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the new hampshire new hampshire governor's debate. at 9:00, the oregon governor's debate. at 10:00, the south dakota senate debate between four candidates. c-span campaign 2014. more than 100 debates for the control of congress. here on c-span3 we're live at the cato institute in washington for a look at the obama administration and whether they overreached in extending tax credits and subsidies for health care exchanges established by both the state and federal governments. speakers this morning will include indiana's attorney general greg zoeller, and oklahoma attorney general scott pruitt. they'll discuss their state's lawsuit against the health care law. also among the speakers this morning, robert barnes who covers legal issues and the supreme court for "the washington post." live coverage on c-span3. good morning, welcome to

this conference. i amount executive vice president of the cato institute, david bowes. appreciate having you here. more people are going to be coming in but we'll get start and try to stay on time today. the subject of our conference today is this -- in a democracy under the rule of law does the executive branch of government have the power to implement laws the way the president would prefer they had been written, or is the executive bound by the law the same way you and i are. the four lawsuits we're talking about today involve the patient protection and affordable care act, or obamacare, but they are not lawsuits about obamacare. they are lawsuits about the rule of law. back in 2011 the irs quietly implemented -- quietly reversed its interpretation of a crucial aspect of the ppaca. it announced it would implement

the health care laws health insurance subsidies and the penalties on employers and individuals who failed to purchase coverage even in states that did not establish a so-called health insurance exchange. michael canon, one of our scholars here at cato, and professor jonathhn than adler w be speaking later today. the aca they pointed out only authorizes those taxes and subsidies in a state if the state establishes an exchange. the irs persisted, it's been spending billions of dollars and subjecting tens of millions of employers and individuals to penalties that are not permitted by the aca, not authorized by an act of congress. as you might imagine, the people subjected to those illegal taxes don't like that and that's why they have filed four lawsuits.

rather than challenging the aca, the plaintiffs are claiming that the executive branch of the government is not implement being the law faithfully. they are asking the courts to force the irs to do so. despite the fact that the president has come under bipartisan criticism for unilaterally rewriting parts of his health care law, a lot of people thought these lawsuits were crazy. that is, until someone unearthed this video of health economist jonathan gruber who is widely hailed as one of the key architects of the aca.

sorry, i talked a little too fast here. jonathan gruber, as many of you know, was a key architect of governor romney's health care plan which was itself sort of an architect of president obama's health care plan and jonathan gruber was discovered half-way through discussion of all of these things making this point about the aca. >> that means your citizens don't get their tax credits.

so there is a guy who knows more about this law than anybody else does, and he says if you are a state and you don't set up an exchange, that means your citizens don't get their tax credits. he could read. he could write. he helped create it. that's what he said. the fact that 2 out of 3 standing opinions issued by federal courts in these cases cited with the plaintiffs against the government didn't hurt in changing people's minds about the viability of the lawsuits either. this conference is very timely. tomorrow the supreme court will meet to decide whether to take up one of these lawsuits. two of those lawsuits were filed by state attorneys general and we are delighted to have both of them here with us today. in just a moment we'll be hearing from are inare inattorney general greg zoeller. at lunch we will hear from oklahoma attorney general scott pruitt who was the first to challenge the irs in court. in between we will have one panel of scholars debating the legal merits of these cases, and

another debating the impact this issue is having and could have on health care reform. we're proud to hold this conference today and proud of the roll the cato institute has played in this and other areas to make presidents of both parties respect the rule of law. so now it's my honor to introduce our opening keynote speaker for the event. on october 8, 2013, greg zoeller became the fourth person and the second attorney general to file a legal challenge to that irs regulation in indiana v. irs. he was joined as a plaintiff by 39 indiana school systems. those public school systems complained that they have had to eliminate jobs and reduce the hours of non-certified support staff, including bus drivers, food service staff and instructional assistance to fewer than 30 hours a week because the irs is unlawfully subjecting them to the employer mandate, even though the statute

itself says they are exempt. the irs' illegal mandate did create one job, however, one school system had to hire someone to make sure its part-time employees were not working too much. greg zoeller has been indiana's 42nd attorney general since 2008. prior to state government he spent ten years as an assistant to senator and vice president dan quayle, first in the senate office, then in the office of the vice president. he was also in private practice for ten years after getting his law degree from the indiana university school of law where he now, in addition to being attorney general, also teaches constitutional law. welcome, greg zoeller. >> well thank you, david, and thank you to the cato institute for hosting this. i'm glad the lead-in kind of took away some of the things that i was going to point out. so i'll be able to kind of

condense this and hopefully we can take some questions. but let me do just a few things as part of my own lead-in. i'm almost sorry that you mentioned my ten years in the federal government with senator and vice president quayle. in indiana, i've denied it. i learned the federal government is not a well loved institution and congress, even worse. so i don't know, i guess it was a clintonesque kind of deny, deny, deny. i say that that was my brother skippy who was actually in the white house and it was not your attorney general. but, i think i've resolved my checkered past by suing the federal government a number of times. that's very popular in the state of indiana. let me explain when i come to washington, i have to explain a little about states. what you've read in books and what people think about states

in washington often is not exactly true. so first of all, it's true that all states are sovereign, and yet all states are not alike. since we're sovereign, we have our own ability to create our sovereign government in the way that we choose. indiana is 1 of 6 states that has chosen what i think is a little more conservative path from our history, and we've created the office of the attorney general as a statutory office. the other states are all constitutional office holders but i serve as indiana's attorney general under statutory authority. and the distinction is one that i think merits some attention because if you're a constitutional officer, you have some of the areas that allow you

to do things based on the need of the population that you serve. if you're a statutory officer, you represent state government so the claims that we bring are much more aligned with defending the sovereign state. we don't have the same expansive role to be able to represent the people as individuals. so i think it's a distinction that plays out in this area a little history that proves out that point. in the lead-up to the passage of the affordable care act, our senator, richard lugar, recognized that under the statute of the attorney general, that my office was able to do research for the senators. so this dates back to it the quaint days when senators represented state legislators before the 17th amendment.

so senator lugar, seeing the coming of the affordable care act, asked my office to do a report. some months later we created a 55-page report that told the senator that there were some substantial constitutional issues being raised by the way they've structured the affordable care act and i threw in kind of in conclusion that should it pass in its current form, which at the time was unlikely -- everybody assumed that it would be changed when it went through the house and back to the senate. so i said that if it passed in its current state, i would feel compelled to challenge the constitutionality. so i'd already anticipated what would happen, but i didn't realize that they would pass it in the same form. when it did pass -- there were a number -- i think 13 -- attorneys general who filed

maybe minutes after the president's signature indiana was not one of those. the original lawsuit for cucuse individual machine date. again, since i don't represent individuals in that same capacity, my office i felt may lack standing to bring a claim based on the individual rights of our citizens as opposed to the authority of the state. so what we did is we worked with some of my colleagues later in the first amended complaint that was filed. we added the complaint dealing with the expansion of medicaid under what we felt was a coercive mandate from the federal government to coerce a sovereign state. so we joined in the whole lawsuit that our real focus was on that relationship between the federal government and the state being coerced to expand our

