No More Deference to the Administrative State

By David B. Rivkin, Jr., and Mark Wendell DeLaquil

July 11, 2022, in the Wall Street Journal

In a case last month upholding religious liberty, Justice Neil Gorsuch announced that an old precedent had ceased to be good law: “This Court long ago abandoned Lemon.” One day the Supreme Court may issue a similarly belated death notice for Chevron v. Natural Resources Defense Council, the 1984 ruling that vastly expanded the power of administrative agencies. If so, the beginning of the end will have come on the closing day of this year’s term, when the high court decided West Virginia v. Environmental Protection Agency.

In Chevron, the justices held that when Congress enacts an “ambiguous” statute, courts are obliged to defer to any “reasonable” interpretation offered by an executive-branch agency. The Chevron doctrine assumes that agency personnel have expertise that judges lack and that agencies are more democratic than courts because the former answer to the president. Chevron deference allowed the EPA to set national carbon-dioxide standards, the Transportation Department to prescribe automobile safety features and numerous other agencies and departments to regulate virtually every aspect of American life.

But this approach corroded democratic accountability by freeing lawmakers from the duty to legislate clearly. West Virginia is an important step in returning responsibility for solving the nation’s problems where it belongs, to Congress. It will shape resolution of the key policy issues in the remainder of the Biden administration and beyond.

Under Chevron, as Chief Justice John Roberts noted for the court in West Virginia, the absence of a political consensus to address difficult problems led to undertake extravagant regulatory efforts. Among them were the Centers for Disease Control and Prevention’s attempting to dictate housing policy, the Occupational Safety and Health Association’s driving vaccination policy, and, in this case, the Environmental Protection Agency’s creating national energy policy by updating the Obama administration’s anti-fossil-fuel Clean Power Plan.

In these cases, the agencies acted outside their expertise and certainly didn’t promote political accountability. The legislative process of political compromise was bypassed and democracy subordinated to government lawyers stalking dusty library shelves in search of vague and outmoded statutes. The West Virginia decision buttressed legislative authority yet led to strident criticism from legislators, dramatizing how comfortable Congress has become in abdicating its responsibility for difficult policy decisions.

Chevron also dramatically weakened the judiciary’s ability to check agencies’ regulatory overreach. Before 1984, the judiciary took a “hard look” approach in assessing the legality of federal regulations. Chevron was more of a rubber stamp. Judges blessed specific regulations and countenanced agency actions that Congress had never authorized. It made a mockery of Chief Justice John Marshall’s declaration in Marbury v. Madison (1803): “It is emphatically the duty of the Judicial Department to say what the law is.”

West Virginia limits Chevron by fleshing out the “major questions doctrine,” a longstanding judicial presumption that when an administrative agency asserts authority over questions of great economic and political significance, it may act only if Congress has clearly authorized it to do so. Or, as the Constitution puts it: “All legislative powers herein granted shall be vested in a Congress of the United States.

West Virginia’s critics focus on its policy impact because its legal merit is so compelling. By proscribing ambiguous congressional delegation where it matters most, the major questions doctrine re-establishes judicial authority and legislative responsibility. Absent a clear statutory delegation of the power to regulate, the executive branch can’t regulate at all. Where statutory language is clear enough to grant regulatory authority, it should eliminate substantial ambiguity about how that authority can be exercised. This effectively strips agencies of much of their regulatory willfulness, compelling them to regulate only as Congress intended. The domain of Chevron deference is limited to filling in the interstitial details of statutes in which Congress has decided the policy stakes.

West Virginia and the major questions doctrine are certain to surface again soon. Take the Securities and Exchange Commission’s proposed climate-change disclosure regulations. The SEC has a statutory directive to protect investors, facilitate capital formation, and maintain the efficient operation of capital markets. It has neither the expertise nor the statutory authority to regulate greenhouse-gas emissions. In light of West Virginia, the SEC ought to withdraw its proposal.

