Tag: tax

ObamaCare Ruled Unconstitutional (Again)

In August 2018, The Jurist’s Corner speculated that the question of the constitutionality of the Affordable Care Act 2010 (ACA or ObamaCare) might be heading towards the US Supreme Court again in 2019. On 14 December 2018, a District Court for the Northern District of Texas held, in the case of Texas v the United States No. 4:18-cv-00167-O that the ObamaCare, in its entirety, was unconstitutional. This is yet another time the ACA is ruled unconstitutional, but it is the first time since Congress passed the Tax and Jobs Act 2017 eliminating the tax/penalty for a failure to comply with the ObamaCare’s Individual Mandate (i.e. the requirement to buy a health insurance).

So far the ObamaCare has withstood, albeit not in its entirety, several challenges before the federal courts. In 2012 the US Supreme Court ruled in the case of National Federation of Independent Business v. Sebelius (567 U.S. 519 2012) that, inter alia, although the Individual Mandate was not a valid exercise of the Congress’s power to regulate inter-state commerce, the penalty for its breach could be read as a tax and thereby be a valid exercise of the Congress’s taxation power instead. This is because the so called ‘penalty’ for breaching the Mandate was limited to a financial fee processed by the IRS together with individuals’ income taxes. This saving construction persuaded Chief Justice Roberts who joined the 4 liberal Justices on the Court and voted to uphold the Individual Mandate.

However, the Tax and Jobs Act 2017 passed by Congress in 2017 eliminated this tax/penalty while leaving the Individual Mandate as such intact. In those circumstances, several Red States sued in a Texas federal District Court again claiming that the elimination of the tax had rendered the Individual Mandate unconstitutional as now, in the absence of any tax attached to it, it could only be construed as an exercise of the Congress’s power to regulate inter-state commerce and that would violate National Federation of Independent Business v. Sebelius (567 U.S. 519 2012). The lawsuit went even further claiming that the Individual Mandate was inseverable from the rest of the law, or at least from its certain parts, such as the community rating. As such, the lawsuit argued that in case of finding the Individual Mandate unconstitutional, the Court should strike down the rest of the ObamaCare with it. Shortly afterwards, the Trump Administration announced that it would not to defend the lawsuit, so several Red States led by California intervened in the case submitting briefs in defence of the ACA (The Atlantic).

On 14 December 2018, the Court issued its judgment. Judge O’Connor analysed the effect of the elimination of the tax attached to the Individual Mandate by the Tax and Jobs Act 2017 and found that in the absence of any tax, the Mandate could not possibly fall within the Congress’s taxation power (pp20-27). Next, Judge O’Connor once again considered the possibility of the Individual Mandate being a valid exercise of the power to regulate inter-state commerce but rejected it on the grounds of the Majority Opinion in National Federation of Independent Business v. Sebelius (567 U.S. 519 2012) (pp27-34). Ultimately, “the Court [found that] the Individual Mandate is no longer fairly readable as an exercise of Congress’s Tax Power and continues to be unsustainable under Congress’s Interstate Commerce Power. The Court therefore finds the Individual Mandate, unmoored from a tax, is unconstitutional...” (p34).

At this point, the main question became whether the Individual Mandate was severable from the rest of the ObamaCare so that the rest of the ACA could remain in force. Judge O’Connor examined the approach of the Supreme Court to the question of the severability of the Individual Mandate in both National Federation of Independent Business v. Sebelius (567 U.S. 519 2012) and King v. Burwell, 576 U.S. ___ (2015) and summarised:

“The ACA’s text and the Supreme Court’s decisions in NFIB and King thus make clear the Individual Mandate is inseverable from the ACA. As Justice Ginsburg explained, “Congress could have taken over the health-insurance market by establishing a tax-and-spend federal program like Social Security.” Id. at 595 (Ginsburg, J., joined by Breyer, Kagan, and Sotomayor, JJ.). But it did not. “Instead of going this route, Congress enacted the ACA . . . To make its chosen approach work, however, Congress had to use . . . a requirement that most individuals obtain private health insurance coverage.” Id. (citing 26 U.S.C.§ 5000A). That requirement—the Individual Mandate—was essential to the ACA’s architecture. Congress intended it to place the Act’s myriad parts in perfect tension. Without it, Congress and the Supreme Court have stated, that architectural design fails. “Without a mandate, premiums would skyrocket. The guaranteed issue and community rating provisions, in the absence of the individual mandate, would create an unsustainable death spiral of costs, thus crippling the entire law.” BLACKMAN, supra note 3, at 147; accord NFIB, 567 U.S. at 597 (Ginsburg, J., joined by Breyer, Kagan, and Sotomayor, JJ.) (noting the mandate was essential to staving off “skyrocketing insurance premium costs”). Congress simply never intended failure.” (p47)

