The Affordable Care Act Imposes A Mandate. Not a Choice.

On July 9, the 5th Circuit Court of Appeals heard oral argument in Texas v. United States. The three members on the panel were Judges Jennifer Walker Elrod, Kurt D. Engelhardt, and Carolyn Dineen King. You can listen here.

In my first post, I considered the arguments presented concerning standing. In this post, I will focus on the arguments presented concerning whether the individual mandate is constitutional. 

California (represented by Samuel Siegel) and the House of Representatives (represented by Douglas Letter) did not contend that the ACA’s individual mandate could be supported by Congress’s powers under the Commerce and Necessary and Proper Clauses. Nor could they. That result was foreclosed by NFIBJudge Elrod’s question (at 13:36) raised this point:

Do you agree that we are not at liberty to uphold this [mandate] based on the commerce or necessary and proper clause, given that there are five votes on the Court against those propositions?”

She’s right. Five Justices in NFIB expressly rejected that position. 

Rather, the intervenors argued that the ACA does not impose a requirement to buy insurance; to the contrary, the law gave covered individuals a choice between purchasing insurance and paying a modest, non-coercive tax. In other words, it is irrelevant whether Congress has the power to enact a mandate to purchase insurance, because Congress did not enact such a mandate. (Professor Marty Lederman summarizes this position in a post, aptly titled “There is no ‘mandate.'”) Therefore, it is completely irrelevant what Congress did with the 2017 Tax Cuts and Jobs Act (TCJA). The “choice” architecture has remained constant. Before 2018, people had a choice: buy insurance or  pay a tax of approximately $700. After 2018, the alternate choice became paying a tax of $0.  

Douglas Letter articulated this position during the oral arguments:

LetterThe Supreme Court majority [in NFIB] said there is a choice. You either shall maintain insurance or you shall pay this tax penalty. [Through the 2017 TCJA,] Congress has now said, we don’t want there to be any tax penalty. We want the American people to continue having a choice.

Indeed, Letter argued that this reading was the only permissible reading of NFIB:

Letter: With the proper respect here, you must rule this way because the Supreme court told us in NFIB what the statute means and in 2017 Congress said what it meant in the text and we know.

His reading of NFIB is a common one. Indeed, I have encountered it numerous times over the past seven years while teaching and writing about NFIB. Respectfully, it is an incorrect reading. Chief Justice Roberts only accepted the “choice” argument as part of the saving construction in Part III.C of his controlling opinion. However, that portion of his opinion is no longer controlling because Section 5000A can no longer be reasonably read as imposing a tax. Why? The penalty, which was reduced to $0, now raises no revenue. Part III.A, which held that the “most natural” reading of Section 5000A–imposing an unconstitutional command to buy insurance–is now the controlling opinion. 

To understand why Part III.C is no longer controlling, and why the choice architecture has crumbled, we need to take a stroll down memory lane. This post will quote at some length from my 2013 book, Unprecedented. I do so to demonstrate that the injury-in-fact debate in Texas is not new. It was resolved seven years ago. 

I agree with Chief Justice Roberts that  Section 5000A “reads more naturally as a command to buy insurance than [offering people a choice to pay] . . . a tax.” As a threshold matter, the notion that Section 5000A did not impose a mandate, but merely offered people a “choice” was manufactured at some point after the ACA was enacted. This argument was not made, publicly at least, while the law was being debated in 2009 and 2010.

During oral arguments, Judge Engeldhardt posed this question to Samuel Siegel, the lawyer for California (at 19:36):

Judge Engelhardt: Where are the statements from those who voted in 2010 saying, no worries, the individual mandate isn’t really a mandate? Even though it says shall, we are voting on it today, and citizens, this is an option, you can pay a tax, or you can buy the insurance… Where are the statements from 2010, saying don’t worry about the individual mandate, it’s actually not something that requires you to buy insurance.

California: I don’t know where those statements might be.

While writing Unprecedented, I searched the legislative history of the ACA to find support for the contention that Section 5000A imposed a “choice,” rather than a mandate. I couldn’t find anything. (I do not think the existence of such legislative history is necessary to resolve this question, but there are those who do find it useful.) I posed the same question to the ACA’s most ardent defenders, including Obama administration officials. They could point to nothing. I remain open to being persuaded otherwise, if anyone can point to any contemporaneous discussion from before March 2010 advancing the “choice” reading of Section 5000A.

Before the Supreme Court, Solicitor General Verrilli advanced the “choice” argument. This position emerged from Judge Kavanaugh’s dissent in Seven-Sky v. Holder. From p. 158 of Unprecedented:

Kavanaugh, however, made a point in passing that was not lost on the solicitor general. A statute similar to the one Congress enacted, but without the individual mandate, said the judge, would be absolutely constitutional. Kavanaugh reasoned that a “minor tweak to the current statutory language would definitively establish the law’s constitutionality under the Taxing Clause (and thereby moot any need to consider the Commerce Clause).” By “eliminat[ing] the legal mandate language”—that is, by deleting a single sentence—the statute would be transformed from a command on people to purchase insurance to a mere tax on those who do not have insurance. The former was of dubious constitutionality, but the latter would be well within Congress’s powers. Kavanaugh was echoing Justice Stone’s whisper to Frances Perkins, “The taxing power of the Federal Government, my dear, the taxing power is sufficient for everything you want and need.” Like Frances Perkins before him, the solicitor general listened carefully. Simply eliminating one sentence—the mandate—would save the law. With an assist from Judge Kavanaugh, the solicitor general advanced this very argument at the Supreme Court.

(You can read the entire chapter here.)

After Judge Kavanaugh’s opinion, I noted, the government’s thinking shifted (at p. 163):

The decision to take a second look at the taxing power came from the top. One reporter who covers the Supreme Court told me that Verrilli personally “insisted on pushing” it. Of course, the “obvious problem” was that the word “tax” was not in the individual mandate provision. The word used was “penalty.” “Apart from that,” I was told by a senior DOJ official with no irony, that the tax argument “had a lot going for it.” Judge Kavanaugh’s opinion convinced the Solicitor General’s office that the “tax argument might be a more conservative and judicially restrained basis to act to uphold as a tax.” The “nomenclature was the only serious impediment to winning.” Despite this problem, the solicitor general believed that characterizing the mandate as a choice between maintaining insurance and paying a tax was not only a way of avoiding a serious constitutional question, but indeed the best reading of the law. Though it “wasn’t ideal,” the government determined that it “could manage” this argument. And the key to solving that problem of nomenclature fell directly on the shoulders of Donald Verrilli, with Judge Kavanaugh being credited with the “assist.”

The choice argument is not new. Solicitor General Verrilli advanced this argument to the Supreme Court in 2012 (at p. 179):

Verrilli pushed back against any questions about the mandate and rejected any assertions that it was an “entirely stand-alone” requirement to buy insurance. As the government noted in its brief, citing the opinion of Judge Kavanaugh from the D.C. Circuit,”To the extent the constitutionality of [the act] depends on whether [the minimum coverage provision] creates an independent legal obligation [a mandate], the Court should construe it not to do so.” In other words, in order to save the ACA, the Court should read the mandate to not be an actual mandate

Here is how Verrilli articulated the position in his brief:

Even in Judge Kavanaugh’s view, however, a “minor tweak to the current statutory language would definitively establish the law’s constitutionality under the Taxing Clause.” Seven-Sky, 661 F.3d at 48. He suggested, for example, that Congress might retain the exactions and payment amounts as they are but eliminate the legal mandate language in Section 5000A, instead providing some- thing to the effect of: “An applicable individual without minimum essential coverage must make a payment to the IRS on his or her tax return in the amounts listed in Section 5000A(c).” Id. at 49. 

In fact, no “minor tweak to the current statutory language” (Seven-Sky, 661 F.3d at 48 (Kavanaugh, dissenting)) is required because Section 5000A as currently drafted is materially indistinguishable from Judge Kavanaugh’s proposed revision. Statutory provisions “must be read in * * * context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (quoting Davis v. Michigan Dep’t of the Treasury, 489 U.S. 803, 809 (1989)). When understood as an exercise of Congress’s power over taxation and read in the context of Section 5000A as a whole, subsection (a) serves only as the predicate for tax consequences imposed by the rest of the section. It serves no other purpose in the statutory scheme. Section 5000A imposes no consequence other than a tax penalty for a taxpayer’s failure to maintain minimum coverage, and it thus establishes no independently enforceable legal obligation..