The Federal Trade Commission is contemplating a regulation that, without any clear statutory authority and departing from well-established FTC practices, purports to ban mergers even when no anticompetitive harms are visited on consumers. The Education Department proposes to eliminate basic mandatory procedural due-process requirements, such as a live hearing and cross-examination, in Title IX regulations that govern disciplinary procedures in universities.

Going forward, the first question in any important case concerning agency power is whether Congress actually intended for the agency to be regulating at all, not whether agency attorneys were clever enough to find a vague statute to justify a new rule. The power of the administrative state is certain to recede, bolstering democratic accountability, economic growth and liberty.

Mr. Rivkin was lead outside counsel in the case brought by 27 states challenging the Obama administration’s Clean Power Plan, in which the Supreme Court issued a 2016 stay. Mr. DeLaquil is lead counsel for Westmoreland Mining Holdings, a party to a case the court decided last month with West Virginia v. EPA.

Source: https://www.wsj.com/articles/no-more-deference-to-the-administrative-state-west-virginia-v-epa-chevron-major-questions-john-roberts-regulation-democracy-congress-11657475255

How to Avert a 2024 Election Disaster in 2023

By David B. Rivkin, Jr., and Andrew M. Grossman

April 24, 2022, in the Wall Street Journal

Pennsylvania lawmakers in 2019 decided to allow mail-in voting for the first time. They enacted a statute providing that “a completed mail-in ballot must be received in the office of the county board of elections no later than eight o’clock P.M. on the day of the primary or election.” In 2020 the state Democratic Party went to court, arguing that in light of the Covid pandemic, the deadline “results in an as-applied infringement” of the right to vote.

The Democrat-dominated Pennsylvania Supreme Court—its members are chosen in partisan elections—sided with the party and ordered a deadline extension, even as it acknowledged the statutory language was clear and unambiguous. The U.S. Supreme Court declined to hear an appeal, so the 2020 election was conducted under this and other new, judge-imposed rules.

Usually there’s no reason for the high court to review a state-court decision about state law. But election law is different. The U.S. Constitution mandates that state legislatures make the laws governing federal elections for Congress and the presidency. The Pennsylvania ruling was therefore unconstitutional. But the justices in Washington, perhaps chastened by the enduring political controversy over Bush v. Gore (2000), seem reluctant to take up such cases close to an election. Fortunately, they will soon have an opportunity to address the issue and to avert the possibility of an electoral meltdown in 2024.

Pennsylvania wasn’t alone in 2020. Faced with Republican control of many state legislatures, the Democrats and their allies took advantage of the pandemic to upend that year’s voting process. Longstanding wish-list items like near-universal voting by mail, ballot “harvesting,” drop boxes, extended deadlines, and loosened identification and signature-match requirements came to pass in much of the country, often by state court order.

The pandemic disruption may be behind us, but litigation over election rules continues. One reason is the success of the Democrats’ 2020 efforts, which their current cases treat as setting a new legal baseline. Returning to ordinary pre-pandemic procedures, they claim, amounts to unlawful “voter suppression.”

But there’s another reason for the state-court litigation explosion: redistricting after the 2020 Census. If state judges are willing to second-guess voting laws, why not the maps too? New maps are often litigated, but what’s different this time is the number of cases asking courts to toss out alleged partisan gerrymanders. The U.S. Supreme Court closed the door to such claims under the federal Constitution in Rucho v. Common Cause (2019), reasoning that there was no “clear, manageable, and politically neutral” standard for courts to apply. The same objection applies to suits brought under state law, but Rucho didn’t address that question.

So they proliferated. Many states where Democrats could pick up House seats with a different map have faced lawsuits based on open-ended state constitutional provisions, such as North Carolina’s proclaiming “all elections shall be free.” Several states’ top courts have tossed out legislature-enacted maps; the North Carolina justices even authorized a lower court to hire its own mapmakers. Republicans won state-court decisions against Democratic gerrymanders in Maryland and New York state.

