The Supreme Court announced on Friday that it will hear a lawsuit challenging an arbitrary IRS decision to issue tax credits and penalties through federally created Obamacare exchanges. Two federal courts have already declared the regulation unconstitutional, but a third court ruled that the IRS has acted within its authority. It was this ruling by the Fourth Circuit Court of Appeals that prompted the plaintiffs in King v. Burwell to file an appeal with the high court. If the Supreme Court rules against the Obama administration in this case, it could well be the undoing of the much-reviled health care law.
The survival of Obamacare depends on the ability of government bureaucrats to dole out tax credits and subsidies, but the law stipulates that all such assistance must be dispensed via exchanges established by the state. Likewise, the law’s employer mandates can only be imposed by state-created exchanges. Oddly enough, however, PPACA doesn’t actually require states to set up exchanges. And, much to the surprise and chagrin of the Obama administration, 34 states declined to do so. This forced the federal government to set up exchanges in those states and also spawned the legally dubious IRS edict.
The legality of the IRS rule has long been questioned by policy experts, but its full significance wasn’t truly appreciated until Jonathan Adler and Michael Cannon published “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.” This paper is not light reading, but it does make it clear why the rule can’t be legally justified: “[T]he IRS is attempting to create two entitlements not authorized by Congress, and in the process, to tax employers whom Congress did not authorize the agency to tax.” Several lawsuits were subsequently filed against the Obama Administration.
The highest profile cases in addition to King are Halbig v. Burwell, in which a three-judge panel of the D.C. Circuit Court of Appeals ruled against the IRS, and Pruitt v. Burwell. The latter provoked a scathing decision against the Obama administration from Judge Ronald White of the U.S. District Court for the Eastern District of Oklahoma, who rebuked the government lawyers for producing an argument better suited for fantasy fiction than a federal court: “[T]he government’s interpretation… leads us down a path toward Alice’s Wonderland, where up is down and down is up, and words mean anything.”
And Judge White wasn’t merely indulging a penchant for hyperbole. The relevant section of the law, as Michael Cannon points out, explicitly ties premium assistance to state exchanges no fewer than nine times. He further notes that the rules “never use any other language when describing the type of Exchanges through which taxpayers… qualify for a tax credit.” Yet the government lawyers insist, without citing any evidence that would be accepted beyond the work of Lewis Carroll, that the words “Exchange established by the State” somehow mean “Exchange established by the federal government.”
The Obama administration badly wants to avoid making such an argument before the Supremes. Thus, it petitioned the justices not to “grant cert” in King, arguing that the IRS subsidy case has not been sufficiently ventilated in the lower courts. This delay tactic was labeled “irresponsible” by Michael Carvin, lead counsel for the plaintiffs, in his reply: “[T]he subsidies that the IRS has illegally expanded have already begun to flow… and millions of Americans are ordering their lives around an impugned regulation. Yet the government is content to leave the spigots of cash open and the Nation in limbo.”
Arguing that there is little possibility that the IRS subsidy cases will be uniformly disposed of in the lower courts, Carvin provides a pitch perfect case for cleaning up this mess now: “The question is therefore not whether the Court should resolve this issue, but when. It can do so now, thus minimizing potential unfairness, providing maximum clarity to those subject to the Act, and preserving the integrity of federal expenditures. Or it can do so in 2016 or 2017… after millions of Americans buy insurance believing it will be subsidized.” At least four of the justices obviously found this argument compelling.
What will be the likely outcome now that the Court has agreed to hear King v. Burwell? As Justice Roberts demonstrated in 2012, it’s risky to make predictions about the Court. Nonetheless it seems unlikely that five or more of the justices will be convinced by the government’s claim that PPACA means something other than what it says, or by what Carvin describes as “unexplained statutory references, garbled explication, and minutiae of irrelevant provisions—to give the appearance of respectable statutory construction.” In other words, the illegal IRS edict will probably be struck down.
Obamacare’s supporters have made all manner of dire predictions about the consequences of such a ruling. The hysterical editors of the Atlanta Journal Constitution claim that “It would throw the nation’s entire health-care system into chaos.” But the system is already in chaos, and that is largely due to Obamacare. If the Court rules against the government, it will simply mean that PPACA must be implemented as written. If the bureaucrats are required to do that, the “reform” law will collapse under its own weight. It will have to be repealed and replaced. That is a consummation devoutly to be wished.
