Archive | Taxes

Kopel comment on states’ victory on health control lawsuit.

My comment on today’s decision, granting the motion to dismiss on some counts, and while allowing other counts to proceed. Like Randy’s comment, my comment is posted on the blog of the site Health Care Lawsuits, which is hosted by the Independent Women’s Forum.

The court entirely rejected the administration’s claim that the penalty for disobeying the mandate is justified under the federal tax power. As the court noted, Congress went out of its way to specify that the penalty is not a tax. Second, the court ruled that it is proper for the plaintiffs to be heard in their challenge to the mandate, which goes into effect in 2014. The court cited extensive precedent showing that when a future harm is certain, courts can act in the present to protect citizens from that harm. The court rejected the argument that the various employer mandates violate the constitutional sovereignty of states; as the court noted, the law simply treats states like other large employers, and so making states provide the same health benefits as other large employers must provide is no different from making states pay the same minimum wage as all other employers.

While federal spending programs may set conditions on grants to states, Supreme Court precedent states that the grants must not be coercive. Here, the court agreed that the states had raised a plausible legal argument which should be allowed to go forward:  the health control presents states with the unacceptable choice of massively increasing their own Medicaid spending on millions of more people, or of losing all funding for the traditional Medicaid program. Finally, the court agreed that the challenge to the individual mandate could go forward, because the mandate was “unprecedented.” Never before has Congress attempted to use its power of regulating interstate

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Benjamin Leff and Brian Galle Respond on the VAT Tax Arguments

A few days ago I linked to a couple of articles on VAT tax proposals that have been circulating, including an attack by Daniel Mitchell at the Cato site, and a short blog post from Greg Mankiw explaining why, as a replacement for the rest of the tax system, he thought it was a better tax mechanism, as well as being the functional equivalent of certain versions of the flat tax.

I received several interesting emails from tax professors in response.  One pointed to a paper very much on the point of the post by Brian D. Galle, Hidden Taxes, upcoming in Washington University Law Journal; the SSRN abstract says:

The idea of hidden taxes is as old as John Stuart Mill, but convincing evidence of their existence is new. In this Article, I survey and critique recent studies that claim to show that there are some taxes that can go unnoticed by those who pay them. I also develop the array of unanswered theoretical questions and policy implications that potentially follow from the studies’ results.

Probably the central question for hidden taxes is whether they might enable government to raise revenue without also distorting the economy. If so, I argue, they have the potential to radically refashion the architecture of redistributive government. But, as I also show, whether that is true turns on the cognitive mechanisms that might permit taxes to go unnoticed. For example, if hidden taxes are caused not by rational ignorance but by cognitive shortcomings, then it is likely that the burden of a hidden tax will be borne disproportionately by poorer taxpayers, and vice-versa. Thus, I attempt to integrate with the tax literature some recent developments in our understanding of bounded rationality in consumers more generally.

But I also received an email from a […]

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“Of Constitutional Decapitation and Healthcare”

This new article in Tax Notes, by Professor Steven J. Willis and recent graduate Nakku Chung, both of the University of Florida’s Fredric G. Levin College of Law, explains why the non-insurance penalty provision of the new federal health control law is unconstitutional, at least if it is a tax.

In brief, the argument is: The tax is not an excise tax, and it could not be a constitutional excise tax because it is not uniform. The tax is not an income tax, and it could not be a constitutional income tax, because it is not a tax on derived income. Accordingly, the tax must be a capitation or direct tax. Article I, section 9 provides: “No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” The tax is not apportioned, and therefore is contrary to Article I, section 9.

As the introduction indicates, I provided some comments to the authors on a pre-publication draft of the article. […]

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Death Incentives

Mean Professor Anderson made his first year law and economics class memorize Greg Mankiw’s ten basic principles of economics, including … incentives matter.  Also, people make decisions at the margin.  One of the interesting questions – more than interesting, genuinely crucial to how one understands and interacts with other people – is when those heuristics don’t apply, however.  Spheres of social, interpersonal, intimate, familial, etc., life in which one eschews making decisions at the rationality margins, and instead goes with relational and affective values that are not “scalable” in the sense that marginal decision-making requires.