None of this passes constitutional muster. State courts can interpret and apply laws governing federal elections and consider challenges to them under federal law, including the Constitution. But they have no authority to strike those laws down under state constitutions, let alone a freestanding power to contrive their own voting rules and congressional maps. The U.S. Constitution often assigns powers and duties to the “states” generally, but Article I’s Elections Clause directs that the “times, places and manner” of conducting congressional elections shall “be prescribed in each state by the legislature thereof,” unless overridden by Congress. The Electors Clause similarly vests the “manner” of choosing presidential electors in “the legislature.”

In McPherson v. Blacker (1892), the U.S. Supreme Court recognized that the Electors Clause “leaves it to the legislature exclusively to define the method” of choosing electors and that this power “cannot be taken from them or modified by their state constitutions.” In State Legislature v. Arizona Independent Redistricting Commission (2015), it held that “redistricting is a legislative function, to be performed in accordance with the State’s prescriptions for lawmaking.”

Still, it’s no wonder plaintiffs and state judges have felt emboldened to buck these limitations. The decision of a state supreme court can be appealed only to the U.S. Supreme Court, which has shied away from such cases. Around the same time the justices declined to hear the 2020 Pennsylvania case, they turned back a request to block North Carolina officials from altering legislatively enacted mail-in ballot deadlines. This year, they denied emergency requests to block judge-made maps in North Carolina and Pennsylvania from being used in November.

Election-law cases present unique timing considerations, given the potentially disruptive consequences of changing laws or maps with an election approaching. When courts make changes weeks before a filing deadline or Election Day, the justices’ ability to right the wrong is severely constrained. There’s rarely a serious basis to press the issue after votes have been cast. Those circumstances apply in most election-law cases.

But unlike state-court orders meddling with voting procedures, which typically apply to one election only, congressional maps remain in place until they’re altered, which usually isn’t for a decade. So there’s no timing issue to prevent the court from hearing a redistricting case.

Justices Samuel Alito, Clarence Thomas and Neil Gorsuch dissented from last month’s denial of the North Carolina stay application, arguing that the case was a good vehicle to consider the power of state courts to rework federal-election laws. Justice Brett Kavanaugh wrote separately to say that the court should take a case raising the issue, but this one came too close to the 2022 election. North Carolina’s House speaker has petitioned the court to take the case in its next term. If it does, a decision would likely come next summer, nearly a year and a half before the 2024 election.

The court’s failure to resolve this issue could spell catastrophe. If the 2024 presidential vote is close in decisive states, the result will be an onslaught of litigation combining all the worst features of the 2000 and 2020 election controversies. The court’s precedents in this area all point toward legislature supremacy but leave the door cracked enough for canny litigants, abetted by state judges, to shove it open and seize electoral advantage. To avoid a constitutional crisis, the justices need to articulate with clarity that state courts can’t rely on state constitutions or their own judicial power to alter either congressional redistricting maps or voting rules in federal elections.

Mr. Rivkin served at the Justice Department and the White House Counsel’s Office in the Reagan and George H.W. Bush administrations. Mr. Grossman is an adjunct scholar at the Cato Institute. Both practice appellate and constitutional law in Washington.

Source: https://www.wsj.com/articles/how-to-avert-a-2024-election-disaster-supreme-court-mail-in-ballot-drop-box-covid-election-rules-pennsylvania-new-york-north-carolina-11650820394

Why the Electoral Count Act Is Unconstitutional

By Mike Luttig and David B. Rivkin, Jr.

March 6, 2022, in the Wall Street Journal

Regarding Thomas Berry’s letter “The Electoral Count Act’s Constitutional Role” (Letters, March 1): The ECA in its present form gives Congress essentially unfettered authority to invalidate state-certified slates of presidential electors. This is profoundly unconstitutional.

As we pointed out in our op-ed “Congress Sowed the Seeds of Jan. 6 in 1887” (March 19, 2021), the Framers, after much debate, determined to give Congress no substantive authority to select the president and vice president, except in the rare instance in which no candidate gains an Electoral College majority. The Constitution’s Electors Clause gives state legislatures plenary authority in choosing how to select electors. It allows Congress to determine only the day on which the Electoral College casts its votes.