medicaid program, or lose all of the. monies th moneys that we currently were getting from the previous deal with the federal government.mon were getting from the previous deal with the federal government.moneys that we curree getting from the previous deal with the federal government. mo were getting from the previous deal with the federal government. i think as you look through the court's decision, chief justice roberts -- again, i'll throw out a shout out to our hoosier-born supreme court justice -- but the three points that were made clear in his decision was, first there were limits on the commerce clause which i think many states were zblad to see that they finally had reached the cabining functions. there are limits to the commerce clause authority of commerce. a second, they did strike down the mandatory expansion of medicaid. again, i think it was his words that a gun to the head is the type of coercion that is not

allowed under the constitution. and finally, in saving the correspondence constitutionality of the affordable care act there was a taxing authority for a tax penalty.onstitutionality of the affordable care act there was a taxing authority for a tax penalty.constitutionality of th affordable care act there was a taxing authority for a tax penalty. when you look through the history since the passage and the supreme court's decision, all of the states have now made their choice whether to create an exchange -- i think there's 16 now that have their own exchange. there's eight who have come up with a hybrid between a state and federal exchange, and the remaining 26 states, including indiana, have been only a federal exchange. now that was the decision of a sovereign in each case based on our authority as a state sovereign. it's not mandated by the federal

sovereign. it was something that each state chose. it's not the way the affordable care act was written because if you look at the first few paragraphs of the act, it says this is an exercise of commerce clause authority. that's what we defended against. that's what we challenged. we were, i'll admit, a little bit surprised about the saving under a tax penalty. but that's not the subject of my remarks today. the real issue, if you think about it from the perspective of indiana and 1 of 6 states that are statutory creatures, it's really a question of whether the federal government now has authority to regulate state sovereigns under the taxing authority. we know that the federal government can regulate states as employers under the commerce clause authority which, again, the first two paragraphs make it

pretty clear. congress thought they were exercising that commerce clause authority. so you have the supreme court precedent that says that since states hire employees out of the stream of commerce, we're subject to federal regulation. under fair labor standards act. the state won under a 5-4 vote saying we were not subject to federal regulation under commerce clause. then garcia overturned that, again 5-4, saying that the federal government can require states as employers to be subject to those fair labor standard acts and terms and conditions of employment. now i'm still not happy about garcia. frankly, i'd like another shot because 5-4 is not exactly,

let's say, a permanent rule that the federal government can regulate my state and all sovereigns under commerce clause authority. but again, it's the current rule of law and i'll respect it. even without liking it. but the question remains, when chief justice roberts says that this is not an exercise of commerce clause authority, it's really a tax penalty. so now the question under the rule of law is whether the federal government has the ability through the irs to regulate my sovereign state under a taxing authority. and again, what has been taught in law schools all around the country over the years is that states as sovereigns are not subject to federal taxation. we don't have a tax form that we fill out. so i point that all out really

to demonstrate that under our challenge, it's not so much just -- and again, scott pruitt can explain from a constitutional officer's position the focus on challenging the act, but i think ours really lends itself to this question of federalism, whether the precedent will now be set that the irs can regulate our states under a taxing authority that's hitherto unknown. this tax penalty is not the same as a regular tax, so if you read what i would consider a somewhat draconian tax be penalty, the math is that you count up how many employees you have. the state of indiana has 28,000 employees. you multiply $2,000 times your workforce and that is your tax

penalty. even if you were just to miss a few employees being covered under the affordable care act. so again, this is that same type of threatening coercion that doesn't really fit in the relationship between sovereigns. the 39 school corporations who joined -- i was talking to a few people in the hall. they're usually not standing next to me during my election process. let's leave it at that. but they were very concerned about the way we educate our children and the way our school corporations as a part of our sovereign government has been structured. we have a school board they elect the people who run the school and they use part-time workers. so it's bus drivers, the teacher's aide, people who work in the cafeteria. under indiana's law, 30 hours --

or 37 1/2 hours. anything less than that is part-time. a lot of our schools are run by part-time employees under our statute. now they're busy trying to comply with 30 hours as full-time so they therefore had to create a whole process of moving people down to 30 hours or less. it is a full time job to keep track of that because of flat of this draconian tax penalty. when they came to me with their, let's say, complaints, i said i would be perfectly willing to defend if they were sued under a tax penalty. but as i thought about it, it was not enough to wait to be penalized but to challenge in advance. so i think the idea of a declaratory action that would raise this to the courts so that

before we restructure our sovereign government's employment structure to comply with a federal dictate in keeping with the nature of federalism and the sovereignty of my client, i thought it was better to challenge in advance. and again, it's not a challenge over all of obamacare, which as it's been kind of labeled, but it really reflects the fact that whether the federal government can require the sovereign state as an imemployer undemployer un taxing authority to be subject to the same dictates as if it were under the commerce clause as originally written. so the $56 million threat of the state is a tax penalty that i didn't want to wait to have to defend. i thought i would bring in

advance. we're now to the point where we've already had our oral argument. i thought it went fairly well, as they go. but at stake is really the intergovernmental tax immunity that we've lived with as part of our federalist society and the sovereignty of each. i've joked belong our legislators -- and some of them didn't think it was a joke -- but i've talked about if there was a tax penalty we could have 100% reciprocal tax. the state could have a dollar for dollar tax on any tax penalty subject to any of our sovereign aspects, entities, in our state. so if you think about it, if we're going to break the deal between the sovereigns of intergovernmental tax immunity. if the government has the tax

authority, does the mean that states sass sovereigas sovereig might have some taxable right over our federal players. so again, i said it as a joke. i'm not sure whether it might show up as a bill later in indiana's legislature when they come back in january. but i think treating states not as sovereigns but as taxable entities is really the issue that we raise for people's consideration. i know there is a number of people from the academy. if you contend that states are taxable entities and can be taxed as employers, it's not about health care. it's not about obamacare. it's really about the question of federalism and what is left of federalism if the federal government has the ability to regulate states under their

taxing authority. so with that question, i think i'll conclude by saying, you know, it is the obligation of states to check the federal government. i often complain that we've not done enough. we often accept federal funds and essentially have sold part of our sovereignty and we complain about the strings but we have entered into a deal with a sovereign and are subject to the rules and regulations. i do think that it's time that states do more in the role of checks and balances that are constitutional authors thought we would play. again, i can complain that we no longer have the ambassadors of our states in the world's greatest deliberative body, but i do think that without a senate that will check the federal

government on behalf of states, it's going to be left to attorneys general and our state governments to do more in terms of being sovereign and challenging the acts of our federal sovereign friends when they get out of line. so with that, i'll conclude and can we take questions? >> i think we might have time for one or two questions. are there people with questions? right there. please wait for a microphone to get to you so everybody can hear. please give your name and affiliation, if any that you're willing to admit to. >> imsam kazman, competitive enterprise institute. the gruber video was discovered a few days after the halbig and king rulings were handed down. i don't know if richard weinstein is here in the audience. i think he should be thanked for being the first to actually find it, post it on the web.

i'll reserve for cei the credit for launching it into its well deserved viral notoriety. but my question is, if you look at the oklahoma ruling, that has a very interesting discussion of the gruber video. my -- and i was wondering to what extend in the end that video played a role in the more recent briefing and/or hearing in your case. >> well, it was unusual oral argument in front of the district court. judge lawrence asked for it because he did have some questions that he thought would help in the framework of oral argument. so we're still at the district court level and we're not briefing and arguing in front of the court of appeals. so it was very limited in terms of his questions. i think it really didn't explore anything like what i saw come out of the oklahoma case as it went up to the court of appeals.