Had the Supreme Court accepted Verrilli’s argument, and found that “Section 5000A as currently drafted is materially indistinguishable from Judge Kavanaugh’s proposed revision,” then the mandate challenge in Texas v. United States would be without merit: the plaintiffs cannot challenge the individual mandate because there is no individual mandate! Letter and Lederman advanced this position. But the Court did not make such a holding. We know the Court did not make this holding because of the structure of Part III.A, III.B, III.C, and III.D of Chief Justice Roberts’s controlling opinion. 

I offered the following description of this structure on pp. 9-11 of my article, Undone (which was cited by Judge O’Connor): 

In Part III.A.1, the Chief Justice found that the individual mandate “cannot be sustained under a clause authorizing Congress to ‘regulate Commerce.'” In Part III.A.2, the Chief Justice concluded that the mandate cannot be “upheld as a ‘necessary and proper’ component of the insurance reforms.” That is, Congress could not mandate that people purchase insurance in order to implement the guaranteed-issue and community-rating provisions—the guards against adverse selection. However, “[t]hat [was] not the end of the matter.” 

In Part III.B, the Chief Justice considered if “the mandate may be upheld as within Congress’s enumerated power to ‘lay and collect Taxes.'” He posited that “if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax.” Yet, he rejected that conclusion: “The most straightforward reading of the mandate is that it commands individuals to purchase insurance.” Therefore, the shared responsibility payment was not a tax. Still, that observation was not the end of the matter.

In Part III.C., the Chief Justice developed the so-called “saving construction.” He explained that “[t]he exaction the Affordable Care Act imposes on those without health insurance”—that is, the penalty that was not actually a tax—”looks like a tax in many respects.” The Chief Justice then listed three guardrails in which the “exaction”—that is, the shared responsibility payment—can be construed as a tax. First, “[t]he ‘[s]hared responsibility payment,’ as the statute entitles it, is paid into the Treasury by ‘taxpayer[s]’ when they file their tax returns.” Second, “[f]or taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status.” Third, “[t]his process” of making the payments, “yields the essential feature of any tax: It produces at least some revenue for the Government. . . . Indeed, the payment is expected to raise about $4 billion per year by 2017.” These three guardrails are essential to the saving construction.

Finally, the controlling opinion acknowledged that the shared responsibility payment can still be saved as a tax, despite the fact that it was primarily designed to “affect individual conduct,” not to raise revenue. However, that design cannot be achieved unless, in the first instance, the payment can be saved as a tax. Why? All of the exactions cited by the Chief Justice raised revenue as the means to “affect individual conduct.” In other words, people modified their conduct to avoid having to pay extra money to the government. For example, “federal and state taxes can compose more than half the retail price of cigarettes, not just to raise more money, but to encourage people to quit smoking.” Some people will quit smoking to avoid having to pay the taxes, but even those who continue smoking will pay the tax. But Congress must have the power to enact the exaction in the first place. Critically, Justice Ginsburg, as well as Justices Breyer, Sotomayor, and Kagan, joined Part III–C of the Chief Justice’s opinion. As a result, there were five votes for the proposition that the individual mandate could be upheld as an exercise of Congress’s Taxing Power.

I’ve created a diagram to explain Part III of Chief Justice Roberts’s controlling opinion.

The Structure of NFIB v. Sebelius
The Structure of NFIB v. Sebelius

During oral argument, Texas Solicitor General Kyle Hawkins concisely explained why Part III.A is the only relevant portion of NFIB; parts III.B and III.C are now irrelevant:  (starting at 56:36)

Hawkins: My friend Mr. Letter is seriously misreading the Supreme Court’s decision in NFIB. NFIB holds that the individual mandate is unlawful. It holds that 5000A(a) is best read as a command to buy insurance. And it held that that command, despite being unlawful, can only be saved if it is fairly possible to read the law as a tax. It follows, if the law cannot fairly be read as a tax, then the original holding stands and the mandate is unlawful. I think it is crucial to understand the structure of Chief Justice Roberts opinion to see how he gets there. In Part III.A of Chief Justice Roberts’s opinion, he looks at the mandate. Only the mandate. Not the penalty. He says that the best way to read that is as a command to buy insurance. And then he says two things about it… That it’s a command to buy insurance. And two, that command cannot be justified by the Commerce Clause or by the Necessary and Proper Clause. That’s the end of III.A. He then shifts gears. In III.B and III.C of his opinion, where he says, given our holding in Part III.A we need to determine whether there is some way to save the individual mandate. And that’s what he finds out in III.B and III.C is that given the fact that there is a penalty provision, and given that the penalty is raising revenue for the government, he says that we can glue the individual mandate provision to the penalty provision, and once they are glued together, then they function as a tax. Such that the law can be saved by construing it as a tax, and that tax is available under the federal government’s taxing power.  Now what happened in 2017 is Congress took away everything that supported III.B and III.C of Chief Justice Roberts’s opinion. This [penalty] is no longer raising any revenue for the federal government. It no longer can be fairly characterized as a tax. So in light of the Tax Cuts and Jobs Act, Part III.B and IIII.C of Chief Justice Roberts’s opinion are irrelevant. The only thing we are left with then is Part III.A of Chief Justice Roberts’s opinion, where he holds that is a command to buy insurance.

At that point, Judge Elrod asked if the court should “sever” Parts III.B and III.C from NFIB. Exactly! I framed the analysis this way in Undone:

Therefore, the predicate of Part III.C of the controlling opinion in NFIB is no longer relevant. Or, to put it differently, Part III.C has now been severed from the opinion.

Virtually every critic of Texas treats Part III.C as controlling. It isn’t. Indeed, all of Chief Justice Roberts’s observations in Part III.C were hedged, offered as conditional statements. For example:

  • “While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful.”
  • “That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws.”
  • “It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.”

None of these statements are premised on the best reading of the ACA; rather, they can only be supported in light of the saving construction; a construction that is no longer permissible. Part III.A held that the mandate was unconstitutional. Section 5000A was only saved by virtue of that saving construction.(I am perplexed by co-blogger Jonathan Adler’s assertion that Randy and I argued that the mandate was somehow “resuscitated” by the 2017 tax bill. Zeroing out the penalty in no way affected the mandate, which was a separate statutory provision. Indeed, we made the exact opposite claim: the mandate has been unconstitutional since 2012.)

Hawkins offered this explanation: 

Hawkins: Your honor, I think we read the Supreme Court’s opinion fairly in light of subsequent events. It is crucial to do so here. The entire basis for III.B and III.C is now off the table. Now Chief Justice Roberts in IIIA holds that this is a command, not justifiable. That is fully supported by the four dissenting Justices. There is no doubt, there were five votes, that it is a command not justifiable by the commerce power or necessary and proper clause. 

Perhaps you don’t believe me. Maybe you argue that this reading of NFIB is incorrect, and that Part III.C is still the holding, regardless of the saving construction. If so, look no further than Part III.D of NFIB. It is only two paragraphs, but Chief Justice Roberts explains the structure of his own opinion:

Justice Ginsburg questions the necessity of rejecting the Government’s commerce power argument, given that §5000A can be upheld under the taxing power. But the statute reads more naturally as a command to buy insurance than as a tax, and I would uphold it as a command if the Constitution allowed it. It is only because the Commerce Clause does not authorize such a command that it is necessary to reach the taxing power question. And it is only because we have a duty to construe a statute to save it, if fairly possible, that §5000A can be interpreted as a tax. Without deciding the Commerce Clause question, I would find no basis to adopt such a saving construction. The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.

Section 5000A can no longer “reasonably be read as a tax.” Therefore, we are left with a statute that “reads more naturally as a command to buy insurance.” And “[t]he Federal Government does not have the power to order people to buy health insurance.” As a result, Section 5000A(a) is now unconstitutional because it “read[s] as a command.”

