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Oversight of IRS’s Legal Basis for Expanding ObamaCare’s Taxes and Subsidies

Hearing Description:

The Oversight and Reform committee recently met to examine the IRS’s ruling that extended tax credits to federal health exchanges. There is great dissension in the interpretation of the Affordable Care Act with whether the law permits tax credits and subsidies to be extended to federally facilitated exchanges in states that opt not to sponsor their own marketplace.

Hearing Date: July 31, 2013

Hearing Summary Prepared for AAPS by the Market Institute

The Oversight and Government Reform committee recently convened to question relevant witnesses on the IRSs legal basis for expanding Affordable Care Act’s taxes and subsidies. Chairman James Lankford (R-OK) said in his opening statement the committee has focused on the process of the IRS in implementing the ACA. There is no evidence to support Treasury has carefully considered the statutes or legislative history when it ruled tax credits would be extended to participants in federal exchanges. This practice would be contrary to what the text of the law intended. Only state sponsored exchanges were meant to be subject to employer mandates and subsequent tax penalties and fines.

Rep. Jackie Speier (D-CA) said in her opening statement that the ACA was working and will work as intended. However, it never occurred to her when the law was being written that Americans could be treated differently simply because of where they live. She went on to say that this forum (hearing) is not the proper way to litigate this case and this particular question is beyond the scope of oversight.

The first witness, E. Scott Pruitt, Attorney General of the State of Oklahoma testified in his opening statement the state of Oklahoma carefully considered the benefits of not creating a state health exchange. Those benefits included no penalties for large employers. Now the IRS is acting in contrary to that rule. The large employer mandate not only is in violation of the law, but places an extreme burden on businesses.

The second witness, Charles Willey, CEO of Innovare Health Advocates testified in his opening statement that the ACA is not creating any incentives for being healthy. The IRS is rewriting the law, so now he as an employer, is now subject to fines when all along it was intended for only state based exchanges. The law now prohibits people like himself from offering health benefit plans which are designed to keep his employees healthy. This is an example of the government promoting illness that is preventable with a behavior change.

The third witness, Simon Lazarus, Senior Counsel at the Constitutional Accountability Center testified in his opening statement that he believes the Treasury Department’s interpretation of the is correct. The critics of the law are only looking at specific provisions, but when the ACA is looked at as a whole, the purpose is clear. The idea that ACA sponsors would hand over power to the states to sabotage the ACA is ludicrous. Also, there is no outcome in the court system that could see the IRS’s ruling being overturned. The opponents of the ACA are doing whatever they can to slow the implementation of the law.

The last witness, Jonathan Adler, Professor of Law at Case Western University testified in his opening statement that the IRS ruling is in direct contradiction to the language of the law found in the ACA. The law that Congress passed only provides for tax credits and subsidies for purchase of health insurance established by the state. The availability of tax credits will expose many individuals to the individual mandate who would have not otherwise been subject to. Extending the federal tax credits to federal exchanges will result in substantial fiscal and economic consequences.

In response to questioning, Scott Pruitt said:

  • The IRS rule has taken away the decision that should have been afforded to Oklahoma to opt out of establishing health exchanges

In response to questioning, Charles Willey said:

  • The ACA is “bad all the way around” and will end up promoting illness and entitlement

In response to questioning, Jonathan Adler said:

  • The legislative history indicates that state based health exchanges would be created, with no funding earmarked for federal exchanges because no one had anticipated most states had no interest in sponsoring exchanges
  • The IRS is required to make reasoned decision making, and in this case, it did not
  • The justification for waiving the employer mandate was not adequate
  • He could not find one Congressional statement leading up to the passing of the ACA that said federal exchanges would be subject to tax credits

In response to questioning, Simon Lazarus said:

  • The text of the entire statute supports the IRS’s ruling that participants in any state or federal exchange are subject to tax credits
  • The theory that participants in federal exchanges are not subject to tax credits would be considered a “self-administered poison pill”

Hearing Website: http://oversight.house.gov/hearing/oversight-of-irss-legal-basis-for-expanding-obamacares-taxes-and-subsidies/

Testimony

Mr. Jonathan Adler
Professor of Law
Case Western Reserve University

Click to access Adler-Testimony-Final.pdf

The Honorable Scott Pruitt
Attorney General
State of Oklahoma

Click to access Pruitt-Testimony-Final.pdf

Dr. Charles Willey
CEO, Innovare Health Advocates Inc.

Click to access Willey-Testimony-Final.pdf

Mr. Simon Lazarus
Senior Counsel, Constitutional Accountability Center

Click to access Lazarus-Testimony-Final.pdf

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