Even Now, Suspending All Taxes Is Unnecessary (and Insane)

by Neil H. Buchanan

The U.S. Senate has now unanimously (!) passed the $2 trillion dollar stimulus bill that had been temporarily delayed while Democrats tried to reduce what we might as well call the "corruption premium" that Republicans had built into their initial proposal.  I continue to believe that, even though this is the "the largest fiscal stimulus package in modern American history" (as The New York Times insists on putting it, even though that claim is acontextual and means nothing), much more will soon be needed.

In my paired Verdict and Dorf on Law columns earlier this week, I argued that it would have been acceptable for the Democrats to agree to pay the bribes that the Republicans demanded, because we should simply admit that one of our major political parties is not going to treat this most serious of situations any different from any other.  They exploit every situation to push through regressive money grabs, and in this crisis the need for speed supersedes the desire to prevent distributive injustice (aka reverse-Robin Hoodism).

For the record, I am delighted that the Democrats were able to improve the bill as much as they did, in particular by creating what appears to be genuine oversight of the half-trillion-dollar slush fund over which Treasury Secretary Steve Mnuchin had been all but salivating.  The Democrats took some short-term public-relations hits by being the party that voted no, but what they extracted with only an extra couple of days of hard negotiating was impressive.

As I wrote above, however, this is the first of what will probably be multiple trips to the well.  When it quickly becomes clear that one-shot payments to no-longer-working Americans that amount to a few weeks' pay will not do the trick, what will Republicans demand in exchange for what they will surely brand as "another round of government handouts"?  And no matter what they demand, how should Democrats respond?

To pose the question more bluntly, is there any limit to my argument that the times demand that Democrats allow Republicans to grab what they can, hoping that at some point in the post-crisis future (but maybe not even then) we can revisit the injustices that Republicans insist upon extorting in exchange for their consent today?  Are things truly that desperate?

The best way to think about this is to look at the most extreme Republican crisis-based claim that I have seen to date: That we should shut down the U.S. tax system.  This is truly a WTF idea, but is it too much in the current crisis?  Yes it is.

Late last week, The Wall Street Journal published a news article (behind a pay wall) reporting on a claim by a Republican congressman from South Carolina that the entire U.S. tax system not only should be suspended but that by law it already has been suspended. The claim is that Donald Trump's declaration of a national emergency (a real one, as opposed to his fake emergency declaration under which Republicans allowed him to divert funds from the military to build his absurd border wall) triggered an automatic suspension of income taxes (corporate and personal), payroll taxes, and (of course, as this is a Republican's idea) estate taxes.

How does that argument work?  A statute that this guy wrote that was passed last year says that a declaration of emergency automatically triggers a suspension of the relevant federal taxes for the duration of the emergency and for sixty days thereafter.  So, he says, the law requires that these taxes be suspended immediately -- without Congress even needing to vote to do so.

A couple of points are worth making here before getting back to asking: "Should we let them get away with it, if that's what it takes to move forward?"

As a preliminary matter, we can dismiss one possible defense of the suspension argument.  The law in question says that, after the suspension period ends, everyone has to catch up with their paperwork and pay all back taxes owed.  Apparently, then, this is not a reduction in tax owed but officially a mere delay while people deal with an emergency.

HOWEVER, we need to be real here.

Let us say that Trump decides to leave the national emergency in place -- not because he believes that there is any emergency, but because he likes exercising emergency powers -- for a year.  Or two.  Does anyone imagine that we will then tell everyone to pay their current taxes plus a year or more of back taxes, when the economy is (at best) limping out of a depression?

This would, in short, not be a tax delay but a de facto elimination of nearly all tax revenues for some period of time.  (I say "nearly" because a few federal taxes, such as excise taxes, would not be suspended under this scenario.)

More to the point, the IRS quickly shot down the Congressman's theory, pointing out that "[t]he President’s March 13 Stafford Act declaration did not automatically trigger the full range of filing relief because it did not specify any incident date or set forth any geographic area determination," adding that the Treasury Department "retains broad discretion under the statute to determine the scope of relief."

Even so, not only is the Congressman "telling accountants who ask him that they don’t have to file returns now," but even a scholar at the Brookings-affiliated Tax Policy Center (which is not exactly liberal, but it is not a hotbed of anti-tax zealots, either) was "one of several other tax lawyers who agree that Mr. Rice’s reading of the statute is logical."

Logical?  How about all but criminally silly?  Among many other things, the Doctrine of Absurdity exists precisely for these situations.  The idea that we can simply rely mechanically on the supposed literal meaning of the text is almost always a road to craziness.

For example, although Professor Dorf announced earlier this week that he would not oppose the minting of a "Big Coin" to deal with the current economic crisis (and I agree with him about that, even though we both think that there is no reason to go down that absurd road), it is worth remembering where the Big Coin idea came from.