>> another question? well, in that days we are exactly on time. thank you, general zoeller. let me simply ask the panelists for the first panel to come up here.

good morning. i cover the supreme court.

my job will be to give them subtle signs that they've gone on too long. be something like that. and to move things along to sort of help with your questions when you have some. also, if i find that our panelists are agreeing too much, i'll try to be devil's advocate a little bit and see what we can do about that. so thanks to cato for doing this. and let me introduce the panel to you jonathan adler is the -- i'm not going to pronounce it right. you do it. yohan verhi. he teaches courses in environmental, administrative and constitutional law. his work has appeared in publications ranging from the

harvard environmental law review and supreme court economic review to the "wall street journal" and "usa today." he's testified before congress a dozen times. his work has been cited in the u.s. supreme court. adler is contributing editor to national review online and a regular contributor to the popular legal blog hosted at washingtonpost.com. he along with michael cannon is the author of "taxation without representation, the illegal irs rule to expand tax credits under the ppaca" which appeared in the journal health matrix. he's credited with being responsible for the current callback. prior to joining case western, adler worked for the honorable david b. centel on the d.c. circuit, a b.a. from yale and a j.d. from george mason

university school of law. professor david shift teaches writing, legal analysis, statutory interpretation, persuasive writing and brief writing. he earned a b.a. in mathematics and a b.a. in economics from brown and his j.d. from columbia law school. he was a kent scholar, a stone scholar, executive managing editor of the columbia law review. after law school, he clerked for judge gerard lynch, united states district court for the southern district of new york. and the chief judge dennis jacobs of the u.s. court of appeals for the 2nd circuit. before entering academia, he practiced civil litigation in seattle, white collar criminal defense and civil litigation in new york. brianne garad is constitutional

accountability centers. she came out of private practice where she was council in a firm's supreme court and appellate practice. prior to joining that firm, she was an attorney advisor in the office of legal council at the justice department. she also served as a law clerk for justice stephen breyer. her academic writings have appeared in the yale law journal, the duke law journal, northwestern university law review, the washington law review, the american university law review and the yale law and policy review. she's one of the drafters of an amicus brief filed on behalf of members of congress and state legislatures. she received her j.d. from yale law school and m.a. from emory university. last, but not least, professor james blumstein is the university professor of constitutional law and health law and policy at vanderbilt

university and also director of the health policy center at vanderbilt. he holds an m.a. in economics from yale and an l.b. degree from yale. he's elected member of the institute of medicine at the national academy of sciences, served as a member of a committee on the adequacy of nurse staffing in hospitals and nursing homes, and is a member of the advisory panel of the study of defensive medicine and the use of medical technology, office of technology assessment. in addition, he served as former tennessee governor phil bredson's council on tennessee tennessee's medicaid program. he also has litigated constitutional issues in state and federal courts, including dunn v. blumstein and brentwood academy versus tennessee secondary school athletic association. i was particularly grateful for that lawsuit because it allowed me to write about high school football and cover the supreme court at the same time.

most recently he's written and spoken about the state's constitutional challenge to the expanded medicaid component of the affordable care act. the successful friend of the court brief on the issue in the supreme court, and has testified before congress about the issue w whether subsidies under the aca can qualify to person on federally run exchanges. as you heard, one of these cases, the appeal from the 4th circuit, is currently at the supreme court. at least it was. i didn't collection this morning but we expect it to be on the private conference list that the court takes up tomorrow. we don't find out right away what the court will do about this. there's been a patternism, if you know, that if the court decides to take a case, it generally waits a week later to announce it, supposedly to see

if there are any flaws that they didn't see the first time, or the court, of course, could decide not to take the appeal or simply hold on to it for a while. so while there is some action planned for tomorrow, it's unlikely that we will find out right away exactly what the court decided. with that, i'm going to turn things over to professor blumstein who's going to start us off. >> thank you very much. jim blumstein frn vaom vanderbi law school. delighted to be here. i want to give a shout out to michael canon and jonathan adler who were really the stars of the issue that we're going to be talking about and whose work has

really been -- has crystallized this. and michael and jonathan pursued it with vigor, not just with an intellectual and academic background, but with real sense of mission. tom miller who will be on the second panel at aei has also been extremely important on working on this issue. of course the competitive enterprise institute as well. this case and the issue you was poo-pooed in the beginning. as was just stated in the introduction, the case is now -- at least one of the cases, the king case out of virginia, is now pending before the supreme court and the court will decide or at least potentially could decide tomorrow whether to take up the king case or just when the case will be reviewed, if at all. it reminds me of a story i like to tell about the danger of jumping to conclusions and being

too sure of what's going on and taking measures that are not prudent. it is a story of a man who calls home and a woman answers the phone. he doesn't recognize her. says who is this? she says, oh, i'm with the new cleaning service. he says, oh, well would you please put my wife on the phone? the woman says, i'm sorry, but she's unavailable. he says, well, why is she unavailable? well, she's with a man upstairs in the bedroom. the guy says, oh, really. he says how would you like to earn some money? she says how much. he says a lot of money. $10,000. well what do i have do for this? he says i want you to take the gun that's in the table in the vestibule -- >> she says well i saw it when i was cleaning. >> i want you to go upstairs and shoot my wife and the man she's with. she says, $10,000. you have a deal. so he hears the drawer opening, he hears her walking up the steps. he hears her open the door and the shot rings out. and two shots ring out. she comes back down, says i've shot your wife around the man she's with.

where do you want me to dispose of the body. he says i want you to drag them down the steps, across the patio. she says patio? he says i want you to dump them in the pool. >> sorry, sir, there's no pool here. he says is this 555-6789. so you have to be careful about jumping to conclusions before you have all the facts. i think a lot of opponents of this case have, just in that story, have jumped to conclusion with potentially serious consequences. the issue here is whether the affordable care act allows the irs to provide tax credits to residents of states that have not set up health insurance exchanges. that is to say where the federal government runs the exclang. the federal government runs exchanges in about two-thirds of the states. the subsidy affects the large employer plan date because the

mandate that's triggered by the law is triggered when one employee receives a federal subsidy. if there is no subsidy that's available, then the mandate, the employer mandate, does not kick in. the affordable care act -- there's been discussion, in my view, excessively complicated discussion -- but the basic point is this. the affordable care act makes provision for two types of exchanges where persons can purchase medical care and medical insurance. section 1311 of the statute says that states shall -- it uses the mandatory language, "shall" -- establish an exchange. this cannot work. the federal government cannot require states to establish an exchange under a principle called the anti-commandeering

principle. so when this was drafted, somebody who had basic constitutional law 1 looked over this and decided this was not a workable solution. but, typical of this very large law, folks did not go back and change the language in section 1311. so you have language that clearly contemplates that states should be the source of the exchanges but realizes that constitutionally it cannot be done that way because of the anticommandeering principle. then you have section 1321 that talks about if states don't elect. well, there's nothing in 1311 that talks about states electing. clearly the idea was for states to do this. but section 1321 is a fallback provision, what i've called the "oops" provision, oops because 1311 cannot mandate that states set up an exchange. 1321 provided the federal

government shall set up an exchange if the state elects not to set up such an exchange. this is, by any stretch, sloppy drafting. because one would think that if you have a provision that allows for the election of states not to set up exchange, the language "shall" in 1311 would have been changed. but that's not the case. so the "shall" language of 1311 as a constitutional matter cannot be enforced. and 1321 does the right thing. it says that if states do not set up an exchange, then the federal government -- and it uses the word "shall" -- set up such an exchange. section 1401 of the affordable care act provides for subsidies for income qualified persons in the range of 100% to 400% of poverty. note, the 100% to 400% of poverty means that if you have under 100% of poverty income, you do not qualify for a