Next, Judge O’Connor analysed the potential effect of retaining the rest of ObamaCare, in the absence of the Individual Mandate, on other major provisions of the ACA:

Even if the Court preferred to ignore the clear text of § 18091 and parse the ACA’s provisions one by one, the text- and precedent-based conclusion would only be reinforced: Upholding the ACA in the absence of the Individual Mandate would change the “effect” of the ACA “as a whole.” See Alton, 295 U.S. at 362. For example, the Individual Mandate reduces the financial risk forced upon insurance companies and their customers by the ACA’s major regulations and taxes. See 42 U.S.C. §§ 18091(2)(C), (I). If the regulations and taxes were severed from the Individual Mandate, insurance companies would face billions of dollars in ACA-imposed regulatory and tax costs without the benefit of an expanded risk pool and customer base—a choice no Congress made and one contrary to the text. See NFIB, 567 U.S. at 698 (joint dissent); 42 U.S.C. § 18091(2)(C) and (I).” (p48)

“Similarly, the ACA “reduce[d] payments by the Federal Government to hospitals by more than $200 billion over 10 years.” NFIB, 567 U.S. at 699 (joint dissent). Without the Individual Mandate (or forced Medicaid expansion), hospitals would encounter massive losses due to providing uncompensated care. See BLACKMAN, supra note 3, at 2–4 (discussing the freerider and cost-shifting problems in healthcare).” (p48)

“The story is the same with respect to the ACA’s other major provisions, too. The ACA allocates billions of dollars in subsidies to help individuals purchase a government-designed health-insurance product on exchanges established by the States (or the federal government). See, e.g., 26 U.S.C. § 36B; 42 U.S.C. § 18071. But if the Individual Mandate falls, and especially if the pre-existing-condition provisions fall, upholding the subsidies and exchanges would transform the ACA into a law that subsidizes the kinds of discriminatory products Congress sought to abolish at, presumably, the re-inflated prices it sought to suppress.” (pp48-49)

“Nor did Congress ever contemplate, never mind intend, a duty on employers, see 26 U.S.C. § 4980H, to cover the “skyrocketing insurance premium costs” of their employees that would inevitably result from removing “a key component of the ACA.” (Ginsburg, J., joined by Breyer, Kagan, and Sotomayor, JJ.). And the Medicaid-expansion provisions were designed to serve and assist fulfillment of the Individual Mandate and offset reduced hospital reimbursements by aiding “low-income individuals who are simply not able to obtain insurance.” Id. at 685 (joint dissent).” (p49)

“The result is no different with respect to the ACA’s minor provisions. For example, the Intervenor Defendants assert that, “[i]n addition to protecting consumers with preexisting medical conditions, Congress also enacted the guaranteed-issue and community-rating provisions to reduce administrative costs and lower premiums.” Intervenor Defs.’ Resp. 35, ECF No. 91; see also id. at 34 (“Congress independently sought to end discriminatory underwriting practices and to lower administrative costs.”). But Congress stated explicitly that the Individual Mandate “is essential to creating effective health insurance markets that do not require underwriting and eliminate its associated administrative costs.” 42 U.S.C. § 18091(2)(J) (emphasis added). At any rate, to the extent most of the minor provisions “are mere adjuncts of the” now-unconstitutional Individual Mandate and nonmandatory Medicaid expansion, “or mere aids to their effective execution,” if the Individual Mandate “be stricken down as invalid” then “the existence of the [minor provisions] becomes without object.” Williams, 278 U.S. at 243.” (pp49-50).

On that basis Judge O’Connor held:

“…Congress was explicit: The Individual Mandate is essential to the ACA, and that essentiality requires the mandate to work together with the Act’s other provisions. See 42 U.S.C. § 18091. If the “other provisions” were severed and preserved, they would no longer be working together with the mandate and therefore no longer working as Congress intended. On that basis alone, the Court must find the Individual Mandate inseverable from the ACA. To find otherwise would be to introduce an entirely new regulatory scheme never intended by Congress or signed by the President.” (pp47-48).