Part III.C of NFIB saved Section 5000A as a whole–with the mandate and penalty glued together as a “tax” on going uninsured. That opinion did not hold that the mandate (Section 5000A(a)), in particular, was constitutional. Kyle Hawkins, the Texas Solicitor General, explained this premise during oral argument:

Hawkins: The best evidence that I’m right about this is Justice GInsburg’s dissent. In dissent she faults Chief Justice Roberts for discussing the commerce clause, for reaching the commerce clause holding. Justice Ginsburg said, look, this is obviously is a tax, and just say that it is a tax and be done with it. We don’t have to say anything about the commerce clause. But Chief Justice Roberts rejected that. And this is in Part III.D of his opinion. He responds to Justice Ginsburg III.D and he says, no, I have to reach a commerce clause holding because this is best read as a command to buy insurance. So I have … to give it the best reading possible. Then I have to assess whether that best reading is constitutional or not. And only after doing that analysis, then do I get to the taxing issue. I think that interplay between Chief Justice Roberts and Justice Ginsburg shows that our reading is correct, and the other side’s reading is incorrect because it elides the differences between those four different parts of Section III of Chief Justice Roberts’s opinion. 

At bottom, NFIB held that Section 5000A(a) creates a free-standing obligation. That obligation was unconstitutional in 2012. It was unconstitutional in 2017. And it is unconstitutional in 2019. Section 5000A(a) could be read as offering a “choice” to taxpayers from 2012 through 2017. Chief Justice Roberts reached this conclusion, as did then-Judge Kavanaugh. But Section 5000A(a) can no longer be read that way. Now, under the reasoning of both Roberts and Kavanaugh, plus that of the remaining joint-dissenters (Justices Thomas and Alito), Section 5000A(a) imposes an unconstitutional command to buy insurance.

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The Affordable Care Act Imposes A Mandate. Not a Choice.

On July 9, the 5th Circuit Court of Appeals heard oral argument in Texas v. United States. The three members on the panel were Judges Jennifer Walker Elrod, Kurt D. Engelhardt, and Carolyn Dineen King. You can listen here.

In my first post, I considered the arguments presented concerning standing. In this post, I will focus on the arguments presented concerning whether the individual mandate is constitutional. 

California (represented by Samuel Siegel) and the House of Representatives (represented by Douglas Letter) did not contend that the ACA’s individual mandate could be supported by Congress’s powers under the Commerce and Necessary and Proper Clauses. Nor could they. That result was foreclosed by NFIBJudge Elrod’s question (at 13:36) raised this point:

Do you agree that we are not at liberty to uphold this [mandate] based on the commerce or necessary and proper clause, given that there are five votes on the Court against those propositions?”

She’s right. Five Justices in NFIB expressly rejected that position. 

Rather, the intervenors argued that the ACA does not impose a requirement to buy insurance; to the contrary, the law gave covered individuals a choice between purchasing insurance and paying a modest, non-coercive tax. In other words, it is irrelevant whether Congress has the power to enact a mandate to purchase insurance, because Congress did not enact such a mandate. (Professor Marty Lederman summarizes this position in a post, aptly titled “There is no ‘mandate.'”) Therefore, it is completely irrelevant what Congress did with the 2017 Tax Cuts and Jobs Act (TCJA). The “choice” architecture has remained constant. Before 2018, people had a choice: buy insurance or  pay a tax of approximately $700. After 2018, the alternate choice became paying a tax of $0.  

Douglas Letter articulated this position during the oral arguments:

LetterThe Supreme Court majority [in NFIB] said there is a choice. You either shall maintain insurance or you shall pay this tax penalty. [Through the 2017 TCJA,] Congress has now said, we don’t want there to be any tax penalty. We want the American people to continue having a choice.

Indeed, Letter argued that this reading was the only permissible reading of NFIB:

Letter: With the proper respect here, you must rule this way because the Supreme court told us in NFIB what the statute means and in 2017 Congress said what it meant in the text and we know.

His reading of NFIB is a common one. Indeed, I have encountered it numerous times over the past seven years while teaching and writing about NFIB. Respectfully, it is an incorrect reading. Chief Justice Roberts only accepted the “choice” argument as part of the saving construction in Part III.C of his controlling opinion. However, that portion of his opinion is no longer controlling because Section 5000A can no longer be reasonably read as imposing a tax. Why? The penalty, which was reduced to $0, now raises no revenue. Part III.A, which held that the “most natural” reading of Section 5000A–imposing an unconstitutional command to buy insurance–is now the controlling opinion. 

To understand why Part III.C is no longer controlling, and why the choice architecture has crumbled, we need to take a stroll down memory lane. This post will quote at some length from my 2013 book, Unprecedented. I do so to demonstrate that the injury-in-fact debate in Texas is not new. It was resolved seven years ago. 

I agree with Chief Justice Roberts that  Section 5000A “reads more naturally as a command to buy insurance than [offering people a choice to pay] . . . a tax.” As a threshold matter, the notion that Section 5000A did not impose a mandate, but merely offered people a “choice” was manufactured at some point after the ACA was enacted. This argument was not made, publicly at least, while the law was being debated in 2009 and 2010.

During oral arguments, Judge Engeldhardt posed this question to Samuel Siegel, the lawyer for California (at 19:36):

Judge Engelhardt: Where are the statements from those who voted in 2010 saying, no worries, the individual mandate isn’t really a mandate? Even though it says shall, we are voting on it today, and citizens, this is an option, you can pay a tax, or you can buy the insurance… Where are the statements from 2010, saying don’t worry about the individual mandate, it’s actually not something that requires you to buy insurance.

California: I don’t know where those statements might be.

While writing Unprecedented, I searched the legislative history of the ACA to find support for the contention that Section 5000A imposed a “choice,” rather than a mandate. I couldn’t find anything. (I do not think the existence of such legislative history is necessary to resolve this question, but there are those who do find it useful.) I posed the same question to the ACA’s most ardent defenders, including Obama administration officials. They could point to nothing. I remain open to being persuaded otherwise, if anyone can point to any contemporaneous discussion from before March 2010 advancing the “choice” reading of Section 5000A.

Before the Supreme Court, Solicitor General Verrilli advanced the “choice” argument. This position emerged from Judge Kavanaugh’s dissent in Seven-Sky v. Holder. From p. 158 of Unprecedented:

Kavanaugh, however, made a point in passing that was not lost on the solicitor general. A statute similar to the one Congress enacted, but without the individual mandate, said the judge, would be absolutely constitutional. Kavanaugh reasoned that a “minor tweak to the current statutory language would definitively establish the law’s constitutionality under the Taxing Clause (and thereby moot any need to consider the Commerce Clause).” By “eliminat[ing] the legal mandate language”—that is, by deleting a single sentence—the statute would be transformed from a command on people to purchase insurance to a mere tax on those who do not have insurance. The former was of dubious constitutionality, but the latter would be well within Congress’s powers. Kavanaugh was echoing Justice Stone’s whisper to Frances Perkins, “The taxing power of the Federal Government, my dear, the taxing power is sufficient for everything you want and need.” Like Frances Perkins before him, the solicitor general listened carefully. Simply eliminating one sentence—the mandate—would save the law. With an assist from Judge Kavanaugh, the solicitor general advanced this very argument at the Supreme Court.

(You can read the entire chapter here.)

After Judge Kavanaugh’s opinion, I noted, the government’s thinking shifted (at p. 163):

The decision to take a second look at the taxing power came from the top. One reporter who covers the Supreme Court told me that Verrilli personally “insisted on pushing” it. Of course, the “obvious problem” was that the word “tax” was not in the individual mandate provision. The word used was “penalty.” “Apart from that,” I was told by a senior DOJ official with no irony, that the tax argument “had a lot going for it.” Judge Kavanaugh’s opinion convinced the Solicitor General’s office that the “tax argument might be a more conservative and judicially restrained basis to act to uphold as a tax.” The “nomenclature was the only serious impediment to winning.” Despite this problem, the solicitor general believed that characterizing the mandate as a choice between maintaining insurance and paying a tax was not only a way of avoiding a serious constitutional question, but indeed the best reading of the law. Though it “wasn’t ideal,” the government determined that it “could manage” this argument. And the key to solving that problem of nomenclature fell directly on the shoulders of Donald Verrilli, with Judge Kavanaugh being credited with the “assist.”