The Framers’ choice reflected separation-of-powers considerations—if Congress could select the president, this would make the executive branch a subordinate, and not a coequal, branch. This would greatly augment the power of the federal legislature, which the Framers were determined to limit. Moreover, disputes over the selection of presidential electors involve a legal, not a political, discernment, that is appropriate for a judicial body. Congress is not a court.

To the extent that disputes about presidential electors arise, they can be resolved by courts. When state legislatures determine the manner of selecting electors, they exercise power granted to them by the U.S. Constitution, making these determinations a unique species of federal law. Hence, any disputes about specific selection of presidential electors involve the application of federal law. Since the power to determine what federal law requires rests with the judiciary, the federal courts have the primary responsibility to resolve these disputes.

To facilitate timely resolution, Congress should enact a statute providing for an expeditious judicial handling of any presidential elector-related challenges, with the Supreme Court as ultimate decision maker. The only power that Congress legitimately possesses here is a purely ministerial authority to receive the letters featuring certified state electoral results, have them opened by the vice president and counted in the presence of both houses. Congress should amend the Electoral Count Act to reflect this constitutional reality. Holding itself out as able to overturn the people’s will and choose the president will add to political polarization and inspire future violence, putting Congress itself at risk.

Mr. Luttig served as a judge on the Fourth U.S. Circuit Court of Appeals (1991-2006). He advised Vice President Mike Pence on the 2020 vote certification. Mr. Rivkin served at the Justice Department and White House Counsel’s Office in the Reagan and George H.W. Bush administrations.

Source: https://www.wsj.com/amp/articles/congress-electoral-count-act-2020-overturn-elector-constitution-11646426616

The Vaccine Mandate Case May Mark the End of the ‘Work-Around’ Era

By David B. Rivkin Jr. and Andrew M. Grossman

Jan. 6, 2022, in the Wall Street Journal

Hours after President Biden’s Sept. 9 speech announcing a series of vaccine mandates for private-sector employees, his chief of staff, Ron Klain, retweeted an MSNBC anchor’s quip that wielding workplace-safety regulation to force vaccinations was “the ultimate work-around.” Congress has never enacted a law requiring American civilians to be vaccinated—assuming it even has the constitutional authority to do so, which is doubtful. The Supreme Court hears arguments Friday on two of the mandates, which are likely to meet the same fate as other recent attempts to circumvent Congress that the courts have rejected.

The Constitution vests the power to make laws in Congress and charges the president with the duty to execute them. That’s what many in Washington derisively call the “high school civics class” model of government. It’s slow, it’s cumbersome, it rarely approves measures that don’t enjoy widespread public support, and it forces compromise, moderation and tailoring of policies to address the circumstances of a vast and varied nation. The temptation of avoiding it via executive fiat is obvious.

All it seems to take is clever lawyering. The U.S. Code is littered with broadly worded laws, made all the more capacious by judicial deference to agencies’ interpretations of them. Rather than dutifully carry out Congress’s design, a president can set his own policy and then scour the statute books for language that can be contorted to authorize it. In a 2001 Harvard Law Review article, then- Prof. Elena Kagan called the practice “presidential administration.” President Obama put it more plainly when he faced congressional resistance to his agenda: “I’ve got a pen to take executive actions where Congress won’t.”

But it isn’t quite that easy. The Clean Power Plan, Mr. Obama’s signature climate policy, set rigid and unattainable emission limitations for fossil-fuel power plants to force them out of operation and transform the energy market. It relied on an adventuresome interpretation of an obscure provision of the Clean Air Act. In 2016 the Supreme Court blocked it from taking effect, and the Trump administration later repealed it. (We represented Oklahoma in the litigation.)

Mr. Obama’s immigration-reform measures—also taken in the face of congressional opposition—suffered a similar fate. Deferred Action for Childhood Arrivals—which allows illegal aliens who were brought to the U.S. as children to work and avoid deportation—remains in legal limbo nearly a decade after it was established, following setbacks in the courts. Its counterpart for parents of U.S. citizens and permanent residents was enjoined before it took force.

