This Week in Fed Reform
Rep. Barney Frank (D-MA) has a new bill to trim the membership of the Federal Open Market Committee (FOMC), the rate-setting arm of the Federal Reserve. WSJ:
The bill would remove from the 12-member policy-setting Federal Open Market Committee the five members who represent regional Fed banks. Only the seven-member board in Washington, which currently has two vacant seats, would get to vote on interest rates. The congressman said this would make the Fed more democratic and increase “transparency and accountability on the FOMC” by eliminating those officials who are effectively picked by business executives. (Read the bill.)
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Analysts said Frank’s new proposal could hurt the Fed’s independence from Congress. Dan Greenhaus, analyst at Miller Tabak & Co., said the move is “one step closer to having monetary policy dictated by the Congress.”
“Analysts” say lots of things. I took several steps towards Congress myself when I walked eastward toward the Capitol after breakfast this morning, but since I’m 3,000 miles away I’m still not very close. Plus, even if they haul me in front of some oversight committee, I won’t necessarily have to do everything they want me to do. Indeed, I’m likely to get very different instructions from different members, making it hard to know which policies I should consider to have been dictated by Congress rather than within my officially recognized discretion.
So I’m not sure Frank’s bill would put us one step closer to Congressional control of monetary policy. But it is one step closer to having monetary policy dictated by an agency whose composition is not baldly unconstitutional. And it is one step closer to making the FOMC less independent from the President, who is charged with the constitutional responsibility to take care that the laws be faithfully executed and who should maybe therefore have a say in selecting the officials who will do the actual executing. (The regional bank reps on the FOMC are selected by private citizens (business executives) who are board members of the regional reserve banks; members of the Fed Board of Governors are appointed by the President of the United States subject to Senate confirmation.) You’d think that unitary-executive-loving Republicans would be climbing over themselves to support this bill.
I’m in no position to say what bureaucratic arrangements will lead to optimal monetary policy from the Fed. But it seems to me there are real and appropriate concerns with the lack of accountability at the Fed, and one way to begin to address those concerns would be to replace that portion of the FOMC that is 100% unaccountable to any person, office, or entity of the United States government with something at least as accountable as the Board of Governors. Like, say, the Board of Governors. Conveniently, the Board of Governors already constitutes part of the FOMC and is appointed in compliance with the Constitution.
Meanwhile, Sen. Richard Shelby (R-AL) continues to block President Obama’s nomination of Nobel-prize-winning economist Peter Diamond to the Fed Board on the grounds that he does not have enough experience.
Hat tip Niklas Blanchard.
More of my occasional forays into Fed-blogging here.
Is Senate Approval Required to Abolish the Senate?
Matt Yglesias answers a reader’s question about whether there is a “legal path to getting rid of or disempowering the Senate that would not require Senate approval“:
It all depends on what you mean by “legal” but the short answer is “no.” The longer answer is just to observe that the existing United States Constitution was adopted by means that were, at the time, illegal. Elites felt that the Articles of Confederation were inadequate to resolving the problems of the country, so elites gathered to write a new constitution that contained a ratification procedure at odds with what’s spelled out in the Articles. Then along they went seeking ratification by various states and when they had the number the said was necessary, they declared victory and pushed ahead, installing victorious General George Washington as the new head of state and head of government.
At some point in the future if there’s some crisis, you could imagine something like that happen[ing] again.
I think this is an interesting and underrated piece of the historical background to the framing of the Constitution, but it’s not the right answer to the question. There is a clear legal, Constitutional path to disempowering the Senate that does not require Senate approval. Article V says only that “no state, without its consent, shall be deprived of its equal suffrage in the Senate.” An amendment to abolish the Senate could be proposed by “application of the legislatures of two thirds of the several states” and then ratified by the states. The question then would be whether all the states must ratify in order that none be deprived of equal suffrage without its consent. It seems to me you could ratify with the normal threshold of three quarters of the states, since zero senators per state is also “equal suffrage.”