The choice argument is not new. Solicitor General Verrilli advanced this argument to the Supreme Court in 2012 (at p. 179):

Verrilli pushed back against any questions about the mandate and rejected any assertions that it was an “entirely stand-alone” requirement to buy insurance. As the government noted in its brief, citing the opinion of Judge Kavanaugh from the D.C. Circuit,”To the extent the constitutionality of [the act] depends on whether [the minimum coverage provision] creates an independent legal obligation [a mandate], the Court should construe it not to do so.” In other words, in order to save the ACA, the Court should read the mandate to not be an actual mandate

Here is how Verrilli articulated the position in his brief:

Even in Judge Kavanaugh’s view, however, a “minor tweak to the current statutory language would definitively establish the law’s constitutionality under the Taxing Clause.” Seven-Sky, 661 F.3d at 48. He suggested, for example, that Congress might retain the exactions and payment amounts as they are but eliminate the legal mandate language in Section 5000A, instead providing some- thing to the effect of: “An applicable individual without minimum essential coverage must make a payment to the IRS on his or her tax return in the amounts listed in Section 5000A(c).” Id. at 49. 

In fact, no “minor tweak to the current statutory language” (Seven-Sky, 661 F.3d at 48 (Kavanaugh, dissenting)) is required because Section 5000A as currently drafted is materially indistinguishable from Judge Kavanaugh’s proposed revision. Statutory provisions “must be read in * * * context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (quoting Davis v. Michigan Dep’t of the Treasury, 489 U.S. 803, 809 (1989)). When understood as an exercise of Congress’s power over taxation and read in the context of Section 5000A as a whole, subsection (a) serves only as the predicate for tax consequences imposed by the rest of the section. It serves no other purpose in the statutory scheme. Section 5000A imposes no consequence other than a tax penalty for a taxpayer’s failure to maintain minimum coverage, and it thus establishes no independently enforceable legal obligation..

Had the Supreme Court accepted Verrilli’s argument, and found that “Section 5000A as currently drafted is materially indistinguishable from Judge Kavanaugh’s proposed revision,” then the mandate challenge in Texas v. United States would be without merit: the plaintiffs cannot challenge the individual mandate because there is no individual mandate! Letter and Lederman advanced this position. But the Court did not make such a holding. We know the Court did not make this holding because of the structure of Part III.A, III.B, III.C, and III.D of Chief Justice Roberts’s controlling opinion. 

I offered the following description of this structure on pp. 9-11 of my article, Undone (which was cited by Judge O’Connor): 

In Part III.A.1, the Chief Justice found that the individual mandate “cannot be sustained under a clause authorizing Congress to ‘regulate Commerce.'” In Part III.A.2, the Chief Justice concluded that the mandate cannot be “upheld as a ‘necessary and proper’ component of the insurance reforms.” That is, Congress could not mandate that people purchase insurance in order to implement the guaranteed-issue and community-rating provisions—the guards against adverse selection. However, “[t]hat [was] not the end of the matter.” 

In Part III.B, the Chief Justice considered if “the mandate may be upheld as within Congress’s enumerated power to ‘lay and collect Taxes.'” He posited that “if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax.” Yet, he rejected that conclusion: “The most straightforward reading of the mandate is that it commands individuals to purchase insurance.” Therefore, the shared responsibility payment was not a tax. Still, that observation was not the end of the matter.

In Part III.C., the Chief Justice developed the so-called “saving construction.” He explained that “[t]he exaction the Affordable Care Act imposes on those without health insurance”—that is, the penalty that was not actually a tax—”looks like a tax in many respects.” The Chief Justice then listed three guardrails in which the “exaction”—that is, the shared responsibility payment—can be construed as a tax. First, “[t]he ‘[s]hared responsibility payment,’ as the statute entitles it, is paid into the Treasury by ‘taxpayer[s]’ when they file their tax returns.” Second, “[f]or taxpayers who do owe the payment, its amount is determined by such familiar factors as taxable income, number of dependents, and joint filing status.” Third, “[t]his process” of making the payments, “yields the essential feature of any tax: It produces at least some revenue for the Government. . . . Indeed, the payment is expected to raise about $4 billion per year by 2017.” These three guardrails are essential to the saving construction.

Finally, the controlling opinion acknowledged that the shared responsibility payment can still be saved as a tax, despite the fact that it was primarily designed to “affect individual conduct,” not to raise revenue. However, that design cannot be achieved unless, in the first instance, the payment can be saved as a tax. Why? All of the exactions cited by the Chief Justice raised revenue as the means to “affect individual conduct.” In other words, people modified their conduct to avoid having to pay extra money to the government. For example, “federal and state taxes can compose more than half the retail price of cigarettes, not just to raise more money, but to encourage people to quit smoking.” Some people will quit smoking to avoid having to pay the taxes, but even those who continue smoking will pay the tax. But Congress must have the power to enact the exaction in the first place. Critically, Justice Ginsburg, as well as Justices Breyer, Sotomayor, and Kagan, joined Part III–C of the Chief Justice’s opinion. As a result, there were five votes for the proposition that the individual mandate could be upheld as an exercise of Congress’s Taxing Power.

I’ve created a diagram to explain Part III of Chief Justice Roberts’s controlling opinion.

The Structure of NFIB v. Sebelius
The Structure of NFIB v. Sebelius

During oral argument, Texas Solicitor General Kyle Hawkins concisely explained why Part III.A is the only relevant portion of NFIB; parts III.B and III.C are now irrelevant:  (starting at 56:36)

Hawkins: My friend Mr. Letter is seriously misreading the Supreme Court’s decision in NFIB. NFIB holds that the individual mandate is unlawful. It holds that 5000A(a) is best read as a command to buy insurance. And it held that that command, despite being unlawful, can only be saved if it is fairly possible to read the law as a tax. It follows, if the law cannot fairly be read as a tax, then the original holding stands and the mandate is unlawful. I think it is crucial to understand the structure of Chief Justice Roberts opinion to see how he gets there. In Part III.A of Chief Justice Roberts’s opinion, he looks at the mandate. Only the mandate. Not the penalty. He says that the best way to read that is as a command to buy insurance. And then he says two things about it… That it’s a command to buy insurance. And two, that command cannot be justified by the Commerce Clause or by the Necessary and Proper Clause. That’s the end of III.A. He then shifts gears. In III.B and III.C of his opinion, where he says, given our holding in Part III.A we need to determine whether there is some way to save the individual mandate. And that’s what he finds out in III.B and III.C is that given the fact that there is a penalty provision, and given that the penalty is raising revenue for the government, he says that we can glue the individual mandate provision to the penalty provision, and once they are glued together, then they function as a tax. Such that the law can be saved by construing it as a tax, and that tax is available under the federal government’s taxing power.  Now what happened in 2017 is Congress took away everything that supported III.B and III.C of Chief Justice Roberts’s opinion. This [penalty] is no longer raising any revenue for the federal government. It no longer can be fairly characterized as a tax. So in light of the Tax Cuts and Jobs Act, Part III.B and IIII.C of Chief Justice Roberts’s opinion are irrelevant. The only thing we are left with then is Part III.A of Chief Justice Roberts’s opinion, where he holds that is a command to buy insurance.

At that point, Judge Elrod asked if the court should “sever” Parts III.B and III.C from NFIB. Exactly! I framed the analysis this way in Undone:

Therefore, the predicate of Part III.C of the controlling opinion in NFIB is no longer relevant. Or, to put it differently, Part III.C has now been severed from the opinion.

Virtually every critic of Texas treats Part III.C as controlling. It isn’t. Indeed, all of Chief Justice Roberts’s observations in Part III.C were hedged, offered as conditional statements. For example:

  • “While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful.”
  • “That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws.”
  • “It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.”

None of these statements are premised on the best reading of the ACA; rather, they can only be supported in light of the saving construction; a construction that is no longer permissible. Part III.A held that the mandate was unconstitutional. Section 5000A was only saved by virtue of that saving construction.(I am perplexed by co-blogger Jonathan Adler’s assertion that Randy and I argued that the mandate was somehow “resuscitated” by the 2017 tax bill. Zeroing out the penalty in no way affected the mandate, which was a separate statutory provision. Indeed, we made the exact opposite claim: the mandate has been unconstitutional since 2012.)