subsidy. many states have not expanded medicaid as a result of the nfib decision, tennessee being one of them. and as a result, there are folks who have incomes under 100% of poverty who do not qualify for medicaid. they don't get a subsidy. they don't qualify for subsidy. so what are the requirements for a subsidy. under section 1401, there are basically two. that the exchange must be established by a state, and secondly, it must be established by a state under its authority under section 1311. both elements, by a state, not on behalf of a state by by a state, under 1311 are expressly enumerated in limiting terms in section 1401.a state, under 1311 are expressly enumerated in limiting terms in section 1401. there is no comparable subsidy provided for those enrolled in

an exchange established by the federal government under section 1321. so at the end of the day that really is all i should need to say. i could sit down and that's really the end of the discussion. but, that's not the end of the case. the irs, as was stated earlier, has adopted a rule that federal -- that the subsidies apply to both federally run and state run exchanges, even though there's no expressed statutory authorization for that. in fact, quite the opposite. so, what is the plaintiff's claim in these cases. the core claim. that subsidies are provided for state-run exchanges under section 1311 and not for federally-run exchanges under section 1321. there are several rationales. john tlnathan adler around mich canon have put forth scholarly work that the limitation on the

subsidies was in fact purposely. when the federal government realized that it could not mandate that the state's establish an exchange, the policy goal was still to have the states run the exchanges. but since coercion was not possible, bribery is. and therefore, the subsidies were designed to encourage the states to set up the exchanges. the states were the gate keepers. and that the legislative history supported this, that this was an inducement on the part of the federal government to encourage the states to set up an exchange. can't force them but you can incentivize them. here would be the good place for the gruber clip. jonathan -- michael cannon has been promoting this. i said it should be part of the atmospherics so we'll play the longer clip here. can you run the gruber clip for me? >> in part it says that the state don't provide it, the federal back stop will.

the federal government has been slow putting out its back stop because i think they want to squeeze the states to do it. what's important to remember politically about there, if you're a state in an exchange, your citizens don't get their tax credits. i hope states will get their act together and realize billions of dollars are at stake here in setting up these exchanges. but once again the politics can get ugly around this. >> right. so gruber was one of the architects of the structure of the plan. his economic model was influential in driving this. but we don't need jonathan gruber to read the statute. any person can read the statute. the idea was, section 1311, states should run the exchange. a provision indicated that the federal government cannot force the states do it. so the incentive structure was put in place to encourage and strongly incentivize the states but the states still serve as gatekeepers. now another kind of -- this is

my view, the circuit court says the language says what it says, it is what it is. very important philosophical principle. the affordable care act provides subsidy to one kind of exchange it says nothing about a subsidy for another kind of exchange. what the congress did is the key. not what it intended. we don't psyche analyima psycho congress. it's what it did. a case called railroad retirement board against fritz against which justice rehnquist famously says we look at the statute and determine wlat statute did. we don't go background and look at the purpose in broader and ethereal terms. we look at what it actually did. and in this case, what congress did is not what it intended is the critical part. judge griffith and d.c. circuit picked up on this and basically said if there's a gap in the statute, then it's really for

congress. it is a separation of powers issues. it is for congress. i'll come back in my closing comments about that point. so, what did the courts -- the 4th circuit and the dissent in the d.c. old friend. that is this allows the government to stand in the shoes of state governments meaning under section 1321 the federal government can set up such exchange by contemplated by section 1311. this is somewhat problematic because there's expressed provision for subsidy for state run exchanges and no such comparable provision in any

explicit way for federal exchanges under 1321. it equates language established by the state with the concept of established on behalf of the state. those are not the same things. also the point of view of those that get to decide. federal government is standing in the shoes. it's very different. it means the federal government has the authority to set up exchange but says nothing about the subsidy itself. i find this to be awful lot of analytical weight on small analytical term. then the courts looked at the broader intent. i call this psycho analysis to subsidize. this is problem matatic also. it is true there's language in the affordable care act there's a goal of moving toward universal coverage.

intent is not in the abstract notion very satisfying. it proves too much. here's the example. clearly congress wanted to cover to expand medicaid and active coerce states to extend medicaid with threatening loss of all medicaid if they didn't expand. the supreme court 7-2 found that was coercive and unenforceable. we have situations where nearly half the state are though the expanding medicaid. yet the subsidy structure is such only folks with incomes in the 100 to 400 poverty range qualify for subsidies. in states like tennessee, where's there's no expansion of medicaid, you have folks too poor for subsidy. if you're in the range, you qualify for subsidy. if though the on medicaid and fall under 100% of poverty, there's no subsidy for you.

if we're going to look at abstractive and intent, why can't the irs make a rule if you're not on medicaid you qualify for subsidy on the exchange. that's what congress would have wanted because they thought everyone wanted to fall under medicaid. states are the gate keepers of expansion of medicaid. can irs come in and say congress wanted to cover as many people as possible. yes the language and law says 100 to 400% of poverty. it never contemplated states refuse to expand medicaid or the case. therefore we as the administrative agency regulatory body can in fact expand subsidies. no one thought that could be possible. yet under the principle of looking at the overall intent, that's where you go. why would that not be valid

under the circumstances even though it's limited 100 to 400% of poverty. this is problematic. further there's no provision in the statute that suggests the irs has a specific gap filling role here. in order for there to be a gap filling role, it's not enough to look at the overall statute, you have to look at the particular issue or context. in the particular context or issue, there's nothing that suggests that congress contemplated a gap filling role for the irs under the circumstances. so then the question is what if in fact if they did not write this was not intentional strategy but oops provision and something that congress had sloppy drafting about? i would argue even under those circumstances, which is the best case scenario for government, that it's not the role of the government to fill in the gap of

this type with this sloppy drafting. sloppy drafting should be cured by congress not by the agency and not by the executive branch. this is what legislators do. if they have -- certainly the supreme court said this a number of times that if the statute doesn't play out exactly the way some proponents would have liked, the right way to do this is go back to congress and get it changed or fixed. what are the effects -- let me conclude by saying about the effects. if the plaintiffs prevail, there will be a battle in the state. the number of 5 million has been suggested. there will be a battle and pressure on the states like tennessee and others that have not established exchange to establish the exchange. that's not a static situation. there's tremendous pressure to do that. the issue is climate on one hand versus subsidies for more folks.

