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Separation of Church and State

There is nothing in our Constitution about the “separation of church and state.” This phrase is often wrongly used as shorthand for the Establishment clause found in the first amendment, which states: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” What that plainly states is that the government will not prefer or establish one religion over another or restrict the practice of religion. Many people who use the phrase “separation of church and state” interpret it to mean the opposite, that the Constitution requires a separation of church and state. But that is simply untrue. 

Thus, if the government gives money to a group, such as private schools, it cannot discriminate against a particular school just because it is religious.  The recent SCOTUS decision in Espinoza v Montana case is a clear confirmation of that important understanding.

SCOTUS and the Internet Tax

This week, the Supreme Court ruled in favor of taxation for businesses that lack a physical nexus. Justices Clarence Thomas, Ruth Bader Ginsburg, Samuel A. Alito Jr. and Neil M. Gorsuch, writing for the majority opinion, believed that the emergence of the internet as a mainstream medium for interstate commerce caused the physical presence rule to become further removed from economic reality and resulted in significant revenue losses to states.

The revenue loss argument is nonsense; it is a back-door way for states to add additional levies on their citizens under the guise of leveling the playing field . For years now, we’ve been hearing the protestations that there is dearth of tax revenue from which states are suffering terribly.

But this is simply and patently untrue. State legislatures have always set their tax rates with the full understanding that they would not actually collect that supposed billions of internet “slippage”. It’s not like there is a line item in state budgets that lists “uncollected online tax” or “tax cheats” with a number attached. Sales tax is merely one of many levies whose revenues positively fund government spending. This online tax will now just be yet another tax (and therefore revenue) for the coffers. Higher marginal rates exists because state-government spending levels are higher — not because of some “absence of tax” nonsense that forces states to raise rates.

In our states’ budgets, current taxes rates (income + sales, if applicable) are set at levels appropriate to cover the calculations of state spending. 49 out of 50 states require a balanced budget. These states are fully aware that taxes are “avoided” (internet and out-of-state) and therefore don’t even count them in their budget calculations. So there is no concrete “absence of revenue”. Instead, by passing this new internet tax, states are now given free reign to add a tax without taking the political heat for it, under the guise of “fairness”.

Looked at it another way, it is unconscionable for this ruling to stand without Congressional action that requires states to lower their marginal rates so that the new tax makes everything revenue neutral. Higher marginal rates as they are already burden taxpayers. This internet tax doesn’t fix anything — because there is nothing in their budgets to be “fixed”. True tax reform (a true “fix”) always means broadening the base and thereby reducing the overall burden of taxes. Instead of that, what we have with ruling will be a revenue grab.
Another fallacy for supporters is that including the internet tax in transactions is simply a matter of adding a quick, little tax line where there was none before. But it is highly irrational for legislators to believe that compliance with multiple tax jurisdictions for vendors will be an easy and unburdensome process. The recordkeeping will be excruciating. From an accountant’s perspective, here’s how:
The effect of distressing our businesses to comply with this online tax collection will be a drag on the economy. Can you imagine vendors needing to figure such things as whether marshmallows are a taxable food/candy in some jurisdictions while it might be a non-taxable food in others? To think that software can seamlessly make this distinction is ludicrous (especially software run by the government.) When has the government ever actually streamlined anything?

Internet tax collection for 10,000 local tax jurisdictions or even just 50 states is too much. If such a tax is to be implemented, it should be either a tax in which every state accepts one set of rules OR a tax payable to the state-of-sale only — which would ultimately be better for tax competition overall. Without a fix, compliance will certainly be massive and burdensome — which will hurt this economy that is slowing but surely recovering from the last ten years.

Arthur Laffer observed that “the principle of levying the lowest possible tax rate on the broadest possible tax base is the way to improve the incentives to work, save and produce which are necessary to reinvigorate the American economy and cope with the nation’s fiscal problems”. But a hodge-podge “internet tax” doesn’t do that. Without a solid Congressional solution for correctly calculating and remitting sales tax in 10,000+ jurisdictions, we will have a nightmare for accountants and businesses — at the cost of grabbing another revenue stream for our bloated, overspending government.

Scotusblog: What Happens To This Term’s Close Cases?

As we mourn the loss of the magnanimous Supreme Court Justice Antonin Scalia, questions inevitably rise about the pending cases in the Supreme Court. Scotusblog has issued the following release:

“What happens to this Term’s close cases? (Updated)

The passing of Justice Scalia of course affects the cases now before the Court. Votes that the Justice cast in cases that have not been publicly decided are void. Of course, if Justice Scalia’s vote was not necessary to the outcome – for example, if he was in the dissent or if the majority included more than five Justices – then the case will still be decided, only by an eight-member Court.

If Justice Scalia was part of a five-Justice majority in a case – for example, the Friedrichs case, in which the Court was expected to limit mandatory union contributions – the Court is now divided four to four. In those cases, there is no majority for a decision and the lower court’s ruling stands, as if the Supreme Court had never heard the case. Because it is very unlikely that a replacement will be appointed this Term, we should expect to see a number of such cases in which the lower court’s decision is “affirmed by an equally divided Court.”