Hawkins offered this explanation: 

Hawkins: Your honor, I think we read the Supreme Court’s opinion fairly in light of subsequent events. It is crucial to do so here. The entire basis for III.B and III.C is now off the table. Now Chief Justice Roberts in IIIA holds that this is a command, not justifiable. That is fully supported by the four dissenting Justices. There is no doubt, there were five votes, that it is a command not justifiable by the commerce power or necessary and proper clause. 

Perhaps you don’t believe me. Maybe you argue that this reading of NFIB is incorrect, and that Part III.C is still the holding, regardless of the saving construction. If so, look no further than Part III.D of NFIB. It is only two paragraphs, but Chief Justice Roberts explains the structure of his own opinion:

Justice Ginsburg questions the necessity of rejecting the Government’s commerce power argument, given that §5000A can be upheld under the taxing power. But the statute reads more naturally as a command to buy insurance than as a tax, and I would uphold it as a command if the Constitution allowed it. It is only because the Commerce Clause does not authorize such a command that it is necessary to reach the taxing power question. And it is only because we have a duty to construe a statute to save it, if fairly possible, that §5000A can be interpreted as a tax. Without deciding the Commerce Clause question, I would find no basis to adopt such a saving construction. The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonably be read as a tax.

Section 5000A can no longer “reasonably be read as a tax.” Therefore, we are left with a statute that “reads more naturally as a command to buy insurance.” And “[t]he Federal Government does not have the power to order people to buy health insurance.” As a result, Section 5000A(a) is now unconstitutional because it “read[s] as a command.”

Part III.C of NFIB saved Section 5000A as a whole–with the mandate and penalty glued together as a “tax” on going uninsured. That opinion did not hold that the mandate (Section 5000A(a)), in particular, was constitutional. Kyle Hawkins, the Texas Solicitor General, explained this premise during oral argument:

Hawkins: The best evidence that I’m right about this is Justice GInsburg’s dissent. In dissent she faults Chief Justice Roberts for discussing the commerce clause, for reaching the commerce clause holding. Justice Ginsburg said, look, this is obviously is a tax, and just say that it is a tax and be done with it. We don’t have to say anything about the commerce clause. But Chief Justice Roberts rejected that. And this is in Part III.D of his opinion. He responds to Justice Ginsburg III.D and he says, no, I have to reach a commerce clause holding because this is best read as a command to buy insurance. So I have … to give it the best reading possible. Then I have to assess whether that best reading is constitutional or not. And only after doing that analysis, then do I get to the taxing issue. I think that interplay between Chief Justice Roberts and Justice Ginsburg shows that our reading is correct, and the other side’s reading is incorrect because it elides the differences between those four different parts of Section III of Chief Justice Roberts’s opinion. 

At bottom, NFIB held that Section 5000A(a) creates a free-standing obligation. That obligation was unconstitutional in 2012. It was unconstitutional in 2017. And it is unconstitutional in 2019. Section 5000A(a) could be read as offering a “choice” to taxpayers from 2012 through 2017. Chief Justice Roberts reached this conclusion, as did then-Judge Kavanaugh. But Section 5000A(a) can no longer be read that way. Now, under the reasoning of both Roberts and Kavanaugh, plus that of the remaining joint-dissenters (Justices Thomas and Alito), Section 5000A(a) imposes an unconstitutional command to buy insurance.

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Trick Or Treat? Less Than Half Of Brits Believe UK Will Leave The EU On Oct 31

Authored by Mike Shedlock via MishTalk,

The EU thinks there is an 80% chance of no deal. Yet, less than 50% of the UK thinks the UK will leave at all.

Will Boris Johnson Really Leave the EU?

Boris Johnson’s pitch throughout the Conservative leadership election has been that October 31st is a hard deadline for Brexit. Having already seen two deadlines come and go, the former Foreign Secretary declared delivering on this third date will be “do or die”.

The public doesn’t buy it, however.

New YouGov Tracker Data finds that 56% think it’s unlikely that the UK will have left the EU by the end of October. This is twice the number (27%) who think it’s likely.

EU Believes 80% Chance of No Deal

Meanwhile, the EU Believes there’s an 80% Chance of No Deal.

Brussels fears his campaign rhetoric and pledges on the backstop and leaving on October 31 “do or die” have made a compromise solution near impossible.

They are now bracing for ill-tempered talks with the new PM over the summer – and having to “shoot down” ideas already tested and discarded by Mrs May.

Member States now expect an EU Council summit on October 17 to become all about crisis planning for a crash out at the end of the month.

Officials also dismissed Mr Johnson’s bid to seek a tariff and quota free “standstill” trading arrangement with the EU in the event on No Deal.

Instead, they said the new PM would have to negotiate similar market access terms to those contained in the backstop, only on a “worse basis”.

Crash Out? Worse Basis?

For starters it will not be a “crash out”. It will be a “WTO out”.

If the EU is foolish enough to insist on a worse basis, then they will not get any Brexit Exit Fee payment from Johnson.

Who’s Bluffing Whom?

It’s difficult to know if the EU is just posturing or if they really intend to make themselves more miserable than the UK.

The notion the UK will be hurt more by Brexit is nonsensical. But if the EU really believes that, they may go for it.

All we know now is what the sides say they will do. As the clock ticks down, what will the EU and Johnson really do?

I happen to believe Johnson and I am now of the opinion that 80% is about right.

Delusional Remainers

Remainers, Labour, and Liberal Democrats are completely oblivious to reality.

Perhaps they think Boris will seek an extension. Other than a couple weeks to tie up loose ends, forget about it.

Nor can Parliament stop Brexit.

All Parliament can do, but it better act immediately, is force an election in time to matter, then win that vote.

That’s quite the parlay and it might be impossible after July 25. It will be impossible, even under the most favorable assumptions after September 10.

For further discussion, please see UK Foreign Minister in Bizarre Plot to Persuade the Queen to Reject Johnson.

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Amazon Plows Into Real Estate Market With Realogy Pact To Transform Homebuying Process

Unhappy with its market share in the US real estate market, the largest online retailer in the world and global commercial monopolist, Amazon, announced a deal on Tuesday morning with the largest US residential real estate brokerage company, Realogy, in a strategy designed to boost sales for both.

As CNBC reports, Realogy – whose stock soared 25% – and Amazon will now offer TurnKey, a horizontally and vertically integrated program meant to streamline and optimize the home- and furniture-buying process, by taking potential homebuyers through the Amazon portal and connects them to a Realogy agent. Once they purchase a home, they then get complimentary Amazon Home Services and products worth up to $5,000.

Realogy, which is the largest real estate broker in the US and which owns such brands as Coldwell Banker, Century 21, Sotheby’s International Realty, Corcoran, ERA and Better Homes and Gardens Real Estate, has been facing stiff online competition from newcomers like Compass and Redfin, which rely heavily on high-tech, online platforms. As CNBC’s Diana Olick writes, “partnering with Amazon gives Realogy a platform unlike any other, not to mention access to more buyer data.”

“We’re the market leaders in this industry and we like that position, but you always have to be innovating to stay ahead, you’ve got to be willing to cannibalize yourself, you’ve got to do all the things that a big successful company needs to do to stay on the forefront,” said Realogy CEO Ryan Schneider.

“In a world that is awash with low quality lead generation out there, where you can get real estate leads from millions of online websites, giving an agent and franchisees high-quality leads from a source like Amazon and Realogy together is a real differentiator that’s going to be very powerful for the group.”

The group’s simple strategy for success: Always Be Closing... and then get the buyer to purchase a whole lot of additional stuff as well.

Here’s how it will work:

A potential buyer will go to the TurnKey portal on Amazon and put in information on the type of home they’d like to purchase, the location and price. Amazon then matches them with a Realogy agent. Once the buyer closes on the home, Amazon connects them with services and experts in the area. The buyer not only gets a selection of Amazon Home Services, like painting or hanging a large TV, but they also gain access to smart home products, like a Ring doorbell, to be installed by Amazon professionals. The value of the free products and services can range from $1,000 to $5,000 depending on the purchase price of the home.