then in terms of broad issues, i've mentioned the separation of power. that's a what this is about, who gets to decide. what about the fact the republicans now control the house. after next week, we'll have a stronger position in the senate and may even control the senate. this is a stronger reason for courts not to allow the agency to intervene. the politics have not held on the affordable care act. the democrats, advocates have 60 votes in senate, wide majority in the house. the people voted and there are much narrower margins in the senate. dems have lost control of the house. the new deal was institutionalized. people don't remember this. there were successful challenges brought in president roosevelt's first term. he had a landslide in 1936 and implemented a second term. that's where a lot of new deals were ultimately institutionalized. the political process moved in a

different direction. the courts should in this case strictly construe the law and enter dialogue and basically negotiate with republicans and require the republicans to negotiate with the president dids. if pl on the question decided tomorrow, i think there's no purpose in waiting. i think -- i'll talk about this if we have questions. i'll conclude about that. i think that issue is for tomorrow. thank you. >> professor, you'll let others talk about why you may be wrong. you tell us why you're right. >> i think i have some. great. pleasure to be back here. i wanted to start off by saying how i got involved in this issue. in early 2011 pifs -- i was

asked to present under the affordable care act. i've done quite a bit looking at how the governments interact and other programs in the context where federal government tries to use various tools whether conditional funding, either conditional tax treatment to induce state cooperation in the achievement of goals. some preparation for this conference, i did what one would have thought you should do in a statute like this. one of the reasons i mention that, as some of you may recall in 2009-2010 there were quite a few folks that said when it came to complex legislation and this specific law that people, including members of congress, shouldn't read the statue. kline at the time ran a blog at the washington post that actually had an item entitled don't read the bill.

the fact we are here i think is perhaps a consequence of the fact that sometimes people didn't read the bill. i read the bill and noted in the na report i wrote in 2011. the authority recognized tax credits in so far as authorized to do so. authorized exchanges established by state in section 1311. they are not otherwise authorized. federal health folks, no one thought this was controversial in february 2011. the irs had yet to prom el gate a rule authorizing tax credits and exchanges. more over, no one really thought states were going to refuse to set up exchanges. the assumption was states would fall in line much like the

assumption states fall in line with medicaid. no one contemplated something like this could be litigated. it was only after the irs made the rule after folks challenged the irs authority to issue the rule and prospect of litigation became real that people tried to come up with arguments about why the plain text couldn't work. it offered no mean agoful justification of the rule. no citation of legislative authority or legislative history. it gave a general paragraph which is in future years will probably be exhibit a of what in most cases, courts like d.c. circuit, routinely reject as statement or explanation of statutory interpretation of rule. interpretation and explanation that would have been rejected in any other case but one of this significance.

jim has already talked about the language. we have section 1311 talking about states shall establish exchanges. 1321 saying if states fail to establish or take steps to establish and operate. congress saw the difference between establishing, act of creating, authorizing, initiating and creating this entity and running it. throughout the statue, the word established is used to identify who the entity is that is creating something or under who's authority it is created. in section 1401 authorizing tax credits and exchanges established by the state under 1311. language that was added to section 1401 at different times during the drafting process. as jim said, we should be able to stop with the language. here are expressed references by

the state in 1401. i think seven, cross references. one is in the definition of premium assistance amount. the other is coverage month. i highlighted the coverage in the provision because that's added late in the drafting process. the premium assistance amount is language after it comes out of senate finance committee. later on in the process, the senate leadership including staff of senator majority leader harry reid are sitting around the table making fine-tuning adjustments going through lineally line. they add establish by the state again in section 1401. if merely referencing exchange is the same as saying exchange established by the state, there would have been no reason to do this. if section 1311 and 1321 are the

same, there would be no reason to do this. yet they did it. the government and defenders of the irs rule have failed to come up with an explanation of why this happened, why this language would be there. the best explanation is it was convenient short hand for exchange that's longer and required members of congress to additional language at multiple times in the drafting process. that's just not credible. it's not taking language seriously. it's not taking the fact that every place in the statute were established by the state is used to modify exchange it provides provision the statue is serving to induce state cooperation or coordinate state and federal action. it's not used anywhere else in the statue except provisions serving that purpose. in terms of why would congress

do this, because this is the question. why would congress think to do this? the condition achievement of goals on state cooperation. they did that on medicaid. they offered a lot of inducement on medicaid. because congress can't come near, everyone knew they would make an offer. it had to be an offer. the state that refused to accept the expansion as written would leave the poorest and most vulnerable in that state without help under the medicaid program. that's the way the statue was written. a whole lot of goals on state's willingness to go along. they would do that with medicaid where a lot more is at stake. why wouldn't they do it here? congress has done this before. congress has routinely said tax credits or other benefits are conditioned on various things including state cooperation,

including state enactment of measures or regulation that satisfy federal requirements. senate finance committee, origin of aca did it in 2002 with tax credits authorized and put in place that year. the statue of provisions identified in the chairman's mark of aca as statutory precursor language modified and building upon in enacting the statute. this is part of how you define eligibility, in fact found in that prior statutory language drafted by the same committee. experts proposed doing it here. people that knew a lot about health care. one example, professor tim, one of the most prominent health care attorneys in the country, invited to the white house when the statue was signed. he offered a pain in april 2009

saying if we're going to do a state exchange model, we can come up with various ways of encouraging states to cooperate. one of the things we can do is we can offer tax subsidies for insurance only in states that complied with federal requirements as it has done with respected tax subsidies with savings accounts pointing out you and congress have done this before. you can do it here. the other thing we can do is offer payments to states to establish exchanges. statue also did providing funding for states to help them set up exchanges of their own incidentally providing zero funding for the federal government to set up exchanges. why else? bills that were part of the debate over this condition credits and subsidies benefits on state cooperation. the health bill, one of the

proposals in the senate conditioned benefits on state cooperation on state takesing legisla -- taking legislative action required. it was a mechanism and tool discussed and proposed in the senate and other bills as well. it was a way to avoid the federal take over charge. one of the reasons the temperature unlike the house wanted to go with the state exchange model because there were some democrats in the senate that were afraid of going home and having to defend a bill that could be characterized as a federal take over. so a bill that said states are going to create exchanges and that made sure that states would do it was the weight upon that charge. for example, the senate democratic policy committee in 2009 in responding to the claim the bill be a federal take over said there's no government take

over. why? because all health insurance exchanges are run by states. a claim that cannot be made based on command of states. a such command is not constitutional. a command can only be made if we believe the statue provided insensitives. we know from all sorts of programs, if you don't give state incentives, they don't cooperate. under the clean air act, states cooperate. if states refuse to cooperate, if 36 refuse to cooperate like they have here, the cleaner act enforcement would grind to a halt because the epa can't do it itself. section 404 of the clean water act where there are no real clean incentives, two states implement the program. congress is well aware if it wants states to cooperate, it can't say you have a chance. it actually has to provide

incentives. they assume states cooperate. not only was that said by senate democrats, it was said by all kinds of folks. the president by 2014, each state will set up what we're calling health insurance exchange. secretary sebelius said it. before the 2010 elections that might have been a plausible argument. as we know, many states in 2010, a lot of state legislators who of posed this statue, imposed cooperating with the statue were elected throughout the country. the assumption was states would cooperate. it was a universal assumption, reflected in all sorts of claims about the bill and all sorts of ways the bill was drafted. jim mention oofd aspects of the tax credits. the fact there's a floor not

just a ceiling. there was an assumption states would cooperate. the idea states would just say no wasn't contemplating. was that a mistake? seems so. a state a to be fixed by administrative fiat? of course not. it's not. related to this is that there's a dog that didn't bark. because what you cannot find -- and i agree with jim we should stick to the test. what you can't find at any point in the debate -- and michael and i while writing this article -- i'm not going to say we did it. he had a research assistant spending days going through every reference to the word exchange in the congressional record. we were curious what we would find. there's not a single time anyone said the senate bill would provide for tax credits in

