had the tiny screwdriver in his hand.   The family had recently lost a daughter in a car accident, and now had to watch their son die in front of them, shot by one of the very people they had called for help.

More here.