I’m pretty sure I agree with Yglesias’s pragmatic take on the historical legal context to the adoption “our unconstitutional Constitution.” There’s no doubt it was in flagrant violation of the terms of the Articles of Confederation. People can talk about this in two ways. One way is to say the written constitution (the Articles) is not the whole constitution, and adoption of the 1787 Constitution was merely unarticlesofconfederational, not unconstitutional. The other way is to say the 1787 Constitution was the product of a revolutionary coup. But those are just two ways of saying the same thing. Personally I avoid talk of an “unwritten constitution” because it sounds too sort of Platonic for my taste, but at the same time I think a constitution is an arrangement of political institutional practices and can’t be perfectly reduced to ink on paper.
Outlining the Case for an Activity Requirement
For years it has been de rigueur in Commerce Clause cases to quote the rule that sets its outer bounds at regulation of “activities that substantially affect interstate commerce.” But the Supreme Court has never directly faced the question of whether the target of congressional regulation under the Commerce Clause must be an activity per se.
It’s possible that “activities” was just chosen as a sort of generic sentence-filler noun that sounded more supreme courtly than, say, “stuff that substantially affects commerce.” That is, it’s possible that the Court never really meant that the target of regulation must be an activity, but just that it must be something that substantially affects commerce.
Possible. But anyway, the question now is: should there be an activity requirement? There’s a reasonable case that such a requirement follows from background constitutional principles.
One of those background principles is that federal government is a government of limited powers. That’s not necessarily an idea that is determinative here, because we’re arguing about how limited those powers are. But it is important to bear in mind, as it is the kind of traditional, doctrinal gloss the Supreme Court is sensitive to. The Court’s conservatives, in particular, can be expected to look for ways to confine the Commerce Power within traditional boundaries.
Also in the background is the “anti-commandeering principle.” This is the (here, greatly simplified) idea that the federal government can’t just order state governments to do things. It must have a hook. It can regulate where the states are already engaged in doing something, and it can give them (non-coercive) incentives to do things. But generally, it can’t just say: do this. Libertarian legal scholar Randy Barnett has gotten some traction lately with his argument (pdf) that this principle applies also to federal government action vis-a-vis private individuals, not just vis-a-vis states.
Another part of the rationale here is that an activity requirement would give citizens a chance to avoid regulation if they wish. That is, it would give meaning to the idea that the government should give citizens fair notice of the laws and regulations to which they are subjected. Notice is isn’t much good if the citizenry can’t conduct themselves in such a way as to avoid application of the law they’ve been given notice of.
Boiling it all down: you need a volitional act, with fair warning of the consequences for that act. If that volitional act, alone or in conjunction with other acts of the same ilk, substantially affects interstate commerce—or, if regulation of that act is essential to a comprehensive scheme of regulating interstate commerce—then Congress would be permitted to regulate that act under the Commerce Clause. A private individual would be exempt from federal regulation until she took some positive action to bring her within the sphere of federal power.
The activity requirement would be like a line in the sand. Cross it, and you’re subject to the feds. Now, an act/omission distinction of this type does not necessarily present a perfect, bright line. Orin Kerr has posed some interesting questions exploring this territory. But I think the important thing about a line in the sand is not that it clearly divides the space on either side of it, but that it causes people to be mindful of where they step in relation to it. That signaling function, I think, also serves as fair warning to those stepping in any gray area around the line.
Who’s Afraid of the Virginia Challenge to Healthcare Reform?
On Monday, a federal judge ruled that Virginia’s constitutional challenge to the Affordable Care Act’s individual-mandate provisions could go forward, denying the Administration’s motion to dismiss. Probably the most important thing to bear in mind about the ruling is that it was only preliminary—not a final, definitive victory for either side.
The opinion (pdf), issued by Judge Henry Hudson of the Eastern District of Virginia, dealt primarily with issues of justiciability: standing, ripeness, and statutory jurisdictional restrictions under the Anti-Injunction Act. Each of those issues were resolved in Virginia’s favor, though not always convincingly. They will certainly be revisited on appeal. The ruling also touched on the merits of the case but left their resolution to a later date. (For a more detailed review of the opinion, see this post by Jack Balkin.)
Two key ideas undergird Monday’s decision. The first is that a state should be accorded special access to federal court when challenging the constitutionality of a federal law that conflicts with state law. And the second is that the ACA’s individual mandate is unlike anything else in federal law and raises novel constitutional issues which cannot be definitively resolved by precedent.
