Thomas M. Fisher is the Solicitor General of Indiana, and authored an amicus brief in support of the petitioners in this case. (This essay is submitted in the author’s individual capacity and the views expressed are his alone.)
The majority opinion in King expressly negates the words “established by the State” from Section 36B because, in its view, giving force to those words would “destroy” Congress’s goal “to improve health insurance markets.” I have three main points to make in response. First, this turns out not to be a case where the Court is merely deferring to a federal agency’s reasonable interpretation of a statute. It is instead a case where the Court is arriving at the definitive understanding of a statute – one that negates statutory text – based on its understanding of the statute’s overall objectives. Second, in arriving at this definitive understanding, the Court has trampled upon obvious legislative compromises involving the employer mandate that it never even pauses to acknowledge. Third, the Court’s decision sets up future clashes between states and the federal government over intergovernmental tax immunity.
1. Undoubtedly, most commentators thought that if the Obama administration were to win this case, it would be because the Court would conclude that the IRS arrived at a reasonable interpretation of an ambiguous statute, such that the Court must defer to its policymaking expertise under Chevron. Yet when the Court invokes Chevron as it embarks on its interpretive journey, it does so only to explain that it will not be deferring to a federal agency: “This is not a case for the IRS.” Instead, the Court undertakes its own de novo review of the ACA (and Section 36B’s place within it) to determine what Section 36B means.
From there, it is very hard to follow the Court’s analytical process. To be sure, the Court acknowledges that it must give force to a statute’s plain, unambiguous text, and then sets out to determine whether “established by the State” is ambiguous. But it never articulates what rule to follow to resolve that ambiguity, except in the broadest possible terms, i.e., to “turn to the broader structure of the Act to determine the meaning of 36B.” So, having used “statutory context” to find ambiguity, the Court turned back to “statutory context” to resolve it. With such magical powers at its disposal, it is perhaps unsurprising that the Court would make the text at issue disappear.
2. The majority’s use of “statutory context” both to find and resolve ambiguity is problematic not merely because it transgresses the near-absolute canon against surplusage, but also because it puts the Court in the position of tipping a legislatively negotiated balance among competing policy choices. As Justice Scalia’s dissent reminds us, legislation is never about one object only, so it is not legitimate to assume all legislative text must be construed in favor of a single supposed overarching goal.
Given the existence of the plain text “established by the State,” one would think it incumbent upon the Court to ask whether linking subsidies to state exchanges itself serves some policy objective, even if that objective might, as a result of legislative compromise, be in tension with other (even more prominent) policy goals, such as attaining near universal health insurance coverage. Legislatures resolve competing interests and objectives that temper the reach of whatever “overarching” goals the legislative majority may have.
In this regard, one disappointing feature of both the majority and dissenting opinions is that neither expressly grapples with the decision’s implications for the employer mandate. In brief, distribution of exchange subsidies triggers liability under Section 1513 of the ACA, which requires large employers (those with fifty or more employees) to provide minimum essential health insurance coverage to employees working thirty or more hours per week. By authorizing distribution of exchange subsidies even in states that have not created their own exchanges, the IRS subsidy rule in effect imposes the employer mandate on all states, notwithstanding the evident choice the plain text of the Act provides to states: You may choose the subsidies for your citizens and thereby impose employer taxes on yourselves and your private employers, or you may forgo the subsidies and permit public and private employers to structure their workforces and compensation free of this particular tax and regulatory scheme. Certainly governors and legislatures could reasonably conclude any benefit the exchange might provide would be more than offset by the detrimental effect of subjecting all employers in the state, including local governments and the state itself, to the employer mandate. This is the tradeoff explained by Jonathan Gruber, a professor at MIT and an “architect” of the ACA, who acknowledged that “if you’re a state and you don’t set up an Exchange, that means your citizens don’t get their tax credits.”
The majority never says so expressly, but one infers that it embraces universal application of the employer mandate as just another means of achieving what it understands to be the only worthwhile objectives of the ACA (i.e., improved health insurance markets, near universal insurance coverage). Yet it takes that leap without even stopping to consider that it is both negating plain statutory text and an important policy delegation to states. As a result, by permitting the IRS to act, in effect, as the states’ unconsented agent for purposes of establishing an exchange, the Court tramples Congress’s statutory bargain.
Voiding this bargain has serious implications. Indeed, Indiana and thirty-nine of its public school corporations have launched a separate challenge to the IRS subsidy rule in light of how the employer mandate restricts workforce decisions. Prior to the enactment of the ACA, Indiana did not offer minimum essential coverage to part-time or intermittent employees working between 29 and 37.5 hours per week. But because such employees are now classified as “full-time” under the ACA, and because the IRS subsidy rule makes tax-credit subsidies available to such full-time employees even in non-exchange states, Indiana has reduced the hours of several part-time or intermittent employees to avoid a penalty.
Similarly, many Indiana public school corporations have reduced the working hours of instructional aides, substitute teachers, non-certified employees, cafeteria staff, bus drivers, coaches, and leaders of extracurricular activities to fewer than thirty hours per week. Other public school corporations, unable to reduce work hours, now pay thousands to insure newly eligible employees. Compliance and administrative burdens have been extensive. Some school corporations have installed $30,000 time management tracking systems, limited coaching and extracurricular service opportunities, and created positions devoted exclusively to tracking hours worked.
3. By imposing application of the employer mandate on non-consenting states, the Court has now set up a battle over the intergovernmental tax immunity doctrine. Under that doctrine, state and federal governments are not permitted to tax one another directly. This rule is essential to maintaining two governments that are truly sovereign, not only in their distinct spheres, but also in their freedom from control by one another.
When applied to non-consenting state governments, the employer mandate constitutes a direct tax on a co-equal sovereign that transgresses this immunity. NFIB v. Sebelius construed the individual mandate as a tax in order to find it constitutional. The employer mandate operates in much the same way as the individual mandate, is codified in the Internal Revenue Code, and is enforced by the IRS. The penalty is assessed and collected in the same manner as a tax, and is estimated to raise $140 billion over ten years. And employers against whom the penalties are assessed pay them to the Treasury via corporate tax returns. Thus, the employer mandate is a tax.
What is more, it is a tax that applies to each state entity directly as an employer, not indirectly as an excise tax on goods or a payroll tax on employees. It forces each state either to pay the tax or to engage in Congress’s desired behavior. In view of constitutional concerns surrounding imposition of direct taxes on states, many provisions of federal law recognize that the Tenth Amendment immunizes the states from direct federal taxation. For example, state and local government employees are exempt from the Federal Unemployment Tax Act. And vehicle fuel purchases by states and their subdivisions are exempt from federal excise tax. A direct tax like the employer mandate would plainly be unconstitutional if a state levied it on the United States, so it is difficult to understand how it could be constitutional when roles are reversed. Indiana and its co-plaintiff public school corporations have already raised this issue in their pending case, and today’s decision from the Supreme Court only heightens the necessity that it later review whether intergovernmental tax immunity proscribes applying the employer mandate against states and their political subdivisions.