federal exchanges. there are statements that tax credits would be available in all 50 states, but that's entirely consistent with the assumption voiced repeatedly, also voiced in the statue every state would cooperate. not once the did anyone say contrary to the statue, tax credits will be available to federal exchanges. no one said that. there are folks, commentators that said we weren't paying attention to the provisions. jonathan cohen said i wasn't paying attention to provisions. people were fighting about abortion, public option and a lot of things as the bill was being finalized. no one said something so simple. i was quite surprised. i thought we were going to find statements. no one has come up with even a

con gregressional statement wit something contrary. the last reason -- how aim on time? >> it's time for a big finish. >> okay. last thing to remember is this was a negotiating draft. the plan was that we were going to have a senate bill, a house bill. they adopted very different approaches on many different things. state bill said exchanges, we have to have a federal fall back kind of sort of. house bill, federal exchange. news report says the white house approved the house bill and that's where the final bill was going to go. there was going to be a house senate conference like we usually have and that would be the law enacted. the state exchange oriented induced states rather than federal exchange negotiating a draft. problem is and michael is responsible for this slide. then there was this. scott brown is elected in massachusetts. there were no longer 60 votes in senate, no longer enough for a

house senate conference bill. the choice at that point became a bill that a lot of people didn't like. the president said there were things he didn't like. letter of 51 health policy experts urging the house to act said a lot of things in bills we don't like. they're imperfect. the choice is clear. pass it through the senate bill, and improve through reconciliation. to read the full bill, what they meant was not administrative fiat. they meant this will cause democratic gains in congress in 2010. we'll be able to fix it legislatively. oops. everyone understood the bill was not what anyone really wanted. it was the bill that could get passed. it was drafted to get 60 votes in the senate. it was this or nothing. that's a what got enacted. that's what we have today. it was a law perhaps that no one wanted. it is the law that passed both houses in congress that went

through presentment. it's the law of the land. irs cannot rewrite that by administrative fiat. i'll stop there. thank you. >> i'll point out i believe it was congratulate you for reading the bill the whole way through. there was a justice of the supreme court that described that as being torture if he had to do it. >> go ahead david. >> thank you. i'd like the to start by thanking cato. it's great to be here and talk about this statue and cases with the founding fathers of this litigation. i always love coming e ing td.c. one of the main benefits unlike seattle, i'm much less likely to be told to slow down and not talk so fast here. i'm going to move quickly to keep things going on time. much of my writing on these cases and statue have been critical of liberal aermt arguments in favor of government positions. that'ses 90% of my writing. given the makeup of this panel, it would be a lack of balance if

we had two people talk about the challenger side and then i came up here and bashed the government side and we only had one person. much of my writing has been saying liberals, why are we not making the best arguments in support of the government's position here? i'm going to spend time talking about what i think would be the best arguments for government's position. i'm going to start talking generally about theories of statutory sbrepginterpretation. friends physically on the right and politically on the right have been advancing these cases that they call plain text or plain language meaning the issue. i think that method of statutory interpretation is much too cramped. under a broader theory, one that takes into account content and context, the government wins this case. it wins it out right. it doesn't win on chevron step two.

doesn't show ambiguity. it wins because the government's interpretation is the best and only reason interpretation under the statute. the reason this broader one is proper one is that it's been enforced recently by the supreme court. supreme court said last term when interpreting a statute, you need to look at context of provision and broader statutory skeech and have a reasonable reading of that provision based on specific provision of issue, language in that specific provision and statute as a whole. the overall design and object of statu statute, structure of the statute. look to see if those are compatible with the statute as a whole and see which is consistent with the design and structure. that was a supreme court case.

those of you will listening in audience may want to reject that reasoning as being one of the liberal justices. may have been our friend justin briar. no that was justice talking about district interpretation of statue just last ter. that should not be surprising. the terms i use if you go back on tape and repeat the theory, sit not the psycho analysis or sort of general appeal to purpose that you've heard some liberals make and some advocates for government. certainly not the liberal argument set forward as a sort of a foil by colleagues on the right. rather when the justice talks about intent, purpose, object, design, he's not talking about new york times. he's rather talking about the text of statute.

structure, intent, design based on text. that's interpretation faithful to the statute. that's the best argument to win in this case. the theory of interpretation used by our previous speakers and by the challenge areas rs i. i don't know if it has a name. i don't know if it's a well recognized theory of statutory interpretation. i think of it as a statutory isolationism. what i mean by that, it looks at a provision wholly in isolation. it comes up with a plain meaning when it asserts a plain meaning based on narrow provision at issue. it gives that narrow plain meaning a huge static friction inner issue that goes out and does battle with other provisions. when it does battle with other provisions it looks at them one

by one and looks at issue and says is there any way we can interpret this other provision in a way that makes sense? so for example, there's a provision in the affordable care act that says hey, we have federal exchanges and state exchanges. those have reporting requirements. among those involve reporting subsidies paid under those exchanges. if you look at a plain meaning of just that provision of the statute, you'll say well, it looks like subsidies are available under the federal exchanges. it tells the federal exchanges to report the subsidies that are paid under it. doesn't make sense to say you have to report zero all the time. when faced with that argument and complimentary statutory situation, the challengers don't view that as an attempt to harmonize. they see that provision as a hapless enemy. they say we can envision a world in which this other provision

makes sense and we don't have to adjust our default rating. let's assume the government was looking to save space. didn't want two separate provisions for reporting. yes, some reporting requirements are redundant. they're useless. we'll make some useless and keep our default provision. that is not a textural interpretation of the statute. those look at the statute as a whole and hon no, sors and atteo harmonize with each in the statue. in some ways, jonathan told me i'm terrible with analogies. i view their interpretation as a very bad action movie with the narrow provision issue playing the role of our hero. you have hundreds of provisions. all are viewed as hapless enemies. instead of looking at them at once, they attack one by one. they're all terribly weak.

statutory interpretation under a proper texture frame work advanced by the justice, it's not a alone here. it's an ensemble cast like the avengers. the other provisions are not enemies to be dispatched with with the narrow isolated reading of provision. they're meant to harmonize and come together in complete and understanding interpretation of the statute. you see a this isolation in all sorts of the challengers briefs. you see it this the plaintiff briefs, the opinions. just the structure of opinions starts with strong default. each individual challenge one by one is dispatched by saying it wouldn't be absurd to adopt our reading. t wouldn't be ridiculous. we can twist it to make it work. so under this more contextle

based argument, that's the best. i think the government wins under that argument. two, i think it's the best argument if your goal is not preach to converted. i think there are going to be proposed judges, liberals who want to see everyone get insured. they're going to probably side with the government in any case. if the government wants to win this case or folks in the press that support the government's opinion want to convince people, it's important to focus not on broad appeals, due purpose that everyone should be insured but focus on text of statutes. he's a brief outline of what i think that endorsed method of statute of interpretation would work here. key provision section 1401 that says subsidies are available on exchanges established by the state under section 1311. our goal is to say all right, what does that mean? we don't stop there.

we don't isolate that one phrase and think i know without looking at the statute. the first place to look when trying to figure out what a phrase means in a provision established by the state is definition section. it defines the exchange as -- capital e exchange as exchange. that's helpful. exchange established under 1311. any time in the statute you see the term e change with capital e, what they have define had the to mean is exchange established under 1311. what does that mean? we don't resort to sigh spsych a analysis or new york times. we look to section 1311. all 1311 has to do is -- all 1311 relates to is state

exchanges. what states have to do to establish exchanges, how states establish exchanges, how states compare with other states in establishing exchanges. the only type of exchange referenced in 2011 are state established exchanges. not only that, the only way a state can establishcomplying wi. we are a parallel between 1311 and state exchanges. you think well that's it. we know that's not true. there's another provision section 1321 that provides for federally exchanges. what does that mean? 1311 and 1401 we've just seen. 1321 provision that creates federal exchanges uses very specific language. it says if the state fails -- and i'm paraphrasing.

