Tuesday, September 02, 2014

Hate Crimes, Chemical Weapons, and the Internal Revenue Code

-- Posted by Neil H. Buchanan

In his post here yesterday, Professor Dorf raised an interesting and important question about statutory interpretation, suggesting that perhaps current practices are "unduly influenced by textualism."  Discussing the Sixth Circuit's opinion in United States v. Miller, a hate crimes case, and Bond v. United States, a 2014 Supreme Court case interpreting a chemical weapons law, Professor Dorf suggested that even apparently clear statutory language can still be ambiguous in ways that might change the outcomes of cases.

The point is subtle, but exceedingly important.  Conventional wisdom, as Professor Dorf describes it, requires a two-part inquiry, in which "one first determines whether the text is clear, and only if the answer is no does one look to background purposes to determine the best interpretation."  This Chevron-style approach essentially says that apparent statutory purpose is always trumped by clear statutory language, no matter how clearly the two might diverge.  Professor Dorf's suggestion, with which I agree, is that knowing the purposes of a statute "can create ambiguity where the words alone do not appear to contain any."  That is, there is nothing wrong with the two-step approach, but we need to be more complete about our inquiry into what even apparently clear words of a statute could mean.

The two examples in Professor Dorf's post are, by design, rather clear-cut cases supporting the argument that he makes.  In both, the ambiguity arises from simply comparing the statutory language to the titles of the statutes in question.  That is, in Miller, the relevant language of the statute does not mention "hate crimes," but the statute itself is called the "Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act."  Similarly, in Bond, the statute in question is called the "Chemical Weapons Convention Implementation Act."  This means that, for those who might be concerned about opening up a limitless inquiry in search of ambiguity, Professor Dorf's examples are about as minimalist as one can imagine.  All one need be willing to do is to look at the bold-print, larger-font words sitting atop the act that one is parsing, and in these two cases, you might reach very different conclusions about what the statutory language means.

Moreover, Professor Dorf points out that an inquiry into possible ambiguity is not, as one might characterize it, fatal in fact.  That is, he argues that "the clarity of the statutory definition of [the relevant statutory term] may persist, even after one takes account of effects and purposes."  In other words, simply because the first prong becomes a richer and more complete exercise does not guarantee that we would always reach a different outcome (or even that we would reach the second prong).

The larger point is that the anti-textualist argument that Professor Dorf is making can still be limited, and it can avoid the well-known pitfalls of inquiring into the "mind of Congress" (insert sarcastic joke here), an inquiry that textualists mock in support of their more crabbed view of statutory interpretation.  Here, I want to offer another example that can be interpreted by the pro-Dorf side (which includes me) to demonstrate the richness of the appropriate inquiry, even as I acknowledge that textualists might at least try to use this example to prove that this is an inquiry that quickly expands beyond all reason.

As the title of this post indicates, my example comes from a federal tax case.  In Klaassen v. Comm'r, 182 F.3d 982 (1999), a unanimous panel of the Tenth Circuit interpreted relevant provisions of the Alternative Minimum Tax (AMT) in a way that forced a middle class family to pay "the millionaires' tax."  The case was prominently featured in David Cay Johnston's prize-winning book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich—and Cheat Everybody Else.  I was thus tempted to call Klaassen a "famous" tax case, but other than U.S. v. Windsor, the anti-Defense of Marriage Act case from last year that happened to arise in a tax context, I must be honest and say that there are no famous tax cases.  (The successful prosecution of Al Capone sort of counts, I suppose.)

The Klaassen family belonged to a fundamentalist offshoot of the Presbyterian Church.  Their religious beliefs prevented them from using birth control, and they soon found themselves with ten children.  With a family income (adjusted for inflation to 2014 dollars) in excess of $130,000, the family was hardly poor, but hardly rich -- especially considering how many mouths were being fed from that income.  As it happens, however, the AMT ignores how many mouths are to be fed.  Unlike the regular income tax, which provides a personal exemption for every member of the household, the AMT provides a large, lump-sum exemption regardless of family size, so long as the taxpayers' situation otherwise falls under the relevant criteria.

The IRS pointed out that the Klaassens did, in fact, otherwise fall under the sweep of the AMT, which increased the family's tax bill by about 20%.  The Tenth Circuit confronted the question of whether the "purpose" of the AMT could be used to trump the crystal clear language of the statue.  What is that purpose?  As I suggested above, the AMT is the law that was passed in response to press reports (in 1969) of millionaires who were not paying any federal income tax.  The idea was that the various provisions of the tax code were subject to the law of unintended consequences, such that tax breaks with defensible purposes when viewed separately were being combined to reduce taxes inappropriately for a handful of wealthy taxpayers.  The AMT was supposed to provide a minimum below which taxes on wealthier people could not fall.