Mr. Biden has had a taste of defeat himself, in a case that prefigures the mandate challenges. After Congress declined to extend the Trump administration’s nationwide eviction moratorium, the Biden administration acted on its own, relying on a 1944 statute authorizing the Centers for Disease Control and Prevention to undertake clearly delineated disease-prevention measures like fumigation and pest extermination. The justices, however, found it unthinkable that Congress had intended to confer on CDC so “breathtaking” an authority: “We expect Congress to speak clearly when authorizing an agency to exercise powers of vast economic and political significance.”

In other words, loose language in old laws isn’t enough to support a presidential power grab. Yet that’s all the support the administration has been able to muster for the vaccination mandates. The Occupational Safety and Health Administration mandate forcibly enlists all companies with 100 or more employees to administer a vaccination-or-testing requirement that reaches nearly 85 million employees. It relies on a narrow provision addressing workplace-specific hazards that has never been used to require vaccination. The mandate for Medicare and Medicaid providers (covering 10.3 million workers) rests on general provisions authorizing regulations necessary to administer those programs—which, again, have never been used to require vaccinations. None of these statutes contain even a hint that Congress authorized any agency to administer broad-based vaccination mandates touching millions of Americans.

Although the mandates are flawed in other ways, their lack of clear congressional authorization is the most striking defect. Excessive judicial deference to agencies’ statutory interpretations is what enabled Mr. Obama’s “I’ve got a pen” agenda and its revival under Mr. Biden. The result has been to distort the entire federal lawmaking apparatus. Members of Congress now lobby the executive branch to make law through regulation rather than legislate themselves. Agencies enact major policies that have the durability of a presidential term before they’re reversed. And the president would sooner blame the courts for legal defeats than admit he lacks the power to do his allies’ bidding.

The courts share blame for this state of affairs, having lost sight of the basic separation-of-powers principles that should guide questions of agencies’ statutory authority. A decision rejecting the vaccination mandates because they weren’t clearly authorized by Congress would serve as a shot across the bow signaling that the work-around era is over.

Mr. Rivkin served at the Justice Department and the White House Counsel’s Office in the Reagan and George H.W. Bush administrations. Mr. Grossman is an adjunct scholar at the Cato Institute. Both practice appellate and constitutional law in Washington.

Source: https://www.wsj.com/articles/end-of-work-arounds-biden-executive-order-vaccine-mandate-covid-omicron-supreme-court-11641505106

This Debt-Ceiling Crisis Threatens Democracy as Well as Solvency

By David B. Rivkin Jr. and Lee A. Casey

7 December 2021 in the Wall Street Journal

Congress is about to begin another debt-ceiling fight, and it threatens the Constitution as well as America’s solvency.

Over the past two years, Uncle Sam has borrowed and spent trillions of dollars to address Covid-19. Coronavirus spending added nearly $3 trillion to the national debt this year alone—and that doesn’t count the recently passed infrastructure bill and the pending Build Back Better Act. The unprecedented growth in federal outlays has contributed to inflation, which has reached a 30-year high, and caused annual budget deficits to soar.

The government is about to reach its statutory federal borrowing limit of $28.4 billion. If Congress doesn’t increase the limit, Washington will run out of money to meet its legal obligations. Republicans and Democrats are at loggerheads over how much to spend and whether to enact what the Democrats call “transformational” legislation—measures that would reshape the American economy and increase government’s role in nearly all aspects of life.

The threat to the Constitution comes from one of the options lawmakers are considering: suspending rather than raising the statutory debt ceiling, thereby authorizing the executive branch to borrow an unlimited amount of money for a limited time. Suspending the debt ceiling would undermine the structure of American democracy—particularly when government spending obligations are in flux, and the future direction of key policies is being fiercely contested.