“In the face of overwhelming textual and Supreme Court clarity, the Court finds “it is ‘unthinkable’ and ‘impossible’ that the Congress would have created the” ACA’s delicately balanced regulatory scheme without the Individual Mandate. Alton, 295 U.S. at 362. The Individual Mandate “so affect[s] the dominant aim of the whole statute as to carry it down with” it. Id. To find otherwise would “rewrite [the ACA] and give it an effect altogether different from that sought by the measure viewed as a whole.” Alton, 295 U.S. at 362. Employing such a strained view of severance would be tantamount to “legislative work beyond the power and function of the court.” Wallace, 259 U.S. at 70.” (pp50-51)

Finally, Judge O’Connor rejected the argument that in 2017, when passing the Tax and Jobs Act 2017, Congress indicated that the Individual Mandate was severable from the rest of the ObamaCare because it did not repeal the rest of the ACA while eliminating the tax attached to the Individual Mandate (pp52-54). In conclusion, the Court held that:

“In some ways, the question before the Court involves the intent of both the 2010 and 2017 Congresses. The former enacted the ACA. The latter sawed off the last leg it stood on. But however one slices it, the following is clear: The 2010 Congress memorialized that it knew the Individual Mandate was the ACA keystone, see 42 U.S.C. § 18091; the Supreme Court stated repeatedly that it knew Congress knew that, see, e.g., NFIB, 567 U.S. at 547 (Roberts, C.J.) (citing 42 U.S.C. § 18091(2)(F)); King, 135 S. Ct. at 2487 (citing 42 U.S.C. § 18091(2)(I)); and knowing the Supreme Court knew what the 2010 Congress had known, the 2017 Congress did not repeal the Individual Mandate and did not repeal § 18091.” (pp54-55)

The ruling is now bound to be appealed to the Court of Appeals for the Fifth Circuit and then probably to the US Supreme Court. The appeal proceedings will likely focus on the question of the severability of the Individual Mandate from the rest of the ObamaCare. With the new judgment and the prospects of future appeals, it seems that the ObamaCare has now become the most litigated issue of our time.

Interesting Cases to Look For during the Next US Supreme Court Term

While the US Supreme Court is in recess now, there are several potentially monumental cases which are either being processed in lower Courts at the moment or are likely to end up before the federal courts soon, which are due to eventually bubble up during the high court’s next term. As the Court reconvenes in October 2018, it will also most likely have a new member, Judge Kavanaugh, whom the Senate Republicans plan to confirm in September 2018 thereby consolidating a solid conservative majority on the bench. The Supreme Court so constituted, will face requests to adjudicate on a whole series of tough issues, some of which are now long overdue.

Here is a list of 6 big questions the US Supreme Court might be asked to answer during its next term:

1. Whether the 2nd Amendment Protects the Right to Bear Arms outside One’s Home

In its landmark 2008 opinion, the US Supreme Court ruled in District of Columbia v. Heller (554 U.S. 570 2008) that the 2nd Amendment protected the individual right to possess firearms within the confines of one’s home for the purposes of self-defence. In 2010 the rule was extended in McDonald v. Chicago (561 U.S. 742 2010) to apply to States as well. However, since then, the Court has taken very few cases concerning the scope of the 2nd Amendment (but see e.g. Caetano v. Massachusetts, 577 U.S. ___ (2016)). This leaves two big issues largely unresolved. First, what types of firearms are covered by the 2nd Amendment? Secondly, does the 2nd Amendment cover public arena outside of one’s home? Both issues are hotly litigated over, especially in the so called Blue States. On 24 July 2018 a three-judge panel of the Court of Appeals for the 9th Circuit ruled in the case of Young v State of Hawaii No. 12-17808 that the 2nd Amendment did in fact protect the right to bear arms in public. This is in spite of the 2016 decision of the same Court in Peruta v. County of San Diego, 824 F.3d 919, 939 (2016), which, sitting en banc, upheld a complete ban on carrying any firearms outside one’s home. However, the latter case was distinguished on the grounds that it was concerned with a concealed-carry while the former was concerned with an open-carry. Nevertheless, the State of Hawaii is entitled to apply for a reconsideration of this decision by an en banc Court which, given a strong liberal nature of the 9th Circuit, is likely to result in a reversal of the original decision. Regardless, the 2nd Amendment jurisprudence of the 9th Circuit stands in open opposition to other Circuits, such as the 7th Circuit which held in 2013 in the case of Moore v Madigan (USDC 11-CV-405-WDS, 11-CV-03134; 7th Cir. 12-1269, 12-1788) that a complete ban on concealed carry was unconstitutional. This situation constitutes a clear example of the so called ‘circuit split’ which creates a pressure on the Supreme Court to resolve the issue rather sooner than later. Here the appointment of Judge Kavanaugh as a new Supreme Court Justice might be of considerable impact as he has a strong record on the 2nd Amendment (e.g. Heller v. District of Columbia No. 10–7036. 2011).

