University of Iowa College of Law Professor Andy Grewal blogged earlier this year about WLF’s amicus curiae brief in King v. Burwell at the Yale Journal on Regulation’s Notice & Comment Blog. While we’ll refrain from comment on his rather pedantic advice as to what material is best included in a brief, we did want to set the record straight about the crux of WLF’s argument, especially given the decision’s imminent release before the Supreme Court term ends later this month.
In a nutshell, WLF’s brief asks the U.S. Supreme Court to reverse an appeals court ruling that, if upheld, would allow IRS to appropriate billions of dollars a year in tax credits without authorization from Congress. IRS argued that it was entitled to Chevron deference for the agency’s interpretation of § 1321 of the Affordable Care Act (ACA), which authorizes subsidies for an exchange “established by the State.”
WLF argues that even if a statutory ambiguity exists (and we argue there is no ambiguity because the relevant language is clear), the interpretative canon most apposite in this case completely resolves it. Given Congress’s undisputed role as the guardian of the public fisc, tax credits are “matters of legislative grace,” which must be strictly construed. Because the “legislative grace” canon requires all tax credits to be expressed in clear and unambiguous terms, it operates to resolve any doubts in interpreting the statute against the existence of the tax credit.
In his blog post, Professor Grewal notes with some surprise: “I would have expected WLF to argue that the legislative grace canon applies at the first step [of Chevron], to help buttress the argument that the IRS has no room to exercise discretion at Step Two.”
But that is precisely what our brief does argue. WLF’s brief makes it quite clear that the canon operates at Chevron Step One to foreclose any deference under Step Two. For instance, the first paragraph of Section II of the brief reads:
Even assuming … that § 36B is ambiguous as to whether an exchange established by HHS also constitutes an exchange ‘established by the State’—the longstanding ‘legislative grace’ statutory interpretation canon … eliminates altogether the IRS’s discretion to resolve that ambiguity. As this Court has consistently recognized, such interpretative principles operate at Chevron step one to deprive agencies of their ordinary discretion to resolve any ambiguity that may exist.
(emphasis added). Beginning on page 17, our brief further explains:
And with any lingering uncertainty so resolved, ‘there is, for Chevron purposes, no ambiguity in such a statute.’ St. Cyr, 533 U.S. at 320 n.45. Because this analysis ends with the first step of Chevron, ‘that is the end of the matter.’ Chevron, 467 U.S. at 842-43.
In the final paragraph of the same section, WLF quotes the Oklahoma federal district court for the same proposition:
Because ‘the Yazoo requirement of ‘clear and unambiguous language’ goes to [Chevron] stage one and the preliminary issue of ambiguity,’ the IRS’s interpretation is unentitled to deference.
Oklahoma ex rel. Pruitt, 2014 WL 4854543, at *7 n.20.
We’re not sure how this aspect of WLF’s argument escaped Prof. Grewal’s notice. Nonetheless, we continue to believe that the legislative grace canon holds the key to proper resolution of the King v. Burwell case. Having for years relied on the legislative grace canon again and again to deny taxpayers deductions, credits, and exemptions whenever it is unclear that the language of the tax code permits them, IRS should not be permitted to so easily avoid its operation against IRS’s proposed ACA implementation rule in this case.
Because Congress’s ability to craft legislation is one of its chief means to cabin administrative agency power, it is not IRS’s prerogative to disregard statutory limitations on the scope of ACA’s tax credits simply because the agency prefers its own scheme. We will find out within the next few weeks whether a majority of the Court agrees.