Senate Minority Leader Mitch McConnell has warned Democrats that if they insist on enacting major and costly policy changes on a partisan basis, they will have to increase the debt ceiling without votes from Republicans. That could be accomplished through budget reconciliation, the means by which the Democrats intend to pass the Build Back Better Act with a simple majority. But Democrats are wary of unilaterally raising the debt ceiling, which isn’t popular.

In October, facing a debt-ceiling stalemate and a possible government shutdown, Republicans reluctantly supplied the votes necessary to increase the debt ceiling by $480 billion. That was constitutionally proper, but it bought only a little time. The increase will be exhausted this month, and Mr. McConnell and Majority Leader Chuck Schumer have again started negotiations on the debt ceiling.

Congress usually raises the statutory debt ceiling to a new specific dollar amount, a core part of its constitutional power of the purse. Occasionally, however, Congress (with both parties in the majority) has “suspended” the debt ceiling. As we argued in these pages during the last debt-ceiling crisis, such delegations of power are constitutional only if, as Justice Elena Kagan put it in Gundy v. U.S. (2019), “Congress lays down by legislative act an intelligible principle to which the person or body authorized to exercise the delegated authority is directed to conform.”

The current unsettled budgetary environment makes the constitutional infirmity of suspending the debt ceiling acute. When suspensions were adopted in the past, there was at least a shared understanding between Congress and the executive about where the dollars were to go and how much spending there would be. Previous suspensions weren’t coupled with open attempts to transform the country’s economy and society—to upend the fundamental relationship of government to the governed.

Today’s spending plans are opaque and unpredictable. The estimated cost of Build Back Better alone ranges from $1.75 trillion to more than $5 trillion. That lack of clarity could also dramatically alter the terms upon which the Treasury can find willing buyers for new U.S. debt, greatly increasing debt-servicing costs. Suspending the debt ceiling in these circumstances would mean the executive branch is entirely unbound.

As another debt-ceiling cliff-hanger emerges, Democratic leaders appear committed to a suspension, which again would require Republican support. Giving bipartisan cover to another unconstitutional suspension would be disastrous. Decisions about the levels of spending, borrowing and taxation now under consideration require democratic accountability. Congress is almost evenly divided between the two major parties, a situation that counsels against transformative political and economic changes negotiated in back rooms.

If Democrats believe their programs are meritorious enough to burden the country with trillions of dollars in additional debt, they should accept the political risk of raising the debt ceiling without Republican votes. If Democrats are right, they’ll benefit and Republicans will pay the political price for intransigence. That’s how American democracy works, and why so many of the Constitution’s most fundamental provisions, such as Congress’s power of the purse, were adopted—to ensure accountability and the consent of the people.

Messrs. Rivkin and Casey practice appellate and constitutional law in Washington. They served at the Justice Department and the White House Counsel’s Office in the Reagan and George H.W. Bush Administrations.

Source: https://www.wsj.com/articles/debt-ceiling-crisis-threatens-democracy-budget-limit-build-back-better-mcconnell-schumer-11638718728

Can Congress Tax Wealth by ‘Deeming’ It Income?

By David B. Rivkin Jr. and Andrew M. Grossman

September 2, 2021, in the Wall Street Journal

Charles and Kathleen Moore have done well, but they certainly aren’t billionaires. Yet the couple’s constitutional challenge stands to slam shut the door on a federal wealth tax like the one Sen. Elizabeth Warren wants to enact.

The story is complicated, though less so than the tax code. In the 1990s Mr. Moore, a software engineer, worked at Microsoft on its Office applications and grew close to a fellow programmer, Ravi Agrawal. Mr. Agrawal dreamed of returning to his native India to do something for the small-scale farmers he knew growing up in the state of Chhattisgarh.

On a series of trips to India in the early 2000s, he saw an opportunity. Unlike the massive agricultural operations that feed the U.S., capital-poor farmers working a few acres each serve much of India. What struck Mr. Agrawal is that their tools were plainly inadequate, far less reliable and effective than what any American could buy for a few dollars at Home Depot. His idea was to close the gap by providing India’s poorest farmers with tools that would improve their livelihoods and lives, even in the face of the labor shortages in many rural areas as workers migrated to the cities.