The most immediate and important implications involve that union case. A conservative ruling in that case is now unlikely to issue. Other significant cases in which the Court may now be divided include Evenwel v. Abbott (on the meaning of the “one person, one vote” guarantee), the cases challenging the accommodation for religious organizations under the Affordable Care Act’s contraceptive mandate, and the challenge to the Obama administration’s immigration policy.

The Court is also of course hearing a significant abortion case, involving multiple restrictions adopted by Texas. In my estimation, the Court was likely to strike those provisions down. If so, the Court would still rule – deciding the case with eight Justices.

Conversely, the Court was likely to limit affirmative action in public higher education in the Fisher case. But because only three of the liberal Justices are participating (Justice Kagan is recused), conservatives would retain a narrow majority.

There is also recent precedent for the Court to attempt to avoid issuing a number of equally divided rulings. In Chief Justice Roberts’s first Term, the Court in similar circumstances decided a number of significant cases by instead issuing relatively unimportant, often procedural decisions. It is unclear if the Justices will take the same approach in any of this Term’s major, closely divided cases.”

The unfortunate death of one of the greatest legal minds and constitutional scholars will certainly make the race to the White House, and even Congress, especially contentious. This country has lost a legacy.

The current law is governed by a 1977 SCOTUS ruling which stated that “public employees can be required to pay a “fair share” fee to reflect the benefits all workers receive from collective bargaining. But at the same time, employees who object cannot be forced to pay for a union’s political activities.”  Teachers must pay $650/year for collective bargaining, but can opt out of the nearly $350/year that funds political lobbying and spending by the union — by requesting a refund.

This arrangement is being reexamined, with Justice Kennedy describing ” the mandatory fees as ‘coerced speech’ that violates the 1st Amendment.” The fundamental question, “according to Chief Justice John G. Roberts Jr., is ‘whether or not individuals can be compelled to support political views that they disagree with.'”

A ruling is expected in June.  If the mandatory fees are struck down, the unions will undoubtedly face financial difficulty, as it can no longer compel citizens to pay up.  How this plays out in a Presidential election year will be even more interesting.

The Long-Term Effects of the Obamacare Decision

During oral arguments of the Burwell v Obamacare case before the Supreme Court, the U.S. Solicitor General Donald Verrilli made the case that the “court should defer to the interpretation of the Internal Revenue Service, which said the tax credits apply nationwide.” When the Obamacare decision was announced, it is clear that SCOTUS did apply deference, which was absolutely the worst possible solution.

The idea of “deference” refers “ to “Chevron deference,” “a doctrine mostly unknown beyond the halls of the Capitol and the corridors of the Supreme Court. It refers to a 1984 decision, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., and it is one of the most widely cited cases in law. Boiled down, it says that when a law is ambiguous, judges should defer to the agency designated to implement it so long as the agency’s decision is reasonable.”

Given the current catastrophic state of the IRS, SCOTUS should have run from this idea as quickly as possible. The IRS has proven overwhelmingly in the last few years that no decision it makes is “reasonable” and therefore cannot be trusted as an unbiased, independent agency capable of carrying out a professional opinion on this or virtually any manner.

Even more unfortunately, not only did SCOTUS apply deference, which allowed the IRS rule to stand, it did so by taking expanding the concept of “Chevron Deference” even further in order to validate its decision. George Will, in a column written just after the Obamacare ruling was handed down, described how the decision now allows the executive branch to apply deference in situations that are not just ambiguous, but also “inconvenient for the smooth operation of something Congress created.” This is not interpreting law — this is legislating.

Therefore, the actions of the IRS — that is, willy-nilly creating rules which expanded the scope of Obamacare beyond its text — were indeed endorsed and given political cover by Roberts and his majority as they applied Chevron Deference. Instead of sending Obamacare back to the legislature for clarification, the judicial branch decided to step in and interpret the law for the sake of alleviating “inconvenience”. But this is wrong. Convenience, ease, and expediency should never be a rationale for the judicial branch to go beyond the scope of deciding whether or not a law is constitutional, as they did here.

The judicial branch, with this decision, seemed to act more in harmony with the legislative and executive one, instead of serving as a check against the others. What’s more, “besides violating the separation of powers, this approach raises serious issues about whether litigants before the courts are receiving the process that is due to them under the Constitution. It would result if its branches behaved as partners in harness rather than as wary, balancing rivals maintaining constitutional equipoise.”

Will summed up the damage Roberts has done, which is likely to have lasting effects in the courts for years to come. Roberts goes “beyond “understanding” the plan; he adopts a legislator’s role in order to rescue the legislature’s plan from the consequences of the legislature’s dubious decisions. By blurring, to the point of erasure, constitutional boundaries, he damages all institutions, not least his court.”

How the Supreme Court uses and applies Chevron Deference in the coming years, in the way they did with this decision, will be especially interesting, given the expanded roles of many government agencies such as the EPA and FCC.