Commentary

Protect Taxpayers from Illegal Taxes

Another year, another Obamacare case goes before the Supreme Court. But this time, everything is upside down.

In King v. Burwell, the plaintiffs aren’t challenging the Affordable Care Act; they want to uphold the act – and thereby protect tens of millions of taxpayers from illegal taxes. The law’s supporters, instead of defending the law or taxpayers, are defending an out-of-control IRS.

The IRS is subjecting more than 8 million taxpayers to penalties under Obamacare’s individual mandate, and more than 250,000 employers and 57 million taxpayers to penalties under the law’s employer mandate, even though it has no authority to do so. The IRS just decided to expand its own powers.

One lower court declared the IRS’s actions “invalid” and explained that by blocking those actions, “the court is upholding the Act as written.” Another wrote that the Affordable Care Act itself “unambiguously forecloses” the IRS’s expansion of the mandates.

Does anybody really want to live in a world where the IRS has the power to impose taxes all on its own?

The employer mandate imposes hefty penalties on employers who do not provide the required level of coverage to all employees who work 30 or more hours per week. It therefore creates a perverse incentive for employers to cut workers’ hours to below that threshold.

Teachers are just some of the millions who are losing income as a result of these illegal taxes. Because the IRS illegally subjected Indiana public school districts to the mandate, for example, they had to cut hours for substitute teachers, instructional aides, special education instructors, library assistants, cafeteria workers, bus drivers and maintenance personnel. Many school districts have barred part-time staff from coaching sports and other extracurricular activities.

A career center in Putnam County, Indiana, cannot expand its staff and course offerings, because it would then either have to pay penalties it cannot afford or cut hours for all its employees. Many school districts are suffering further because the cost of their health benefits has increased, reducing their ability to hire new staff.

In Indiana alone, the IRS is unlawfully imposing the individual mandate on more than 196,000 taxpayers, and unlawfully imposing the employer mandate on nearly 9,000 employers and more than 1.9 million workers.

These are real people, suffering real income losses with every passing day. The income they are losing is effectively a tax. Since the IRS has no legal authority to subject them to this mandate, it is also an illegal tax.

The IRS is punishing kids, too. The state of Indiana, like the plaintiffs in King v. Burwell, sued to block the IRS. As the state told a federal court, “These changes directly impact the delivery of educational services to [students], including students with learning disabilities.”

Instead of standing up for those kids, their teachers, tens of millions of other taxpayers across the country, and the rule of law, the Affordable Care Act’s erstwhile supporters are backing the IRS.

But the law is clear. It authorizes the disputed taxes only where it authorizes premium subsidies. And it only offers subsidies “through an Exchange established by the State.” That makes the subsidies conditional on states implementing a federal program, something Congress does all the time.

The only difference here is that Obamacare is so unpopular that 38 states refused or otherwise failed to implement exchanges. The federal government did establish a fallback exchange (i.e., healthcare.gov) within those states. But, as those lower courts held, an exchange established by the federal government is not “established by the State.” Thus, the IRS is unlawfully taxing millions of Americans.

The IRS claims, risibly, that the phrase “an Exchange established by the State” is a statutory “term of art” that includes exchanges that were not established by the state. The statute says no such thing.

The IRS also argues the court should look at the entire statute, not just a few passages. But nothing in the law calls the plain meaning of “established by the State” into question. The IRS is simply trying to ignore a clear limitation on its power.

Supporters say Obamacare won’t work without those disputed taxes and subsidies. If so, that means Obamacare doesn’t work. The solution is for Congress and the president to fix it. Does anybody really want to live in a world where the IRS has the power to impose taxes all on its own? 

Michael F. Cannon is the Cato Institute’s director of health policy studies.