I can’t say I strongly disagree with either of those propositions, even though I believe the mandate should ultimately be found constitutional. But nevertheless there are signs of trouble ahead. As Professor Balkin writes, Judge Hudson clearly “tipped his hand [as sympathizing with the challengers] in the way he describes the case,” framing the issue as whether the federal government can force individuals to participate in commerce and collapsing the taxing power argument into the commerce power argument.
Also, though again I’m not too troubled by the result, the court’s analysis of standing seems somewhat muddled. States aren’t generally granted standing to sue the federal government on behalf of their citizens, but must have their own “sovereign interests” at stake. Now, Judge Hudson found that the ACA’s individual mandate was in conflict with a “core sovereign power” of the state: its legislative authority as exercised through the enactment of the Virginia Health Care Freedom Act, which declares that no citizen of Virginia will be subject to any mandate to buy insurance. Judge Hudson deemed this conflict between the Virginia VHCFA and the federal ACA sufficient to establish standing.
OK, so what’s wrong with that? Well, maybe nothing’s wrong with it. But there certainly is something fishy going on in there. Here’s Brad Joondeph at the aca litigation blog:
States arguably should have standing to sue the federal government to determine whether a state law is preempted in particular circumstances–specifically, when the existence of the federal law jeopardizes the legality of the actual or imminent enforcement of a state law. For instance, if California makes it unlawful to generate a certain level of greenhouse gases, and a federal law arguably preempts the state law, the state plausibly is entitled to seek declaratory relief to determine whether the enforcement of the state law is permissible (i.e., not preempted), at least when the state is actually committing (or about to commit) significant resources to its state-level enforcement regime.
Here, though, there is no sincere (or realistic) desire by Virginia to “enforce” anything. (The ACA may be forcing Virginia to carry out certain actions already related to Medicaid, but those actions are wholly unrelated to the minimum coverage requirement of ACA 1501 that the Commonwealth is challenging.) Virginia’s law, as a transparent attempt to nullify a federal statute, was legally invalid at its inception. It purports to direct the federal government on how it can regulate the citizens of Virginia. This is constitutionally inadmissible. Or at least it has been since 1865.
(Emphasis added.) This seems to me the central argumentative ploy of Judge Hudson’s opinion: opportunistic muddling. The opinion conflates implementation of the ACA’s Medicaid and insurance-regulation reforms with implementation of the mandate—even though the state has absolutely no role in the latter. It conflates Virginia’s “sovereign” interests with the interests of its citizens. It conflates a single, declaratory enactment of the Virginia legislature with the full breadth of state “sovereign” powers. It conflates the mandate’s minimum coverage requirements with its penalty. And it conflates the scope of the commerce power with that of the taxing power.
For the most part, all that muddling and conflation is achieved obliquely—e.g., through a suggestive quotation from plaintiff’s counsel. And though I’m not worried about the mandate’s long-term prospects, I’d be a lot more comfortable for now if Judge Henry Hudson didn’t seem so comfortable with the arguments of the mandate’s opponents.
The Mandate Is Not a Tax, But the Penalty Is
The Obama administration has been accused of contradicting itself by denying that the individual mandate is a tax and then arguing in court that it is a constitutional exercise of the taxing power. Igor Volsky counters:
The mandate is not a “tax” in the sense that its primary purpose is to raise revenue even though it meets the legal definition, which is somewhat different than the popular understanding of that term. As Ian Millhiser tells me, conservatives obviously think “that they have caught Obama in some grand contradiction because he uses one meaning of the word ‘tax’ in one context and his lawyers use another meaning of that term in a legal brief, but the word ‘tax’ has an unusually broad meaning in the constitutional context — it can include nearly any provision that adds money to the federal treasury.”
I agree that there’s not really a contradiction in the administration’s position, but I don’t think the best explanation is that there’s ambiguity in the meaning of “tax” between the political and legal contexts. A better explanation is that those who think there is a contradiction have failed (a) to distinguish between the mandate and the penalty for not complying with it, and (b) to appreciate the difference between a tax and an exercise of the Taxing power.
