Bench Memos

Not Just O’Care Architect: The IRS Knew It Broke the Law

As Ed Whelan points out below, Jonathan Gruber gave the Patient Protection and Affordable Care Act exactly the same reading, where “exchange established by the State” is concerned, that Judge Griffith of the D.C. Circuit gave it in the Halbig case.  (I see from some Twitter traffic that Gruber is furiously backpedaling from a view that was plainspoken and uncontroversial at the time he offered it, but is now devilishly inconvenient.)

As Kimberly Strassel explains in her Wall Street Journal “Potomac Watch” column today, the IRS itself seems to have taken exactly the same view of the law’s meaning as the one in the Halbig ruling, until–the evidence strongly suggests–the agency was pressed into writing its regulatory thumb-in-the-dike for the hole opened up by 36 states’ refusal to establish exchanges.  

We know that in the late summer of 2010, after ObamaCare was signed into law, the IRS assembled a working group—made up of career IRS and Treasury employees—to develop regulations around ObamaCare subsidies. And we know that this working group initially decided to follow the text of the law. An early draft of its rule about subsidies explained that they were for “Exchanges established by the State.”

Yet in March 2011, Emily McMahon, the acting assistant secretary for tax policy at the Treasury Department (a political hire), saw a news article that noted a growing legal focus on the meaning of that text. She forwarded it to the working group, which in turn decided to elevate the issue—according to Congress’s report—to “senior IRS and Treasury officials.” The office of the IRS chief counsel—one of two positions appointed by the president—drafted a memo telling the group that it should read the text to mean that everyone, in every exchange, got subsidies. At some point between March 10 and March 15, 2011, the reference to “Exchanges established by the State” disappeared from the draft rule.

Emails viewed by congressional investigators nonetheless showed that Treasury and the IRS remained worried they were breaking the law. An email exchange between Treasury employees in the spring of 2011 expressed concern that they had no statutory authority to deem a federally run exchange the equivalent of a state-run exchange.

Yet rather than engage in a basic legal analysis—a core duty of an agency charged with tax laws—the IRS instead set about obtaining cover for its predetermined political goal. A March 27, 2011, email has IRS employees asking HHS political hires to cover the tax agency’s backside by issuing its own rule deeming HHS-run exchanges to be state-run exchanges. HHS did so in July 2011. One month later the IRS rushed out its own rule—providing subsidies for all.

Strassel’s source is an investigative report published by the House Government Oversight and Ways and Means committees.  If ever there were a committee report of which the Supreme Court could properly take judicial notice in a case–not to construe the meaning of the law, which is plain enough, but as evidence of agency chicanery–this is it.


Matthew J. Franck — Matthew J. Franck is the Director of the William E. and Carol G. Simon Center on Religion and the Constitution at the Witherspoon Institute in Princeton, New Jersey.

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