if the state fails to establish exchange, the federal government secretary shall establish such exchange. what does that mean? is it talking about a different kind of exchange? is exchange in section 1321 different? no. when it uses the word exchange -- imagine a slide behind me -- it's the same capital e ex chaing used througho -- exchange used throughout. when the federal government is acting under 1321 to establish an exchange, it's the 1311 exchange. that's the only type there is. it doesn't say it shall establish and exchange or establish a 1311 exchange. it says it shall establish such 1311 exchange. why does hit use the word such instead of shall or a? you have to look at what words

mean. such means referring to previously mentioned exchange. it's the exchange the state was supposed to establish under 1311. if the statute just said an exchange, then maybe it would be a normal run of the mill 1311 exchange. it says such exchange which refers back. the majority got half way there and said such has to be referring back. it is going to -- we are going to admit such refers to 1311 exchange. that's a non starter, every exchange is 1311 exchange. you don't need the such to create the interpretation that it's a 1311 exchange. so just based on isolated provisions, that is i think the best reading of the statue that the federal statute -- federal exchange has such exchange meaning established by the state under 1311 going back to 1401, it complies with the statute's

definition of 1401. i'm not an isolationist. let me take a step back and look at the design, its structure. despite everything i said, if i look back at the whole and saw a system and said oh my goodness, there are terms relating to federal exchanges that describe federal exchanges or 1321 on the one hand and statue is careful to limit or separate or distinguish 1311 as operated by the state. is that what i find? that's not what i find. i find hardly mentions of section 1321 or federally operated exchanges with the exception of one provision that specifically provides for reporting of tax subsidies of federal exchanges. that's the main mention. we don't have the two tier section. perhaps there's a pattern in the statute. i'll look at it as a whole. that says well maybe they're using the term exchange even

though defined as 1311 exchange to mean any exchange. 1321, 1311, federal, state, regional, anything like that. when the statute wants to limit to state exchanges it says state exchanges. is that the system i see? that is not the system at all that the statute is set up. first of all, we know that 1311 only relates to states and that state focus is baked right into the definition of exchange. so this distinction that the challengers are trying to raise is sort of defined out of the definition of exchange to begin with. secondly, when bill refers to exchanges, professor talked about a exchanges established by state. it refers to exchanges in a number of ways. exchanges established under this title. exchanges established under this act. exchanges established under 1311. whatever that means. every exchange is established under 1311. established by the state and also in various places exchanged

generally. looking at the design and structure of the statute of a whole is not the sort of thing that talks about the differentiate between state and federal exchanges. also as ai need to take a step and say is there problem here with how this definition fits in with the design and structure as a whole? the one main problem is problem that the professor talked about in his presentation. this potential conflict with carrot and stick incentive system that reportedly the federal government set up. i want to say a couple things about the carrot and stick incentive system and then i'll sit down. first of all that's not a conte context rural argument. it's more of a second order

argument that the challengers say they might do this. the problem for them, this carrot and stick argument faces a huge textural hurdle. the statute itself includes for provision of federal exchanges. federal exchanges exists not in real life, not in the new york times, in the text of the statute. why the two exchanges? if the subsidies were supposed to be a threat and if congress thought its threat would be uniformly successful, there should be no need for a second fall back exchange. the answer cannot be come deering principles. if states do not cooperate with medicaid, the fall back is not let's create a federal system that comes in and tries to do something for poor people that doesn't work. the fall back is nothing. the federal exchange however exists it must do something.

in this case, under the challengers theory, the federal exchanges is a one legged stool that only offers expensive insurance, fails under the mandate, individual mandate, employer mandate. if it is useless under their theory, it's entirely not a fair reed reading of the statute. the fact it exists means they must serve a purpose based in text. that that specifically contradicts the plaintiff's argument. place based on that argument, i think the government wins. >> thank you.based on that argu the government wins. >> thank you.. >> you talk fast. you do do that. >> i want to thank michael and cato for hosting this forum and inviting me to participate in this morning's panel. i'll start by saying i agree

with a lot of what david said about interpretation and issues in this case. particular his point about the proper way to engage in interpretation, not to look at provisions or phrases in isolation but the text as a whole. statutory scheme as a whole. when you do that in this case, it's clear tax credits should be available on all exchanges federally facilitated and state run. given david's arguments, i'm going to focus elsewhere in my remarks. i'll start by talking about legislative history, congressional intent. particular the argument made that the professor discussed. subsidies were included in the statute as a tool to encourage states to set up own exchanges. the basic ideas, the congress wanted states to set up their own. they couldn't mandate it of course. they intentionally made the exchanges available only on state exchanges so the states would have no choice but to set up their own exchange.

that's the argument. the problem is that the text, the history, the purpose of the statute all say otherwise. that was the point that was made in the brief filed before the panel and king panel by leading members of congress. the folks who actually participated in the discussions, liberations, negotiations, enactment of the affordable care act. lots of opponents like to a parade around that. we've seen a video. it was a quick, off the cuff remark made after the law was passed. i should know the statement jonathan gruber himself has disenvowed. what's most important is not what someone said as part of q&a at a conference year afs the law was passed but what folks there actually have to say. those folks as they've said in briefs filed before the courts, that was never the purpose of this provision. it was never their intent or understanding the tax credits and subsidies would only be available on state exchanges.

their understanding is confirmed by the texts and history of the statute. so let's start with texts. we talked about it a lot already. you think if the purpose of the provision was to encourage states to set up their own exchan exchanges, congress would have made it clear. look, if you don't set up exchanges, i you will not get your money. that is not what the exchange does. when you look at the section as a whole, the first thing it says is there shall be a credit allowed. it defines applicable taxpayers based on income levels as the professor mentioned. the statute nowhere says expressly if states don't set up exchanges their citizens won't get subsidiesubsidies. it nowhere says it won't be available on federal exchanges. instead the language is a

technicalle subsection setting out the formula for calculating the amount of tax credit. that's a strange place to put the condition. especially given the other language in the provision that makes clear credit is able to all applicable taxpayers regardless of where they live. we've heard about justin. he says congress doesn't hide elephants in house holes. this would have been a big elephant to hide in a pretty small mouse hole. this point is confirmed by the history of debate miss congress. the professor talked about medicaid and the fact the medicate expansion was conditioned on states compliance, but the issue here, no one doubts congress can engage in these kinds of carrot and stick incentive schemes. the question is whether they did it here with respect to exchanges and tax credit credits and subsidies.