And then there is the vexed question of when one might think in terms of one, or the other, or both … which brings us to the question of the estate tax, as this Wall Street Journal article observes.  Last year, people had an incentive to stay alive, and their heirs had an incentive to keep them alive, until January 1, 2010, in order to avoid the estate tax.  It will go into reverse, however, at the end of the year:

When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death’s door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit.  Now the situation has reversed: If Congress doesn’t change the law soon—and many experts think it won’t—the estate tax will come roaring back in 2011.  Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.  The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes

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Bloggers agree: Little chance for immigration bill, and they hate the VAT

“Senate Majority Leader Harry Reid says ‘we’re going to have comprehensive immigration reform now.’ Top political bloggers don’t see it.” So begins the National Journal’s write-up of this week’s blogger poll. Seventy percent of the Left and 78% of the Right called enactment of a comprehensive bill either “very” or “somewhat” unlikely. I was in the “very” group: “As the passage of ObamaCare showed, the Reid-Pelosi team has extraordinary talent at pushing unpopular legislation through Congress. But it seems unlikely that there will be enough swing-seat Democrats, who are already in enough trouble, willing to change their own chances of re-election from ‘difficult’ to ‘nearly impossible.’”

The second question asked the bloggers if they were open to supporting some form of a VAT. Only 1/3 of the Left and 1/6 of the Right expressed openness. I was part of that small minority: “If and only if accompanied by substantial, immediate fiscal reform, such as a balanced budget amendment, major entitlement reform, a large reduction in the percentage of the population who are consumers rather than payers of income tax revenues, and an iron-clad program to pay down the federal debt.” […]

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Destroying the Constitution’s Structure is not Constitutional

Thus far, the argument among law professors over the constitutionality of Obamacare has been well represented by scholars who have made pro and con arguments over particular clauses in the constitution, such as the interstate commerce clause, or the tax power. In this post, I would like to examine an insight by Jonathan Turley, which points the way to strong, recent, and repeated precedent suggesting that Obamacare is unconstitutional.

Let’s begin by getting rid of the red herring that questioning the constitutionality of Obamacare requires denying the constitutionality of the New Deal and the Great Society. Orin asks:

In your view, which of the following federal programs or agencies are constitutional?

(a) Social Security
(b) The Federal Trade Commission
(c) Medicare/Medicaid
(d) The Securities and Exchange Commission
(e) The new Health Care mandate

In my view, (a), (b), (c), and (d), are constitutional, but (e) is not. My answer is based on using “constitutional” in the normal sense of the word as it appears in most modern public dialogue. That is, “Should a judge who accurately applies existing precedents, and other sources of legal authority, find the law to be constitutional?” This is the question that federal district judges and circuit court of appeal judges will have to answer, since they have no authority to reject Supreme Court precedent. The Supreme Court can change its own precedents, but for for purposes of argument, I am presuming that the Supreme Court would not overrule any precedents.

As Jack Balkin, Sandy Levinson, and others have ably pointed out, “constitutional” can be used in a different way, in that people express aspirations about what the Constitution should mean, even if that meaning is contrary to current precedents. For example, a person in 1946 might say “Discrimination against women is unconstitutional.” That person would […]

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President Obama Claimed that the Individual Mandate is Not a Tax

As I discussed in this post, some academic defenders of the health care bill’s insurance mandate claim that it is constitutional as an exercise of Congress’ power to tax. That argument has been advanced by by prominent scholars such as Jack Balkin, Vik Amar (in a recent debate with me), and others. It may therefore be of some interest that President Obama, himself a former constitutional law professor, forcefully denied that the mandate is a tax in this September 2009 ABC News interview:

[George] STEPHANOPOULOS: …Under this mandate, the government is forcing people to spend money, fining you if you don’t. How is that not a tax?

OBAMA: Well, hold on a second, George. Here — here’s what’s happening. You and I are both paying $900, on average — our families — in higher premiums because of uncompensated care. Now what I’ve said is that if you can’t afford health insurance, you certainly shouldn’t be punished for that. That’s just piling on. If, on the other hand, we’re giving tax credits, we’ve set up an exchange, you are now part of a big pool, we’ve driven down the costs, we’ve done everything we can and you actually can afford health insurance, but you’ve just decided, you know what, I want to take my chances. And then you get hit by a bus and you and I have to pay for the emergency room care, that’s…

STEPHANOPOULOS: That may be, but it’s still a tax increase.