“Customers can be overwhelmed when moving, and we’re excited to be working with Realogy to offer homebuyers a simplified way to settle into a new home,” said Pat Bigatel, director of Amazon Home Services. “The Amazon Move-In Benefit will enable homebuyers to adapt the offering to their needs — from help assembling furniture, to assisting with smart home device set up, to a deep clean, and more.”

As CNBC notes, one of the nation’s largest homebuilders, Lennar, previously partnered with Amazon in 2018, introducing smart-home “experience showrooms.” Amazon outfitted Lennar model homes with smart-home technology available for purchase on its site. In something of a show-and-sell strategy, Lennar then offered 90 days of free Amazon home services with the purchase of a home.

“Amazon, Google, Apple, most of the technology-centric companies are starting to think about the home as a centerpiece for the way they think about the future of how their products work and how they interact with them, ” said Stuart Miller, executive chairman of Lennar, in an interview in May 2018. “Home automation is a point of attraction. It’s a proxy for a lot of other things.”

The new TurnKey service will first launch in 15 major metropolitan housing markets, including Seattle, San Francisco, Los Angeles, Atlanta, Dallas, Chicago and Washington, D.C., and will then expand into more markets. However Realogy CEO Ryan Schneider did not suggest that this is a stepping stone to putting Realogy brokerages’ listings on Amazon.

“We’ve never had that conversation with Amazon,” he said.

Of course, when Amazon decides to simply eliminate the middleman, it will do so without holding such a conversation in advance. For now, however, Realogy shares are enjoying the added exposure and the stock has soared over 25% this morning on the Amazon news.

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Stossel: Minimum Wage Hurts Beginners

Seattle was the first big city to pass a $15 minimum wage.

People there were excited.

“I think it’s pretty awesome since I benefit from it,” one told us. Another added: “I wish it was all over the place, not just Seattle.”

Now, five years after the law passed, the evidence is in: While some workers did earn more, entry-levels jobs decreased.

The politicians never mentioned that when they passed the bill, says Erin Shannon of the Washington Policy Center: “It’s really presented by minimum wage advocates as…a win-win for employers…a win-win for workers.”

She pointed us to a factory that moved hundreds of jobs out of state, and to a store that stopped hiring beginners because of the $15 minimum wage.

“The politicians, in Seattle especially, have no sense whatsoever about what it means to small businesses like us,” the owner of Retrofit Home tells us.

A minimum wage hurts young people who need a first job, say three young people who won a contest organized by Stossel in The Classroom, which provides free videos and lesson plans about free markets to teachers.

Dillon Hodes won the high-school-level video contest. He says a friend who worked at Kroger saw her hours cut as the store implemented a $12 minimum.

“Raising the minimum wage causes increased unemployment,” explains Rigel Noble-Koza, the college-level contest winner.

Stossel says he learned things from Noble-Koza’s video, which noted that Iceland, Norway, Sweden, and Switzerland have no national minimum wage.

The minimum wage “stops us from actually getting a job,” says Esther Rhoads, who won the high school essay contest.

She points out that the earliest advocates of the minimum-wage wanted to price black Americans out of the market.

About 100 years ago, blacks were often paid less but they were more likely to be employed than whites. Rep. Miles Clayton Allgood (D–Ala.) said he hoped the minimum wage would stop “cheap colored labor in competition with white labor.”

“It was meant…to keep the poor and the minorities from getting jobs,” Esther tells Stossel.

The minimum wag also harms young people.

Esther explains: “I’m 14. It’d be very difficult for me to find a job—my labor wouldn’t be worth $15 an hour.”

“If only politicians were as smart as those kids,” Stossel says.

The views expressed in this video are solely those of John Stossel; his independent production company, Stossel Productions; and the people he interviews. The claims and opinions set forth in the video and accompanying text are not necessarily those of Reason.

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Stossel: Minimum Wage Hurts Beginners

Seattle was the first big city to pass a $15 minimum wage.

People there were excited.

“I think it’s pretty awesome since I benefit from it,” one told us. Another added: “I wish it was all over the place, not just Seattle.”

Now, five years after the law passed, the evidence is in: While some workers did earn more, entry-levels jobs decreased.

The politicians never mentioned that when they passed the bill, says Erin Shannon of the Washington Policy Center: “It’s really presented by minimum wage advocates as…a win-win for employers…a win-win for workers.”

She pointed us to a factory that moved hundreds of jobs out of state, and to a store that stopped hiring beginners because of the $15 minimum wage.

“The politicians, in Seattle especially, have no sense whatsoever about what it means to small businesses like us,” the owner of Retrofit Home tells us.

A minimum wage hurts young people who need a first job, say three young people who won a contest organized by Stossel in The Classroom, which provides free videos and lesson plans about free markets to teachers.

Dillon Hodes won the high-school-level video contest. He says a friend who worked at Kroger saw her hours cut as the store implemented a $12 minimum.

“Raising the minimum wage causes increased unemployment,” explains Rigel Noble-Koza, the college-level contest winner.

Stossel says he learned things from Noble-Koza’s video, which noted that Iceland, Norway, Sweden, and Switzerland have no national minimum wage.

The minimum wage “stops us from actually getting a job,” says Esther Rhoads, who won the high school essay contest.

She points out that the earliest advocates of the minimum-wage wanted to price black Americans out of the market.

About 100 years ago, blacks were often paid less but they were more likely to be employed than whites. Rep. Miles Clayton Allgood (D–Ala.) said he hoped the minimum wage would stop “cheap colored labor in competition with white labor.”

“It was meant…to keep the poor and the minorities from getting jobs,” Esther tells Stossel.

The minimum wag also harms young people.

Esther explains: “I’m 14. It’d be very difficult for me to find a job—my labor wouldn’t be worth $15 an hour.”

“If only politicians were as smart as those kids,” Stossel says.

The views expressed in this video are solely those of John Stossel; his independent production company, Stossel Productions; and the people he interviews. The claims and opinions set forth in the video and accompanying text are not necessarily those of Reason.

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The Article II Executive Power and the Rule of Law (Part II)

The first post set out a conceptualization of the executive power, the Whig executive, according to which it is the ability to operate in an environment of legal rules that empower and constraint officials but does not itself provide any of those rules.  That post began the argument that the executive power of Article II consists entirely of that ability.  The first step was to point out that the limited view was one well-known understanding at the time of the framing.

The next step is to see that the Whig view was a natural understanding of “executive.”  Some officials “carry into execution,” in the words of the Necessary and Proper Clause, the law in that they conduct the operations of the government.  They transform the abstract rules of the law into actual conduct in the world, from operating post offices to inspecting incoming vessels.

The capacity to perform that function can reasonably be attributed to the executive power itself, which operates whenever the function is performed.  The rules that empower and constrain, by contrast, cannot plausibly be attributed to the executive power.  That concept is far too general to give any specific information about the existence or content of the many roles that implementing officials play.  Article II says nothing about the number or function of park rangers.

The armed forces are part of the executive component of government, subject to the law.  Their composition and funding are determined by Congress, not by Article II.  Commanders, including commanders in chief, are subject to the law.  The President’s status as Commander in Chief establishes civilian control of the forces but does not supply any of the law that governs them.

The Whig understanding of execution fits into the three-part division of government power found in the first sentences of Articles I, II, and III.  Legislative power makes and changes legal rules.  Executive power, which is distinguished from legislative power in the three-way conceptual scheme and separated from it in the Constitution’s institutional structure, is subject to rules made elsewhere.

The Whig understanding of executive power matches the contrast with legislative power so well that it is natural to wonder how anyone would think that it entails anything other than the capacity to proceed according to the law.  Broader understandings of executive power are indeed available, and were at the time of the framing.  Their source is in the British constitutional system.  In that system, the officer who held the executive power as Whigs understood it—who oversaw the operations of the government and carried out the law—was no mere chief civil servant.  The chief executive was the sovereign monarch, with many more powers.  The question about Article II is whether the American executive power includes any of the additional parts of the royal power.

