States' Freedom from Obamacare Hinges on Overturning IRS Rule

States' Freedom from Obamacare Hinges on Overturning IRS Rule
October 10, 2012

Although the Supreme Court’s recent decision upheld much of President Obama’s health care law, a major flaw in the law’s text gives power to the states to block much of its impact. A new IRS rule is intended to fix this glitch, by essentially rewriting a key portion of the law.

President Obama’s law omits language making it possible for the federal government to operate health insurance exchanges in states refusing to create them. Because of the way the text of the law is written, the IRS does not have the power to distribute premium assistance subsidies or to tax noncompliant businesses in states with a federally created exchange, according to Case Western professor Jonathan Adler and Cato Institute health policy expert Michael Cannon.

Nonetheless, the IRS recently considered and adopted a rule asserting its power to do exactly that—powers Adler and Cannon argue were never granted by Congress.

"Like the rest of the nation, the Obama administration wants a different health-care law than the one we got. But that doesn't give it the authority to rewrite the law by fiat," Adler and Cannon wrote in a brief on the rule decision.

Nonetheless, the IRS finalized the rule on May 23, 2012. In testimony delivered to the House of Representatives on August 2, 2012, Adler and Cannon said, "There is simply no plausible way to argue this IRS rule is consistent with or supported by congressional intent, much less the statute. The most important indicator of congressional intent is the text of the statute itself. That text is clear."

They described three ways the rule could be overturned: the IRS could rescind it before PPACA takes full effect in 2014, Congress could pass a disapproval resolution, or an employer affected by the tax could file suit.

Bill Introduced to Block Rule

On July 31, Sen. Ron Johnson (R-WI) introduced a bill to overturn the IRS rule. According to American Commitment president Phil Kerpen, "If enough of [Johnson's] Senate colleagues sign on, he can force a Senate floor vote, giving the American people an opportunity to see where every senator stands. It might be the only health-care vote in the Senate before the November elections."

Asked about the likelihood of Johnson's bill reaching the Senate floor, Kerpen said it would likely be blocked, but a vote could be forced on the issue.

"While 30 senators to force a vote should be possible, 51 votes for passage will be difficult, with Democrats as usual likely to rubber-stamp the Obama administration's abuses of power," Kerpen said. "But win or lose, having the vote will show voters where every senator stands on the IRS abusing power to increase federal spending by hundreds of billions of dollars and impose unauthorized taxes.”

According to Kerpen, 45 leading free market and conservative groups are supporting the resolution, and more than 42,000 citizen letters have been sent to the Senate through a website his group has created,

New, Unlegislated Taxing Power

Cannon argues states can block the greatest costs and mandates of Obama’s law simply by refusing to implement health insurance exchanges or expand Medicaid eligibility. However, should the IRS rule stand, a new taxing power not included in the law’s text would allow the federal government to trample states' rights.

When asked whether he expects a vote on Johnson's bill prior to the November election, Cannon said, "There’s no reason the Senate could not vote on the Johnson resolution before the election. Any 30 senators can force a vote, and it cannot be filibustered. A vote would tell us which senators are willing to turn a blind eye to taxation without representation."

There has been no activity on Johnson's bill, Senate joint resolution 48, since it was referred to the finance committee on July 31. The bill currently has no cosponsors. A disapproval resolution against the IRS rule was introduced in the House by Rep. Scott DesJarlais (R-TN) on June 18. The House bill, House joint resolution 112, has 37 cosponsors and awaits action in the Ways and Means Committee.

Jason A. Hart ( writes for Media Trackers Ohio.