2. Whether the ObamaCare’s Individual Mandate Has Been Rendered Unconstitutional by The Tax Cuts and Jobs Act 2017

So far the ObamaCare has withstood, albeit not in its entirety, several challenges before the federal courts and a new one is gaining momentum now. In 2012 the US Supreme Court ruled in the case of National Federation of Independent Business v. Sebelius (567 U.S. 519 2012) that, inter alia, although the Individual Mandate was not a valid exercise of the Congress’s power to regulate inter-state commerce, it could be read as a tax and thereby be a valid exercise of the taxation power instead. This is because the so called ‘penalty’ for breaching the Mandate was limited to a financial fee processed by the IRS together with individuals’ income taxes. This saving construction persuaded Chief Justice Roberts who joined the 4 liberal Justices on the Court and voted to uphold the Individual Mandate. However, The Tax and Jobs Act 2017 recently passed by Congress eliminates this so called tax while leaving the Individual Mandate as such intact. In those circumstances, several Red States sued again claiming that the elimination of the tax had rendered the Individual Mandate unconstitutional as now, in the absence of any tax attached to it, it could only be construed as an exercise of the Congress’s power to regulate inter-state commerce which was already declared invalid by the US Supreme Court in 2012 (Texas Tribune). However, the lawsuit goes even further as it claims that the Individual Mandate is inseverable from the rest of the law or at least from its certain parts, such as the community rating, and if it is in fact struck down by the Court, it might drag other parts of the ObamaCare with it. Given that the Trump Administration decided not to defend the lawsuit, the case is now bound to proceed further up the ladder towards the Supreme Court (The Atlantic). Interestingly, the replacement of Justice Kennedy with Judge Kavanugh might actually push the Court to reject any challenges to the ObamaCare as Judge Kavanaugh appears to have been more accommodating in this respect than his predecessor, siding with the approach of the Chief Justice rather than Justice Scalia (Seven-Sky v. Holder (No. 11–5047 2011)).

3. Whether the DACA Program (and its Rescission via Executive Action) is Constitutional

Deferred Action for Childhood Arrivals (DACA) was announced by President Obama via an Executive Memorandum in 2012 to allow for a temporary lawful stay of illegal immigrants brought to the United States as children. The policy was introduced in response to Congress not being able to pass the DREAM Act which would put it on a statutory footing. Since then, DACA has been often cited as an example of executive overreach given that it was introduced via executive action thereby circumventing the legislature. The policy has been challenged in the federal courts several times. A lawsuit against the original policy was dismissed on procedural grounds in 2013 (Fox News) but as President Obama attempted to extend the programme, the expansion was blocked by the US Supreme Court in the case of United States v. Texas, 579 U.S. ___ (2016), although in a per curiam decision concerning an interim injunction with the crux of the matter soon becoming moot. The Trump Administration announced in 2017 that it would rescind the DACA program altogether as incompatible with federal immigration laws on the books. However, on 3 August 2018, a DC District Court ruled in the case of Trustees of Princeton University v United States (1:17-cv-02325-JDB) that the rescission of DACA was unlawful because the Administration did not supply the Court with any valid reason for its decision. This is yet another signature policy of the Trump Administration after the so called Travel Ban blocked by lower federal courts and therefore the decision is bound to be appealed by the Administration in hope that the US Supreme Court will vindicate its lawfulness, as it happened in the Travel Ban case (Trump v. Hawaii, No. 17-965, 585 U.S. ___ (2018)). In this area the impact of the appointment of Judge Kavanaugh to the Supreme Court is rather difficult to predict.

4. Whether the Policy of Sanctuary Cities is Constitutional

The question of the constitutionality of sanctuary polices has been looming for decades but so far it has never been properly decided. This, however, might change now that the Trump Administration vowed to crack down on Blue States shielding illegal immigrants from federal agencies. On the one hand, the Department of Justice decided to withdraw funding from cities refusing to cooperate with the federal government in respect of immigration enforcement and in March 2018 it sued the State of California for its sanctuary policies. On the other hand, in return, two of California counties (San Francisco and Santa Clara) sued the Department of Justice claiming that such a withdrawal of funds was unconstitutional and managed even to persuade a local District Court as well as the Court of Appeals for the 9th Circuit to grant an injunction (The Washington Post). Accordingly, given how high this issue is on the Presidential agenda and how much litigation it has generated so far, one of those cases is bound to end up before the US Supreme Court sooner or later and this time the Court will have no choice but to rule on a wider issue of sanctuary policies in general. As with the DACA programme, the impact of the appointment of Judge Kavanaugh to the Supreme Court on sanctuary policies is not easy to predict.

