In 1980, frustrated by the attention given to Paul Ehrlich's Malthusian doomsaying, economist Julian Simon challenged Ehrlich to a wager. They agreed on a basket of five commodity metals that Simon predicted would fall in price over 10 years (indicating growing supply relative to demand, contrary to the Malthusian worldview) and Ehrlich predicted would rise. In 1990, all five metals had decreased relative to their 1980 prices and Ehrlich cut Simon a check.
In 2011, two education policy analysts made a similar wager. After Jay Mathews of the Washington Post predicted that voters would "continue to resist" private school choice programs, Greg Forster of the Friedman Foundation for Educational Choice challenged Matthews to a wager, which Mathews accepted: Forster would win if at least seven new or expanded private school choice programs (i.e., vouchers or scholarship tax credits, but not including charter schools) were signed into law by the end of the year. That July, the Wall Street Journal declared 2011 to be the "Year of School Choice" after 13 states enacted 19 new or expanded private school choice programs, nearly triple the number Forster needed to win the bet.
Undeterred, the following year Mathews proclaimed that school choice programs "have no chance of ever expanding very far," prompting another challenge from Forster. Mathews did not take the bet, which was fortunate for him because in 2012 10 states enacted 12 new or expanded private school choice programs.
Now, for the third year in a row, Forster's prediction has proved true, with 10 states enacting 14 new or expanded private school choice programs, including:
- Alabama: new scholarship tax credit program and new tax credit rebate program
- Arizona: expansion of education savings account program
- Georgia: expansion of scholarship tax credit program
- Indiana: expansions of voucher program and scholarship tax credit program
- Ohio: new statewide voucher program
- North Carolina: new low-income voucher program and new special needs voucher program
- Iowa: expansion of scholarship tax credit program
- South Carolina: new special needs scholarship tax credit program
- Utah: expansion of special needs voucher program
- Wisconsin: new statewide voucher program and new tuition tax deduction
Most of these laws are overly limited and several carry unnecessary and even counterproductive regulations like mandatory standardized testing. Nevertheless, they are a step in the right direction, away from a government monopoly and toward a true system of education choice.
Of course, that's why defenders of the status quo have made 2013 the Year of the Anti-School Choice Lawsuit.
School choice advocates have been winning in the halls of state legislatures and in the court of public opinion, so opponents have taken to the courts of law. Since the U.S. Supreme Court ruled in Zelman v. Simmons-Harris (2002) that school vouchers are consistent with the First Amendment's Establishment Clause, opponents of choice have been scrambling to find novel reasons to challenge school choice programs. Here's a brief summary of school choice lawsuits around the nation:
1) In Louisiana, the U.S. Department of Justice has sued to halt the state's school voucher program, arguing that it hurts the desegregation effort. The DOJ's already weak case was further undermined by a new study released today showing that school choice actually improves integration. Since 90 percent of the voucher recipients are black, the DOJ's lawsuit would have the effect of keeping low-income blacks from attending the schools of their choice.
Earlier this year, Louisiana's state supreme court ruled that the voucher program was unconstitutionally funded, but otherwise left the program intact. The governor and state legislators adjusted the funding mechanism in response.
2) Two days ago, a group of activists in Oklahoma sued the state over its special needs voucher program, arguing that it violates the state constitution's ban on using public funds at religious schools. Last year, the state supreme court tossed out a challenge to the program by public school districts, ruling that they did not have standing since they are not taxpayers.
3) On the same day, the Arizona Court of Appeals ruled unanimously that the state's education savings account program, the first in the nation, is constitutional. Anti-school choice activists had argued that it violates the state constitution's ban on publicly funding religious schools. The court held that students are the primary beneficiaries and that any "aid to religious schools would be a result of the genuine and independent private choices of the parents." The decision will likely be appealed to the state supreme court.
4) In Alabama, the Southern Poverty Law Center is challenging the state's school choice tax credit program, absurdly arguing that if the program can't help every child, it shouldn't be allowed to help any child. The state supreme court recently dismissed a second lawsuit by the Alabama Education Association, though the teachers union has filed an additional suit on Blaine amendment grounds.
5) In New Hampshire, the ACLU and Americans United for Separation of Church and State are challenging the state's scholarship tax credit program, arguing that it violates the state constitution's ban on using public money at religious schools. Their case is weak because the U.S. Supreme Court ruled that tax credits are not "public money." A citizen's money only becomes the government's once it has reached the tax collector's hands. Nevertheless, in a flawed and unprecedented decision, the lower court ruled that the program could not include scholarships to students attending religious schools. The Institute for Justice, which is representing a scholarship organization and several scholarship recipients, has appealed the decision to the state supreme court.