That is not the way the provisions of the law were written, however.  The family's argument was simply that the law was clearly never intended to apply to them, whereas the Tenth Circuit said that it had no power to rule contrary to a "clear and unambiguous" Congressional enactment.  Although there is some hint that the case was not well argued, the court's decision made it clear that the judges felt that they had no power whatsoever to rule in favor of the Klaassens.  If one follows the instructions in the AMT, one ineluctably reaches the answer that the government favored; so the taxpayers lost the case.  Even the concurring judge (a very conservative Reagan appointee) wrote only to say that he wished Congress would fix this glitch in the law.

When I teach this case at the end of the Federal Income Taxation course each semester, I treat it as a rather simple and obviously correct decision.  The case is educational mostly because it walks readers through Congress's step-by-step instructions in how to apply key provisions of the AMT.  To drum up interest, I will usually ask whether there could be a "rational basis" for the seemingly odd outcome in the case, answering that one could view it as an "enough is enough" provision of the tax code.  That is, the Klaassens showed that, taking account of other relevant aspects of their situation, the AMT effectively eliminated the personal exemption's tax subsidy for their 9th and 10th children.  I point out in class that a rational Congress could have meant to say, "You know, the American people are happy to help you with the first 8 kids, but after that, you have to pay full price."  Obviously, no actual Congress would say such a thing, but that is not what rational basis inquiry requires.

In light of Professor Dorf's post yesterday, however, I now think that Klaassen is a much more interesting case.  It is true that the relevant statutory language is "clear and unambiguous," in the sense that one could follow its dictates without fear of committing an error of interpretation.  (That does not make it simple, of course.  But it is, however complicated it might be, clear and unambiguous.)  Moreover, the title of the statute does not provide the oomph that we found in the Miller and Bond cases.  Still, how difficult is it to take that next step, and say that the apparently clear and unambiguous language at least cries out to be reconsidered in light of Congress's crystal clear purpose in passing the AMT?

And I truly mean "crystal clear."  No matter what method of statutory interpretation one might use, the record is clear that the Congresses that have enacted and amended the AMT had in mind nothing but high-end tax games, not middle class families with ten children.  And this is where I think textualists would think that they have won the broader argument.  Professor Dorf says, "Well, look, we can at least look at the title of the act."  Then, the Klaassens say, "Well, look, sometimes there is no ambiguity when trying to determine Congressional intent."  And then we are supposedly rushing headlong down that slippery slope that the textualists hate so much, reading committee reports and transcripts of floor debates.

Again, however, I am with Professor Dorf on this one, and maybe with the Klaassens.  This is a classic example of the overdrawn fear of slippery slopes that we find so often in legal debates.  There is nothing inherently difficult about drawing clear lines that include more context.  Indeed, the anti-textualist case is built on the idea that clarity is an artificial construct in the first place, allowing judges to pretend that they are being objective merely by being unwilling to look at a fuller view of the case at hand.

In the Bob Jones University case, for example, the Supreme Court held that there is a public policy exception to the tax deduction for nonprofits.  That exception could have been applied expansively, but in the thirty years since it was decided, the Court's highly limiting language has never been expanded beyond its original holding (that an openly racist policy disqualifies a school or university from nonprofit status).  Some of us wish that the exception had been extended to other contexts, but the point is that the floodgates did not open, even when a supposedly vague exception was created.

Moreover, as Professor Dorf noted, taking account of additional information will not necessarily cause one to conclude that the language of the statute is fatally unclear.  In the case of the AMT, the opportunity for Congress to have expressed its purpose much more simply -- "We limit the provisions of the AMT to those with adjusted gross income in excess of one million dollars" -- and the clarity of each relentless step of the computation would make it relatively easy for a court to say, "You know, I'm convinced that Congress didn't want this to apply to the Klaassens, but Congress blew it, and I refuse to fix it."  But even if a court were to hold otherwise, the standard response applies: If Congress does not agree with a court, it can change the law.

In short, I take Professor Dorf's efforts to limit the reach of his arguments yesterday to be important and necessary, acknowledging that any deviation from simplistic textualism runs the danger of going too far.  However, that danger does not justify pretending that there is clarity by simply ignoring evidence of ambiguity.