OBAMA: No. That’s not true, George. The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase. What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore than the

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Is the tax power infinite?

One source of the impending constitutional challenge to the Obamacare mandate is that exceeds the enumerated powers granted to Congress under Article I, section 8. For example, that the people’s grant to power to Congress to regulate commerce  among the several states does not include the power to compel people to engage in commerce. Jack Balkin, writing in the New England Journal of Medicine, has two responses: 1. Yes it does, because of Wickard and Raich, since people without insurance will eventually get sick and then buy health services; and allowing these people to buy health services outside the congressional system would undermine the congressional regulation. 2. The mandate is structured as a tax.

For the moment, let’s put aside the question of whether the Obamacare tax is an Article I tax, or a 16th Amendment income tax. Does Congress have the infinite power to control people’s behavior (such as by ordering them to engage in commercial transactions) via the tax power?  I suggest not. When the Bill of Rights was being debated in front of Congress, the skeptical Rep. Theodore Sedgwick of Massachusetts asked if there should also be an enumeration that “declared that a man should have a right to wear his hat if he pleased; that he might get up when he pleased, and go to bed when he thought proper.” 1 Annals of Congress 759-60 (Aug. 15, 1789). Sedgewick’s point was that national laws about bedtimes and hat-wearing were self-evidently beyond the authority of Congress.

However, if the tax power means that Congress can order citizens to buy something they don’t want to buy, why does Congress not have the power to assess taxes on people who get too little sleep, or too much sleep, and thereby harm their own health and the public […]

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Don’t Bank on Legal Challenge to Bank Tax

Monday’s NYT reported the Securities Industry and Financial Markets Association is investigating potential constitutional challenges to the President’s proposed $90-billion bank tax.  It’s apparently not enough to argue that the President’s various economic and regulatory initiatives are bad policy — as this proposal is — it must also be unconstitutional.

Based on the article, SIFMA hopes to argue the tax is an unconstitutional bill of attainder or ex post facto law.  I suppose another challenge, if the tax legislation is poorly drafted, could be that it is a direct tax and must be apportioned to be constitutional.  None of this is likely to matter, however.  Barring exceedingly poor draftsmanship, I doubt any court would strike down the tax, should it be enacted.  If the AIG bonus tax would pass muster in the courts (as discussed in this thread), I don’t see any likelihood a more broad-based tax on banks would face any difficulty at all. […]

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The DC 5-Cent Bag Tax

A new law recently went into effect in the District of Columbia, the “Anacostia River Clean Up and Protection Act of 2009”. The law does two things. First, it prohibits the sale or distribution of non-recyclable plastic bags in the District of Columbia at either the retail or wholesale level. Second, and more recognizably to consumers, it requires grocery stores and restaurants to charge customers 5 cents for each carryout bag the store provides. If you’re at a DC sandwich shop, for example, the shop will no longer automatically bag your sandwich. Instead, they’ll ask you if you want a bag: If you want a bag, you are charged 5 cents for it.

Here’s the language from Section 5(a) of the new law:

A fee of $.05 per recyclable paper and plastic carryout bag is hereby established for consumers making purchases from Retail Establishments.
(1) Fees must be paid by the consumer at the time of purchase.
(2) Retail Establishments may not pay the fee on behalf of consumers.
(3) All Retail Establishments shall indicate on the consumer transaction receipt the number of disposable carryout bags provided and the total amount of fee charged.

The idea behind the bag tax is that requiring an itemized 5 cent-per-bag charge will have an outsized impact on consumer behavior. Customers will use fewer bags and get in the habit of carrying a reusable bag with them, even though the actual fee is quite small. Notably, the law effectively prohibits stores from leaving out bags for customer: Each bag distributed needs to be noted and charged for individually, so the stores need to keep them behind the counter.

As you might guess, there’s also a revenue angle to the law. The stores keep 1 cent for each bag tax free and the remaining 4 […]

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