6) The Colorado Court of Appeals ruled 2-1 that the Douglas County School District's school voucher program is constitutional earlier this year. Opponents argued that it violated the state constitution's prohibition against using public money at religious schools. The case is being appealed to the state supreme court.
In addition, the Indiana Supreme Court ruled that the state's voucher program is constitutional earlier this year. For more information on some of the cases above, as well as numerous prior school choice lawsuits, see the Institute for Justice's School Choice page.
Arizona is the latest state to expand school choice. Yesterday, the Arizona legislature passed a bill to expand the type of corporations eligible to participate as donors in the Grand Canyon State's scholarship tax credit (STC) program and to streamline the program's tax credit approval process.
Under current law, only C-corporations are eligible to receive tax credits in return for donations to state-approved scholarship organizations. The legislation expands donor eligibility to include S-corporations and limited liability corporations, which are typically smaller businesses relative to C-corps. Expanding the donor pool will make it easier for scholarship organizations to raise money to help low-income and disabled students attend the schools of their choice.
The bill also mandates that the Arizona Department of Revenue create a website to process the tax credit requests electronically. Since the STC program caps the total amount of tax credits issued in a given year, the AZ-DOR must pre-approve donations to be eligible for tax credits. According to the Center for Arizona Policy, the current system can be "a tedious and lengthy process [that] often discourages donors from participating." The web-based approval process is expected to be much faster and easier.
This is the latest of numerous STC program expansions. Earlier this year, state legislatures in Iowa and Georgia voted overwhelmingly to expand their states' STC programs. Last year, Arizona and Florida expanded their STC programs as well. In total, six of the seven states to enact STC programs before 2010 have subsequently expanded them.
Arizona Gov. Jan Brewer (R) recently set aside her vociferous opposition to ObamaCare's costly Medicaid expansion by announcing she will support implementing that expansion in Arizona. A significant factor in her reversal, she claimed, was that if Arizona did not expand its Medicaid program, then some legal immigrants would receive government subsidies while U.S. citizens would get nothing.
Brewer's analysis of this "immigration glitch," and her remedy for it, are faulty. Fortunately, she, Arizona's legislature, and its attorney general have better options for stopping it.
An odd and unforeseen result of the Supreme Court's decision upholding ObamaCare is that, in certain circumstances, the law will now subsidize legal immigrants but not citizens. What triggers this inequity is a state's decision to implement an Exchange -- not the decision to opt out of the Medicaid expansion. (Even if a state implements both provisions, legal immigrants would still receive more valuable subsidies than citizens.) The good news is that states can therefore prevent this inequity simply by not establishing an Exchange. If Brewer wants to avoid this "immigration glitch," there is no need to expand Medicaid. She already blocked it when she refused to establish an Exchange.
The bad news is that the Obama administration is trying to take away the power Congress granted states to block those discriminatory subsidies, and the punitive taxes that accompany them. Contrary to both the statute and congressional intent, the IRS has announced it will impose that witch's brew in all states, even in the 32 that have refused to establish an Exchange.
Oklahoma attorney general Scott Pruitt has filed suit to stop that stunning power grab. If Brewer is serious about stopping the "immigration glitch," the way to do it is by filing a lawsuit similar to Oklahoma's, while adding a complaint that the Obama administration's illegal subsidies also violate the Equal Protection clause.
How “the Immigration Glitch” Emerged
ObamaCare aims to offer some form of tax credit or subsidy to purchase health insurance to all citizens and legal immigrants below 400 percent of the federal poverty level (about $92,000 for a family of four). Generally, people below 138 percent of the poverty level would receive subsidies through their state's Medicaid program, while citizens and legal immigrants between 100-400 percent of poverty would receive tax credits and/or subsidies to purchase private health insurance through state-created health insurance “exchanges.”
In a slight departure from those general rules, Congress also made legal immigrants below 100 percent of poverty eligible for those Exchange subsidies. Why? ObamaCare originally would have required states to expand their Medicaid programs to all citizens up to 138 percent of poverty level. But since states have the option of excluding legal immigrants from their Medicaid programs, and could continue to do so under that expansion, Congress made legal immigrants below the poverty level eligible for Exchange subsidies if they live in one of those states. Since ObamaCare supporters expected all states to implement the Medicaid expansion, they reasonably believed all citizens and legal immigrants below 400 percent of poverty would receive some form of tax credit or subsidy.
Then along came Chief Justice of the United States John Roberts.