Mr. Agrawal needed capital to get the business off the ground. He approached friends to invest in his new company, KisanKraft, and the Moores put up $40,000. It was a lot of money for them, but they believed in Mr. Agrawal and the mission. They knew they were unlikely to earn much of a financial return on their investment, because the plan was to reinvest any profits in the business and serve more of India’s rural poor.

That was the real return, and it proved massive. Mr. Agrawal had put his finger on an unmet need, and by 2017 KisanKraft had expanded to reach the entire country, with hundreds of employees, thousands of dealers and millions of customers. The Moores have never received a dime from their investment, yet it paid off beyond their greatest hope.

Then the tax bill came. As part of the Tax Cuts and Jobs Act of 2017, Congress reworked the way multinational corporations are taxed, limiting the amount that they had to pay on foreign income. Offsetting part of the cost was a new, one-time tax on earnings that certain foreign corporations had accumulated over the preceding 30 years but not distributed to their shareholders through dividends. The law deemed those earnings as 2017 income to the shareholders and taxed them on it. The Moores’ bill amounted to $15,000. They paid and are now suing for a refund, on grounds that the new tax is unconstitutional.

The Constitution grants Congress the “power to lay and collect taxes,” but with limits. Article I requires that any “direct tax”—one that falls directly on the payer rather than being passed on to someone else, such as the consumer—“be apportioned among the several states” according to population. The idea was that taxation, like representation, should be fairly apportioned so that no state or region could be singled out for disadvantage. Alexander Hamilton explained in Federalist No. 36 that tax apportionment was a key component of federalism, given that direct taxes could disrupt local economies in ways federal lawmakers couldn’t even imagine. By contrast, men of commerce would understand the effects of indirect taxes like tariffs or sales taxes, which the Constitution therefore didn’t subject to apportionment, only uniformity.

The Supreme Court held the first income tax unconstitutional as an unapportioned direct tax in 1895, and Congress eventually responded by proposing the 16th Amendment, ratified in 1913. It authorizes Congress to tax “incomes, from whatever source derived, without apportionment.”

So far as tax law goes, the Moores’ argument is straightforward. The new tax is a direct tax, and it isn’t on income—after all, they haven’t received any from KisanKraft. Instead, they’re being taxed on their property, the KisanKraft shares. The tax is therefore constitutionally invalid because it isn’t apportioned.

The government insists that the Moores are being taxed on income, because KisanKraft could theoretically distribute its accumulated earnings in the future. The courts, however, have consistently defined “income” to require, as the Supreme Court put it in Commissioner v. Glenshaw Glass (1955), “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” As the Moores observe, they haven’t realized a dime in income. The government argues that the courts should abandon the realization requirement, giving the federal government carte blanche to tax “deemed” income without apportionment.

The stakes of the Moores’ case go well beyond their own tax liability. If they prevail, that would confirm that the Supreme Court’s precedents generally requiring apportionment and limiting the exception for taxes on “income” to its common understanding remain good law, clearly barring any kind of federal property tax, including a wealth tax—unless Congress apportions it, which there is no obvious way to do.

What makes the case an especially attractive vehicle to resolve this issue is the simplicity of their situation, a rarity in tax cases. There’s also the timing: If the courts confirm the 16th Amendment’s limited reach now, that would relieve them from having to do so in a politically explosive case directly challenging a wealth tax. The courts would do well to remind Congress at this opportune time that its taxing power is not without limits.

Mr. Rivkin served at the Justice Department and the White House Counsel’s Office in the Reagan and George H.W. Bush administrations. Mr. Grossman is an adjunct scholar at the Cato Institute. Both practice appellate and constitutional law in Washington. They represent the Moores in their refund action.

Source: https://www.wsj.com/articles/congress-tax-wealth-courts-constitution-moore-agrawal-kisankraft-elizabeth-warren-11630529642