Much of the royal power cannot be attributed to the executive power because it was legislative.  British monarchs held significant authority to make and change the legal rules that governed private people, like the power to set the standard of weights and measures.  All legislative power the Constitution grants is given to Congress, and the Vesting Clause of Article I does not style that grant as an exception to the executive power later given in Article II.  It identifies the legislative as one of the three powers of government and gives Congress so much of it as is held by the United States as opposed to the states.

Articles I and II together cannot be reconciled with the notion that the latter’s executive power is the whole of the royal power, and no one has ever believed that it is.  Rather, proponents of an executive power that goes beyond conducting the government and carrying out the law would include, not all the King’s authority, but control over foreign affairs.  John Locke identified foreign relations as a distinct governmental authority: the federative power.  Locke did not regard the federative as part of the executive power, but maintained that it was usually held by the same officer who carried out the domestic law.  The Article II executive power, goes the reasoning, includes the federative power.

A basic premise of the Constitution is that government power comes in three types, familiar from the first sentences of Articles I, II, and III.  A document that assumed a fourth power would confer it and not simply include it in one of the other three.  The Constitution does not need to confer a fourth power, because the three it does deal with are collectively exhaustive of what government can do, with respect to both domestic and foreign affairs.

That feature of the tripartite division of power can be easy to miss, because the tripartite division breaks the foreign-relations power into pieces.  The actual conduct of foreign relations is indeed an executive function.  Executive officials carry on foreign relations as they carry on all government operations.  Carrying on an operation, however, does not entail making policy about it.  Social Security officials make payments pursuant to statute, and subordinate State Department diplomats negotiate with foreign governments pursuant to instructions given them by their superiors.

Executive power has part of the federative power, but only the part about implementation.  Legislative power can make rules about foreign relations just as it can make other rules, and statutes can prescribe rules for diplomats just as the diplomats’ superiors can.  If the Constitution did nothing more than give Congress legislative power and the President executive power, the President would carry out policy made by statute in both the foreign and domestic arenas.  The federative power would be present in such a system, but would be divided between the legislature and the executive.  The tripartite system is enough, and no fourth power is needed.

The institutional structure the Constitution creates, however, might seem to undercut this conception of executive power.  That structure allocates the three powers to institutions that are politically independent of one another.  The Whig reading entails that executive power brings with it no policy discretion, and is wholly bound by the law.  If executive officials are therefore in an important sense subordinate to the law the legislature makes, why make them independent of the institution that makes the law?

Legislative and executive power do indeed complement one another.  Nevertheless, there are reasons to have an independent chief executive, and additional reasons to have an independent President, who is the chief executive and more.

As to the executive power, implementing officials inevitably will exercise substantial discretion even if the Constitution itself does not confer any on them.  A legislature that can in principle be as detailed as it wishes can in practice specify only so much.  What the legislature cannot specify, implementing officials must decide, so those officials will in fact make important policy choices.  Putting those policy choices under the supervision of a high official with an independent connection to the people is a good way to ensure that they will reflect the people’s will.

Next, an independent executive that administers law made elsewhere is justified on grounds that also support independent courts applying laws made elsewhere.  If the two operational branches are bound by the law, but not otherwise by the will of legislators, then legislators will have to convey their directives through the open channels of the law.  They will be less able to work through back-door communications to politically dependent officials who seek to curry favor with them.

Finally, presidential power goes well beyond executive power.  Perhaps the President’s most important authority is legislative: the veto.  That power justifies making the President accountable to the people through a distinct, and distinctly more national, electoral channel.  Similar reasoning applies to the treaty and pardon powers.  An independent President, and an independent executive, are in accord with the Whig conception of executive power.

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Elon Musk’s Hyperloop Reaches A Record 288 Miles Per Hour…Right Before Exploding

Elon Musk’s futuristic vision for disrupting the world of transportation hit a new milestone yesterday: a Hyperloop test pod hit 288 miles per hour – right before it exploded, according to the Independent.

The incident took place at the 2019 SpaceX Hyperloop pod competition, which is where student teams launch prototype pods through a 1.2 km vacuum tube next to SpaceX headquarters in California. We’re sure this contest definitely isn’t Musk farming out his engineering work to a bunch of his cultists for cheap labor.

The winning team reached the top speed – and then their pod exploded.

The team said on Twitter:

“We are happy to announce that we have reached a top speed of 463 km/h today. Although we lost some parts on the way, we were able to successful finish our run and are proud to be the winners of the 2019 SpaceX Hyperloop Pod Competition.”

When Musk first conceptualized the Hyperloop in 2013, he suggested that vacuum tubes might help move people at more than 500 mph. As the article notes, this latest record is still a long way off from this prediction and is barely on a par with some of the fastest high-speed trains currently in use in China. Except, of course, those trains don’t explode after they reach 250 mph.

The explosion didn’t stop Musk from announcing the new speed record on Twitter and revealing that the 2020 competition would take place in a 10 km vacuum tube “with a curve”.

We wonder if Elon will take the first test ride. 

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Blain: “What Is The World Going To Look Like If Rates Ever Normalize”

Blain’s morning porridge, submitted by Bill Blain of Shard Capital

“Caught in the chaos of the market square, I don’t know what, I don’t know why, but something’s wrong down there… “

As we are about to find out… Jokes aren’t so funny when you find yourself to be the butt. How is a whole country going to feel? I’ve never felt so inclined to punch the TV as when watching an oiky spotty brat boasting to camera in plummy Eton tones about how his vote for Boris will save the UK. Retching noises…

Moving on…

Fascinating article in FT this morning written by BlackRock’s head of global fixed-income, Rick Rieder: ECB can boost growth across Europe by buying stocks. Er, I how do I tell the world’s largest investor that’s about the stupidest idea I’ve heard in a long time? I completely agree Europe needs to urgently address and formulate policy to solve long-term and especially youth unemployment – but not through more distorting Monetary Experimentation by Central Banks. Yeah, ‘cos that’s been a massive success.

The danger of a central bank pumping money into financial markets by buying stocks is simple – money invested in financial assets (stocks and shares) stays in financial assets. That’s the clear lesson we’ve seen over past 10 years. Trillions of QE cash has caused massive inflation in financial assets, but barely grazed the real economy. If you want a full explanation, then buy my book: The Fifth Horseman – How to Destroy the Global Economy, for the full theory.

Even Mr Rieder makes the point the US has created many $1 bln tech unicorns without having to rely to central bank largesse to create and fund them. Why can’t Europe? Clue: it’s not because the ECB isn’t buying stocks!! He is absolutely right that lower for longer interest rates have made financing tech, all kinds of small and medium sized business difficult, and is causing a new banking crisis in Europe – but Central Banks buying stocks will just increase the risks.

Who checks that money goes into building productive capacity, and isn’t funneled back to owners via stock buybacks and dividends? Because that’s how QE had widened income inequality!

Readers of the Morning Porridge will be surprised to know I am very positive on the prospects on Europe. I believe it is going to survive the current Populist plague and solve its current economic problem. And its simple: Fiscal policy. The reason Europe doesn’t work is because the Euro is a monetary construct. The current rules don’t acknowledge any fiscal dimension – that allows counter cyclical government spending to shore up economies, build infrastructure and increasing productivity (towards German levels). That is a key thing desperately required for Europe to work as it could.

It’s a slow process, and difficult when the Germans are not engaged. But Christine Lagarde, Macron, Leyen and Merkel? Talk to each other. Solve it. When Europe agrees a Fiscal Parallel to the Euro, then I am a massive buyer. I have high hopes it may happen soon. Until it does….

(Of course, any head of fixed income must be wondering what they are going to Arb next – when even Euro high yield is in negative territory, maybe its time to switch the whole portfolio into stocks, and then how wonderful if the ECB starts buying!)

Meanwhile, in a Galaxy far far away…

10 days ago I warned Boeing could be the stock that triggers a stock market slump. Tomorrow it reports Q2 earnings, and everyone is braced for lower numbers – around 47% down from last year. Its already said its $4.9 bln charge relating to the 737 Max will lower Q2 by $5.6bln.

Yesterday Fitch put Boeing’s credit rating on Downgrade watch. Their reasoning covered many of the points I made last week about its fundamental weakness: the increased regulatory oversight and uncertainty around getting the 737 Max approved to re-enter passenger service, the logistical challenge of getting the planes back in the air, and the likelihood the plane maker will have to offer airlines costly concessions to use/buy/take delivery of the B-737 Max.  They also cite the damage done to Boeing’s “reputation and brand”. I’d add cash flow drain from unpaid for planes!