With six of his colleagues, Roberts voted to declare ObamaCare’s Medicaid mandate unconstitutional. Four of those justices then voted to strike down the entire law on the grounds that the Medicaid mandate was not severable from what remained. But rather than vote with them, Roberts voted with the other four justices—including two who held the Medicaid mandate to be constitutional—to preserve the law and simply make the Medicaid expansion optional for states.
Roberts claimed he was exercising judicial restraint. In reality, he put in place a new law that Congress never would have enacted. ObamaCare still makes the aforementioned legal immigrants eligible for Exchange subsidies, provided their state establishes an Exchange. But under the law as amended by John Roberts, if that state does not expand Medicaid, an inequity appears: some legal immigrants receive Exchange subsidies while otherwise identical citizens, if not already eligible for Medicaid, receive nothing. Given the sensitivity surrounding the law’s treatment of immigrants (remember “YOU LIE”?), there is zero chance such a bill could have passed Congress. So if you want to know whom to thank for this inequity, thank John Roberts. This inequity is one more reason Roberts' severability analysis was faulty, and the joint dissenters had it right: the Court should have struck down the entire law based on the unconstitutionality of the Medicaid mandate alone.
How States Should Respond
Be that as it may, state officials need to understand what causes the "immigration glitch," how they can avoid it, and that most of them already have.
- What causes this glitch are the Exchange subsidies, not a state's failure to expand Medicaid. It is the Exchange subsidies that are available to (some) legal immigrants but not to otherwise-identical citizens. And since Exchange subsidies are available only through state-created Exchanges, it is a state’s decision to create an Exchange that creates this inequity.
- If states want to prevent this inequity, they should do what 32 states have already done and refuse to establish an Exchange. If states don’t create Exchanges, there can be no Exchange subsidies, and thus no inequity. At this point, it appears there are only two states where this inequity might appear: Idaho and Mississippi. Those are the only states that might end up implementing an Exchange but not the Medicaid expansion. They and all other states can avoid this glitch simply by not establishing an Exchange.
- Expanding Medicaid doesn’t really eliminate the inequity because citizens would still receive a less-valuable subsidy than legal immigrants. Legal immigrants would receive subsidies to purchase private insurance, while citizens would get Medicaid coverage, which is notorious for providing inferior access to care. This inequity was present in the original law, and will exist in the 16 or so states that are implementing both an Exchange and the Medicaid expansion.
- This glitch is yet another reason why the Obama administration's attempt to dispense $500 billion in states that refuse to create Exchanges -- half a trillion dollars of subsidies that Congress never authorized -- is illegal and wrong. (ObamaCare supporters claim the IRS has the legal authority it needs. To which I say: if you're so sure, debate me.) Among other evils, the administration is reintroducing this discriminatory provision into the 32 states that have eliminated it. States, employers, and individual taxpayers therefore have one more complaint they can lodge against the administration's actions in federal court: the unauthorized subsidies the administration is trying to dispense also violate the Equal Protection clause. They are available to legal immigrants but not to otherwise-identical U.S. citizens.
This latest glitch is one more reason why John Roberts' opinion was ill-considered, why Congress should repeal ObamaCare, and why, until Congress does, states should implement neither an Exchange nor the Medicaid expansion. When a massive new entitlement program unfairly favors one group over another, the proper response is not to enact a second massive new entitlement program. The proper response is to block the first one.
Brewer is correct that it would be unfair for Arizona residents to pay for ObamaCare's Medicaid expansion in other states, while receiving none of the benefit. (Actually, the inequity is even worse than that. ObamaCare's Medicaid expansion is entirely deficit-financed. So it is future generations, rather than current Arizona residents, who will pay for it.) The way to stop the "immigration glitch," and this much larger inequity, is by filing a companion suit to Oklahoma's. If Arizona expands Medicaid, it will blow a huge opportunity to stop all of ObamaCare's inequities once and for all.
Earlier this month, I wrote about the Compact for America, an elegant mechanism for limiting out-of-control federal spending through a Balanced Budget Amendment to the Constitution that would be advanced via an interstate compact.
Well, already there's progress on that front. This past Monday, the CFA passed the Arizona House Committee on Federalism and Fiscal Responsibility. The full state house will now be taking up this important legislation.
I should note that the prime sponsor of the bill is former Cato intern who's now a state representative (and my friend), Adam Kwasman. Glad to see that our internship program is paying dividends with the future leaders of constitutional liberty.
Let's hope the momentum continues and that the CFA gains traction in other states, putting on Congress to call a constitutional convention or pass its own Balanced Budget Amendment.