As I explained when this arose during one of the many debt-ceiling showdowns of the 2010's, the Coinage Act would by its literal terms seem to allow the Treasury Department to mint a coin of any denomination (no matter how large) from platinum and use it to pay the government's bills.  Why?  Because the Act allows the government to mint commemorative coins, but the Act for some reason did not specify the denominations that Treasury could create for its platinum coins (even though it did so for other metals).

Loophole!  Well, some liberals loved it, and even leading lights such as Laurence Tribe said that it was absolutely clear that the law allowed Treasury to do whatever it wanted in minting coins out of platinum.  But elevating a drafting oversight into national law is a dangerous game.

After all, everyone will as needed read laws not to mean what they literally say, including the response by many legal scholars (including Tribe) to the claim that the Fourteenth Amendment's public debt clause prevented the debt ceiling statute from being enforced.  Why?  Because, they said, the public debt clause did not mean what it seemed to mean.  Again: why?  Because, they said, the original purpose of that clause was not to allow the government to issue debt but to prevent the government from repudiating its Civil War debts.  So now legislative purpose matters?  Thanks for that.

Similarly, I argued after Trump issued a pardon to the serial criminal Joe Arpaio that it was foolish to claim that the pardon power was unlimited, which many liberals were reluctantly agreeing was true.  Just because the Constitution says that the President "shall have Power to grant Reprieves and Pardons" cannot mean that he has complete and unreviewable power to pardon people.

Not only does that clause go on to say that the president cannot use that power in the cases of impeachment, but it would be absurd indeed to say that the president could not be impeached in the first place for abusing the pardon power.  "Oh, he sold pardons to the highest bidder, making him guilty of accepting a bribe?  No problem, because the pardon clause gives him total power."  No one thought that, and no one should.

The overall point is that the only time legal analysis begins and ends with the literal words of a statute is when the analyst likes where that takes us.  No state is allowed to "deny to any person within its jurisdiction the equal protection of the laws"?  Well, if a person wants to say that those words prohibit so-called reverse discrimination, then they can say that "equal means equal"; but if they want to say that the clause does not require equal pay for equal work, then all of a sudden it is not "clear" what the clause means.

I am not saying that this is necessarily evidence of bad faith (although it often is).  Instead, I am saying that anyone -- conservative or liberal -- who says that a law is literally clear-cut is someone who would never say the same in a less pleasing context.  The IRS was right, then, in saying that the purpose of the law matters, and it was most definitely not the purpose of that law to allow the president (deliberately or accidentally) to shut down the federal tax system by declaring a national emergency.

So, there is no reason to take seriously the claim that people should treat the tax code as having already been suspended.  But as I noted above, whereas Professor Dorf and I are on the record as emphatically rejecting the minting of trillion-dollar platinum coins as a supposedly "perfectly legal" workaround in the debt ceiling context, we are now saying, "Eh, whatever.  If that's the stupid argument you want to rely on to justify an appropriate economic rescue package, more power to you."  (I hope it is obvious that those are my words and that Professor Dorf would likely use more judicious phrasing and might even disagree on some aspects of the substance as well.)

Where does that leave us when it comes to the current "workaround" proposal, viz., claiming that a law meant for a clearly different purpose can be used in a pinch to automatically suspend the tax system?  If we are going to throw everything but the kitchen sink at the problem, is this the kitchen sink or not?  Asked differently, should we throw literally everything at it, including things that we otherwise would never consider?

As Northwestern University tax professor Sarah Lawsky is quoted as saying in The Wall Street Journal article: "This is a statute intended to help the individual, not to destroy the government."  And I completely agree.  Even so, that does not squarely address my question here: Might we ever need to destroy the government's ability to fund itself temporarily in order to save it (and us)?

I suppose that I could imagine a situation in which Republican intransigence left this as the only option on the table, and the only thing that one could do is to hope that the time frame could be limited.  Otherwise, however, this is simply the worst option possible.

Most importantly, because the income and estate taxes (but not payroll taxes) are highly progressive, suspending/forgiving them is not only inequitable but economically useless.  As I noted in one of Tuesday's columns, we arguably have $9 trillion or more of borrowing capacity left in our arsenal.  Giving up $3 trillion per year, more than half of which would line the pockets of already comfortable people, would be a terrible -- and terribly ineffective -- way to handle this situation.

Indeed, even the regressive payroll taxes should not be our target.  A Social Security tax holiday proposal was recently floated, and it was rightly beaten back by noting that one has to be receiving pay in order to benefit from a payroll tax cut.  So much for the 3.3 million people who just this week signed up for unemployment benefits!  If we end up needing to enact a followup stimulus package that will add $3 trillion to the debt each year, direct benefits to nearly everyone -- structured progressively -- would be the way to go.

In the end, then, our current crisis is so bad that it is possible to imagine ourselves accepting things that we never would have accepted before.  Even so, Professor Lawsky is right that there is a difference between depriving the government of revenue in ways that help people and depriving the government of revenue entirely and thus destroying it.  Oliver Wendell Holmes's famous statement is still right that taxes are what we pay for civilized society.  Eliminating taxes to save ourselves in the current moment will not help us now, and it would almost surely end society as we know it.