5. Whether Affirmative Action is Constitutional

Technically, the constitutionality of affirmative action has already been confirmed on several occasions, for the first time in 1978 in the case of Regents of the University of California v. Bakke (438 U.S. 265 1978), then in 2003 in Grutter v. Bollinger (539 U.S. 306 2003) and most recently in 2016 in the case of Fisher v. University of Texas (579 U.S. (2016), commonly referred to as Fisher II. However, the recent decisions have been extremely closely decided and Justice Kennedy has been the one casting the deciding vote. Now that Justice Kennedy is being replaced by Judge Kavanaugh, the Court might easily swing the other way. So far there is no case pending before any federal court concerning affirmative action, however, there have been some moves by the Trump Administration to limits its impact, such as reversing President Obama’s policy on affirmative action in schools (NY Times) or investigating the impact of affirmative action programmes at the Harvard University on the Asian-American minority admissions (CNN). Although no case has been brought on this issue so far, there are signs that affirmative action might once again end up before the federal courts and this time Justice Kennedy will not be around to save it.

6. Whether Fetal Heartbeat Legislation is Constitutional

The opposition of Red States to the constitutional right to abortion recognised in Roe v Wade (1973) is widely known. From time, to time, this opposition materliases in a form of some State legislation hindering access to abortion in hope that it would pass the Undue Burden test imposed on this type of legislation by the Supreme Court in the case of Planned Parenthood v Casey (1992). One of such measures was passed and signed into law in the State of Iowa on 4 May 2018. The so called ‘heartbeat’ Act bans abortions as soon as fetal heartbeat could be detected, which usually happens around the sixth week into pregnancy, and as such constitutes the most restrictive abortion law in the country. Immediately, the American Civil Liberties Union sued in the Polk County District Court for a declaration of unconstitutionality as well as an interim injunction against the law which was granted on 1 June 2018 (Des Moines Register). The case is now being considered on its merits but regardless of the Court’s decision, it is bound to be appealed and eventually end up before the US Supreme Court. This is especially interesting given that Judge Kavanaugh’s jurisprudence on abortion is very scarce and no one is able to predict how he might vote on this issue. If the newest Justice decides to side with the reliable conservatives on the Court, the fate of the right to abortion in the United States will depend solely on Chief Justice Roberts and he remains a huge unknown as well.

It seems that in its 2019 term, the US Supreme Court might be asked to decide at least 6 issues of historical importance and its decisions will be felt across the whole country in decades to come.

The European Court of Human Rights Continues to Exercise Jurisdiction over Tax Rates

On 24 July 2018, the European Court of Human Rights found, in the case of ZG v. Hungary (App. No.: 65858/13), that the state’s ‘severance tax’ of 98% violated the applicant’s right to the peaceful enjoyment of property under Article 1 of Protocol 1 of the Convention. This case marks the tenth time this year the Court adjudicated on the same issue with the same effect. The line of cases dates back to the summer of 2013 when, in the cases of  N.K.M. v. Hungary (App. No.: 66529/11) and R.Sz. v. Hungary (App. No.: 41838/11), the Court ruled that the 98% tax on severance payments for public employees did not strike a fair balance “between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights” (para. 49) – a requirement which the Court read into Section 1 of Article 1. This is despite the clear wording of Section 2 of the same Article stipulating that “the preceding provisions shall not, however, in any way impair the right of a State … to secure the payment of taxes or other contributions or penalties.” This line of cases is remarkable as nowhere else has the European Court of Human Rights held a tax incompatible with the Convention solely for the reason of its rate. Although the Court was also concerned with the fact that the tax was levied on the payment which was contractually guaranteed when the employee was undertaking the employment, this could be said about any new tax, as any new tax is necessarily levied, to a certain degree, on a state of affairs which has already been initiated. Furthermore, even though the Court indicated that in different circumstances such a high tax rate might be allowed, nevertheless, it seems that the European Court of Human Rights has, with this line of cases, brought taxation rates within the ambit of the Convention rendering them fully reviewable. This move widens considerably the protection of private property under the Convention, which, as originally enacted in Protocol 1, was rather weak. If a severance tax can be held incompatible with the Convention based on its high rate, there is nothing stopping the Court from holding any other type of taxation, including an income tax, to be equally incompatible. Of course the Court remains cautious in this respect granting Member States the highest level of margin of appreciation, nevertheless, by maintaining its ‘severance tax’ jurisprudence, it sends a strong message that extraordinarily high taxes levied with no apparent justification are not beyond the Court’s jurisdiction.