Idaho Gov. Butch Otter (R), who added Idaho to the multi-state challenge that sought to overturn ObamaCare as unconstitutional, now supports helping the Obama administration implement the law by establishing and funding a health insurance "exchange." Exchanges are new government bureaucracies that enforce ObamaCare's many regulations, channel billions in deficit-financed government subsidies to private health insurance companies, and help the IRS penalize individuals and employers who fail to purchase government-approved insurance. So far, some 32 states have refused to establish an Exchange themselves. If Idaho's legislature authorizes an Exchange, they will make Idaho the only state where a Republican legislature and governor acted together to implement this essential piece of ObamaCare.
One could argue this is a debate Idaho shouldn't even be having. Establishing an ObamaCare compliant Exchange would violate Idaho state law.
In a letter sent to Idaho legislators today, Goldwater Institute attorney Christina Sandefur explains, "establishing a PPACA state health insurance exchange in Idaho would conflict with the state's Health Care Freedom Act." Idaho's Health Care Freedom Act protects the "right of all persons residing in the state of Idaho in choosing the mode of securing heatlh care services free from the imposition of penalties" including "any civil or criminal fine, tax, salary or wage withholding, surcharge, fee or any other imposed consequence." Sandefur explains (as I have explained elsewhere), "State exchanges that conform to PPACA are inconsistent with this safeguard because they are the key vehicles for implementing the individual mandate tax," as well as the penalties ObamaCare levies on employers under the employer mandate. Idaho's Health Care Freedom Act forbids state officials or state-created non-profits from doing anything that helps to enforce such penalties: "No public official, employee, or agent of the state of Idaho or any of its political subdivisions, shall act to impose, collect, enforce, or effectuate any penalty in the state of Idaho that violates the public policy set forth in [this Act]." As a result, Sandefur writes, "Idaho public officials who operate exchanges would be violating state law," and "the Attorney General is charged with taking legal action against those who do so."
Otter himself signed the Health Care Freedom Act into law in 2010, and was the first governor in the nation to do so. The purpose of that Act was to prevent state officials from doing what Otter is now trying to do. "What the Idaho Health Freedom Act says," Otter boasted at the time, "is that the citizens of our state won't be subject to another federal mandate or turn over another part of their life to government control." Yet he is now trying to subject Idaho residents to those mandates, and violating his own law to help the federal government implement ObamaCare. The best spin I can put on this is that Otter is getting some very, very bad advice about the Health Care Freedom Act and ObamaCare's Exchanges.
The situation in Idaho is a replay of Arizona, which enshrined a similar Health Care Freedom Act in its Constitution. As Arizona officials were wrestling with whether to establish an Exchange, Sandefur and her Goldwater Institute colleagues threatened legal action if Arizona did so. That threat was likely a major factor in Gov. Jan Brewer's (R) decision to oppose an Exchange.
For anyone suffering from post-Obamacare-argument Supreme Court withdrawal, this Wednesday the Court takes up Arizona's controversial Senate Bill ("SB") 1070. See my blogpost from when the Court granted review for some background.
SB 1070 is much-misunderstood: it has nothing to do with sexy political issues like racial profiling and everything to do with boring legal ones like whether a given state provision is "preempted" by federal law. That is, do the various parts of the state law -- each one of which the Court will be evaluating independently -- conflict with federal law (direct preemption) or intrude in an area exclusively reserved to Congress (implied preemption).
United States v. Arizona shows that there's a difference between what's constitutional and what's good policy. SB 1070 was crafted to mirror federal law rather than asserting new state powers that interfere with federal authority over immigration. That's why lower courts only enjoined four of its provisions and why the Supreme Court would not be wrong to resurrect even those four.
But beyond this hyper-technical legal analysis, SB 1070 and copy-cat laws elsewhere -- some of which go further than Arizona's and thus are of more dubious constitutionality -- highlight the dysfunction in our immigration system. Given Congress's failure to act in this area, state governments have spawned a host of federalism experiments. Many of these laws are terrible policy for reasons ranging from economic effects to the misuse of law enforcement resources.
Legal scholars always enjoy the opportunity to point out laws that they think are constitutional but bad policy. It makes them feel intellectually honesty (if they have reason to be defensive in that regard). Well, immigration is the most obvious place where my constitutional and policy views diverge. The ultimate solution here isn't for the Supreme Court to strike down the states' lawful if misguided legislation, but for Congress and the president to enact a comprehensive national reform.
For more on what's at stake in the case, see my SCOTUSblog essay from last summer, my forthcoming law review article, and my new colleague Alex Nowrasteh's recent op-ed. For the briefs and other background materials, see SCOTUSblog's case page.