What Fitch didn’t note is the problems at Boeing are long term managerial and behavioural issues – and the plane maker is doing precious little that’s visible to address these. How many Boeing execs have admitted it was their responsibility the planes were delivered with no clear warnings about the failing stall prevention system, the flight manuals were skinny on detail, or that the new engine position made it inherently unstable? Who got the lash-up design, and lack of clarity past the Federal Aviation Authority? 

Over the past decade and longer its operating mode has been tight. Saving money by paying Indian software engineers $9 an hour was just the tip of the iceberg. A history of using cheap and second hand spare parts is being uncovered. Passing off the B-737 Max as just an upgrade requiring one hour of iPad crew training to make it cheaper for airlines was another scam to help sell units. A history of poor quality, badly built planes is becoming increasingly apparent – especially from its Carolinas plant. Hammers left in the void spaces of military tankers beggars belief. Perhaps the biggest issue was how it effectively captured the Federal Aviation Authority and self-regulated itself for years.

Nor did the rating agency talk about the future – how Boeing reinvents itself from here. How does it resolve its current issues, and relaunch itself as the premier plane maker? How does it introduce a new product range – the costs and problems when it launched the B-787 Dreamliner were huge! How does it ensure its next leading launch, an upgrade of the now venerable B-777 avoid crisis and gets a clear regulatory stamp? Where do they get the money to develop new aircraft?

Just thinking out loud, but the original B-737 flew 60 years after the Wright Brothers. We should really have moved on since 1963? What does the future look like? 

What’s happening at Boeing now is Hubris – excessive arrogance in defiance of the odds. After nearly 35 years in the credit markets I’ve seen it all before. No two companies are alike – but there are lessons in watching mighty companies tumble and fall. “Look upon my works ye mighty and despair” brings back the memories of trips to win GECC mandates – then it was a trip AAA issuer.  We were treated as lepers by the company treasury team. Now its struggling to retain an investment grade rating with a miserable business.

Firms can struggle on for years or they die slow and hard. GE and Deutsche Bank are examples of the latter. Bear and Lehman went relatively fast. I wonder what the world is going to look like when/if interest rates ever normalise and literally thousands of Zombie overlevered companies look set to tumble and fall? Boeing is unlikely to go bust or default – its simply too big, too important, and had too good a product suite for that to happen. But it does need to change, and that could prove very costly.

via ZeroHedge News https://ift.tt/2y6mg2S Tyler Durden

The Article II Executive Power and the Rule of Law (Part II)

The first post set out a conceptualization of the executive power, the Whig executive, according to which it is the ability to operate in an environment of legal rules that empower and constraint officials but does not itself provide any of those rules.  That post began the argument that the executive power of Article II consists entirely of that ability.  The first step was to point out that the limited view was one well-known understanding at the time of the framing.

The next step is to see that the Whig view was a natural understanding of “executive.”  Some officials “carry into execution,” in the words of the Necessary and Proper Clause, the law in that they conduct the operations of the government.  They transform the abstract rules of the law into actual conduct in the world, from operating post offices to inspecting incoming vessels.

The capacity to perform that function can reasonably be attributed to the executive power itself, which operates whenever the function is performed.  The rules that empower and constrain, by contrast, cannot plausibly be attributed to the executive power.  That concept is far too general to give any specific information about the existence or content of the many roles that implementing officials play.  Article II says nothing about the number or function of park rangers.

The armed forces are part of the executive component of government, subject to the law.  Their composition and funding are determined by Congress, not by Article II.  Commanders, including commanders in chief, are subject to the law.  The President’s status as Commander in Chief establishes civilian control of the forces but does not supply any of the law that governs them.

The Whig understanding of execution fits into the three-part division of government power found in the first sentences of Articles I, II, and III.  Legislative power makes and changes legal rules.  Executive power, which is distinguished from legislative power in the three-way conceptual scheme and separated from it in the Constitution’s institutional structure, is subject to rules made elsewhere.

The Whig understanding of executive power matches the contrast with legislative power so well that it is natural to wonder how anyone would think that it entails anything other than the capacity to proceed according to the law.  Broader understandings of executive power are indeed available, and were at the time of the framing.  Their source is in the British constitutional system.  In that system, the officer who held the executive power as Whigs understood it—who oversaw the operations of the government and carried out the law—was no mere chief civil servant.  The chief executive was the sovereign monarch, with many more powers.  The question about Article II is whether the American executive power includes any of the additional parts of the royal power.

Much of the royal power cannot be attributed to the executive power because it was legislative.  British monarchs held significant authority to make and change the legal rules that governed private people, like the power to set the standard of weights and measures.  All legislative power the Constitution grants is given to Congress, and the Vesting Clause of Article I does not style that grant as an exception to the executive power later given in Article II.  It identifies the legislative as one of the three powers of government and gives Congress so much of it as is held by the United States as opposed to the states.

Articles I and II together cannot be reconciled with the notion that the latter’s executive power is the whole of the royal power, and no one has ever believed that it is.  Rather, proponents of an executive power that goes beyond conducting the government and carrying out the law would include, not all the King’s authority, but control over foreign affairs.  John Locke identified foreign relations as a distinct governmental authority: the federative power.  Locke did not regard the federative as part of the executive power, but maintained that it was usually held by the same officer who carried out the domestic law.  The Article II executive power, goes the reasoning, includes the federative power.

A basic premise of the Constitution is that government power comes in three types, familiar from the first sentences of Articles I, II, and III.  A document that assumed a fourth power would confer it and not simply include it in one of the other three.  The Constitution does not need to confer a fourth power, because the three it does deal with are collectively exhaustive of what government can do, with respect to both domestic and foreign affairs.

That feature of the tripartite division of power can be easy to miss, because the tripartite division breaks the foreign-relations power into pieces.  The actual conduct of foreign relations is indeed an executive function.  Executive officials carry on foreign relations as they carry on all government operations.  Carrying on an operation, however, does not entail making policy about it.  Social Security officials make payments pursuant to statute, and subordinate State Department diplomats negotiate with foreign governments pursuant to instructions given them by their superiors.

Executive power has part of the federative power, but only the part about implementation.  Legislative power can make rules about foreign relations just as it can make other rules, and statutes can prescribe rules for diplomats just as the diplomats’ superiors can.  If the Constitution did nothing more than give Congress legislative power and the President executive power, the President would carry out policy made by statute in both the foreign and domestic arenas.  The federative power would be present in such a system, but would be divided between the legislature and the executive.  The tripartite system is enough, and no fourth power is needed.

The institutional structure the Constitution creates, however, might seem to undercut this conception of executive power.  That structure allocates the three powers to institutions that are politically independent of one another.  The Whig reading entails that executive power brings with it no policy discretion, and is wholly bound by the law.  If executive officials are therefore in an important sense subordinate to the law the legislature makes, why make them independent of the institution that makes the law?

Legislative and executive power do indeed complement one another.  Nevertheless, there are reasons to have an independent chief executive, and additional reasons to have an independent President, who is the chief executive and more.

As to the executive power, implementing officials inevitably will exercise substantial discretion even if the Constitution itself does not confer any on them.  A legislature that can in principle be as detailed as it wishes can in practice specify only so much.  What the legislature cannot specify, implementing officials must decide, so those officials will in fact make important policy choices.  Putting those policy choices under the supervision of a high official with an independent connection to the people is a good way to ensure that they will reflect the people’s will.

Next, an independent executive that administers law made elsewhere is justified on grounds that also support independent courts applying laws made elsewhere.  If the two operational branches are bound by the law, but not otherwise by the will of legislators, then legislators will have to convey their directives through the open channels of the law.  They will be less able to work through back-door communications to politically dependent officials who seek to curry favor with them.

Finally, presidential power goes well beyond executive power.  Perhaps the President’s most important authority is legislative: the veto.  That power justifies making the President accountable to the people through a distinct, and distinctly more national, electoral channel.  Similar reasoning applies to the treaty and pardon powers.  An independent President, and an independent executive, are in accord with the Whig conception of executive power.

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