First, a mandate is not the same thing as a penalty for not following it. Here, the penalty for failing to maintain adequate health insurance is in fact a tax. The mandate itself is not. In general, taxes are compulsory, paid to the government, and do not directly secure specific benefits in exchange for payment. Compliance with the mandate, by contrast, involves payments to private entities (for those not covered by a public plan), in return for the specific benefit of insurance. What’s more, the mandate does not really compel anyone to do anything. Rather, it sets up a system of tax-preferential treatment for those citizens who responsibly maintain adequate health insurance. You can choose not to comply, though you will have to pay more taxes. That is, you will be required to pay a monetary penalty in an amount computed on your annual income-tax forms and collected into general revenues by the IRS. You will receive nothing directly in return for your payment—not a mug, not a beer cozy, and not health insurance.
Second, not everything Congress enacts under its Taxing power is a tax. Tax exemptions and tax credits, for example, while deceptively prepended with the word “tax,” are not taxes. When the law requires that a tax be paid only under certain conditions, the conditions under which no tax must be paid cannot properly be described as a tax. The tax code is riddled with such conditions.
The PPACA minimum coverage provision (the “individual mandate”) simply specifies the conditions under which certain tax payers will not be subject to an additional tax burden (the “penalty”).
Conflating Legal and Political Arguments
In my post yesterday, I criticized Robert Pear’s Sunday NYT article for eliding commerce power arguments into taxing power arguments in his discussion of the lawsuits challenging the constitutionality of the Affordable Care Act’s individual mandate. Igor Volsky quotes me and adds a point about conservatives trying to make hay out of President Obama’s insistence that the mandate is not a tax while invoking the taxing power as a source constitutional authority for the mandate. Volsky isn’t convinced that the charge of inconsistency has merit; nor am I.
But I suspect that, with respect to their short-term political outlook, conservative leaders are playing this rather shrewdly. And while those of us who support healthcare reform may find it extremely vexing, there’s nothing wrong with conservatives glossing over some fine legal distinctions to score political points with their crowd.
My complaint though is with the framing of Pear’s NYT article, which I found misleading (albeit moderately, in the scheme of things). It doesn’t draw a clear distinction between the legal issues, and it doesn’t clearly distinguish legal issues from political ones.
I’ll follow up on some related points when I have more time.
Defending the Individual Mandate
Robert Pear has a piece in the Sunday Times about the administration’s defense of the health reform law’s individual insurance mandate. The headline—Changing Stance, Administration Now Defends Insurance Mandate as a Tax—has a bit of a “gotcha” flavor to it, but that’s fair enough. The story itself discusses constitutional challenges under both the taxing power and the commerce power, but it doesn’t leave its readers with a clear sense that these are two separate issues; and it leaves out one obvious but crucial piece of context: the government only needs to win one of the two arguments for the law to be upheld. Congress doesn’t need to act under both the commerce clause and the tax clause to create a valid law. One source of constitutional authority will do. Lack of clarity on that point and conflation of the two constitutional issues may leave readers with the feeling that the law’s challengers and defenders are evenly matched. They’re not.
As I’ve written many times before, the argument that the individual mandate exceeds the commerce power is not frivolous and may even be a close call. The weight of Supreme Court precedents probably favors deference to legislative judgment, but there are opportunities aplenty for the Court to distinguish the issue from prior cases and to articulate a new rule defining the outer bounds of the commerce power.
But while the commerce clause argument gives the mandate’s challengers a leg to stand on, the taxing and spending clause does not. Congress’s power of taxation is limited only by the requirement that any tax laid be conducive to the general welfare; and Congress decides whether a tax is conducive the general welfare. Pear’s article is fine up to this point. But then we get this:
Opponents contend that the ‘minimum coverage provision’ is unconstitutional because it exceeds Congress’s power to regulate commerce.
And that’s followed by Orrin Hatch and various other conservative politicians’ statements about mandates exceeding the commerce power, followed by the administration’s response to the commerce clause arguments. But not another word about the taxing power.
And that’s the problem. The article makes it sound like the administration has the upper hand on the taxing clause (a.k.a., the “general welfare clause”) argument, but the challengers are still in the fight and coming out swinging with their commerce clause argument. But it’s not really like that. Because you can’t answer a general welfare clause argument with a commerce clause argument. And if the government wins on either issue, the fight is over.
What’s more, not only does the article fail to alert readers on that decisive point, it also glides right by this essential observation: that the challengers have no legal argument at all to dispute the validity of the mandate as an exercise of the taxing power.
It’s as if the administration is arguing that Congress can get 2 by adding 1 + 1 or 3 + -1, and the challengers are responding that negative numbers don’t count.
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