there's no evidence in the record that it d. he also mentioned the study by the academic that mentioned this as a one way congress could go. he mentioned congress could set up a federal fall back which we all know is what they did. importantly there's no evidence that tim joes's paper was ever discussed in debates in congress and nothing in any debates in congress that suggests this is what congress was intending. there were a lot of debates obviously about the bill and tax credits and the credits were always discussed in terms that made clear that income not state of residence was the qualifying criteria. contrary to what professor said, there was widespread awareness at the time that states might not set up their exchanges. there was not surprise there would be surprise in opposition states. this was generally understood. despite this, everyone assumed the credits would be available to all on exchanges both state

and federal. there's lots of evidence of the record, the brief discusses this. one example, there was a march 2010 fact sheet issued by the three house committees with jurisdiction over the aca. it explained how exchanges would operate. it expressed there would be federal and state exchanges and zru no distinction between them. that's not surprising. members wanted those to be available for the simple reason subsidies were essential to effective operation of exchanges. eliminating that assistance would undermine other aspects of the law including the individual mandate and reforms dealing with pre-existing conditions. it's not just that subsidies are essential to the over all. they were essential to making sure other specific part of the scheme could work properly. congress didn't intend for these

subsidies to be part of the carrot and stick insensitive system to get states to set up their own exchange. there was no reason for congress to do that. professor add her suggested this is the only way to get the states to complcomply. that's not true. one thing it often does and did here is sets up a federal fallback. states often want to set up their own program rather than look to the federal fall back. you can see in the record of state discussions about whether to set up exchange, state governors and officials including republicans say we want to set up our own exchange because we don't want to lose control of this program to the federal government. that's the congress side. on the state side, the states never understood the stax subsidies and incentives to operate this way. if it did, it failed. there's deliberations on the state's part whether to set up

exchange. quick examples. ohio in a working group report listed five pros, four cons to setting up state exchange. available or not on the tax a credits was nowhere mentioned. the national governor's association identified lots of issues associated with implementing the exchanges. the prospect that a state citizen might be denied tax credits for the state to set up own exchange was not one of them. this isn't a matter of data. there was a comprehensive report, issue city did done by a policy institute. all discussions about implementing exchanges. as one of the coauthors said, the states are motivated by mix of policy, strategic calculations by opponents. the available tax creditings was not a factor that played into the state decisions about whether to set up exchange. again, this was not a carrot and sticking incentive scheme.

all believed subsidies would be available on all exchanges including those run by the federal government. based on history and text, i think it's clear the statute not only allows but requires all be available on federally exchanges. it's worth remembering that the statute doesn't need to be clear on that point for government to win. as we've discussed a little bit, there's a key supreme court case that says when statute is ambiguous, courts are supposed to defer to that statute. that's the irs and,hs. both issued rules those tax credits should be available on all exchanges federal and state. with that background in mind, it's worth highlighting quickly comments made by the panel majority and decision. they said at the end of their opinion they were reluctant to reach the decision they did. they felt hands were tied because they were judges.

they said in other words, they were exercising judicial restraint. but the real restraint is do what judges are supposed to do. when a statute is ambiguous, you're supposed to refer to the charge implelting the statute. that's what two of the judges did. one decided it was unambiguous. in the direction opposite the panel. the two said statues are unclear. what does that mean we have to do? that means the rule promulgated by the irs and allow the statute subsidies to be available on federally facilitated exchanges. that's a lot quickly on the merits. i'll spend the rest of my time talking briefly about where we are in the litigation, what's going to happen next. in particular, what might happen after the court tomorrow when the justices meet to decide whether to take a king as a most

folks will know, it takes four votes for the court to decide to hear a case. the bottom line is if the court follows its usual practices and procedures, it will not grant review in king. a supreme court practitioners know the most important factor the court considers in deciding whether or not to hear a case is whether there's division of authority among the courts below. cases coming out of federal courts there's a circuit split. these principles are reflected in supreme court rules. rule 10 identifies the factors the court decides. the first factor is whether united states court of appeals enters a decision with conflict with another united states court of appeals on the same important matter. it's not difficult to understand why that's the rule. the important part of the job of the court is make sure the law is implemented uniformly. laws in one way of the country and different way in a different part. that's why then judge roberts

said job of supreme court is to insure uniformity and consistency of federal law. this is something we see a the justices themselves saying all the time. few years ago a justice told judiciary committee were deciding, they asked is there a conflict? an issue on which lower courts are divided? more recently justice said the same thing in discussing why the court denied hearing the same sex marriage cases. she said when there's no disagreement among the court of appeal, we don't step in. the major job of the court is keep the states more or less uniform. the professor says he wasn't surprised by the denial of split. there's split, no disagreement. there was a disagreement in july. the d.c. circuit has

subsequently granted the hearing. full court is going to hear the case. when it issued the order doing that, it vacated the panel's judgment that eliminated division among the circuits. i'm not going to spend a lot of time talking about the decision. there's conversation about whether that was proper. i'll say it clearly was. you can see that if the rules themselves. they expressly say the view is appropriate for cases of exceptional importance and expressly defines importance to include when there's a circuit split. now the laws challengers of course continue to argue there's a circuit split. they recognize if you want the court to render, it's important there's a split. there is one because the revoou only vacated the panel's judgment not opinion. that's true. it's really a distinction without a difference. what matters for present purposes is there's no division in the way the law is applied in different parts of the country. no need for the supreme court to

intervene now. justice said again -- he talks a lot. he said earlier this month in oral arguments a that the court does not review opinions. it reviews you want j s judgmen results. the other one that could arguably be in play when the united states court of appeals decides the court of law that should be decided by this court. it would be astonishing should decide rising to that level that the decisions don't. why is that? for one, marriage petitions raise constitutional questions about the americans. this is a narrow and state forward question of statutory interpretation. the marriage case involve dozens of state laws and provisions set a side on federal grounds. the kind of question you want the supreme court to weigh in

and assess whether that's valid determination of federal law n. contrast, there's no judgment from court of appeals setting a side regulation at issue in these cases. whatever you think about the court's decision not to hear the marriage cases, i suppose there's a lot of different opinions in this room. the court follows normal practice. it will deny the petition or decide what to do when the full court hears the case. waiting would give the court benefit of hearing what the circuit has to say. that's one reason the court usually waits. waiting would give it a chance to hear from the d.c. circuit and also potentially 10th circuit expediting review. we'll hear next week. i think it will be denial. thanks. >> i think that you got a very good view of both sides of this

question. i think it's clear which way the justice will vote if the court take this is case. let me ask this side of the table to quickly say whether or not do you think the court takes this case or holds on? >> you always should predict that it won't. i think that the factors that might cause the court to take the case here are the fact that when dealing with implementation of large statutory scheme like this when one piece has to be in place before the next piece can actually operate, there is an argument that resolving this sooner rather than later is important for the whole system to work. there are kwgss about how much time states have to reconsider their decision about whether to recreate exchanges. most states made the decision r.

now they have to be in a world rules are not in place. there's questions whether they can get subsidies to create exchanges. do they wait to consider and so on? every a pellet court that's heard these cases expedited these proceedings. every court up to the d.c. circuit, every a pellet recognizes they can't sit out a long period of time. some have a way of letting things percolate. one is decision cost of error. if supreme court makes erroneous constitutional judgment, only the supreme court can fix it really. the statutory case congress can fix it. the court lets constitutional cases percolate a long time even after a circuit split. we have a case complaining about the court not taking

constitutional cases where there were circuit splits. clearly because waiting for the right vehicle. in this kind of context, there's an argument this statute because it involves what congress and state doss, there needs to be clarity sooner rather than later. every court has recognize had the thus far. that might be enough to have four courts as well. >> let me add one comment about this. i think the more recent behavior of the courts is not the same sex marriage cases. i think it's the granting of states in the various voting cases. i think what we see there is when the court believes that lower courts are gaming the system, they're not particularly tolerant of that. here the d.c. circuit and the whole blowing up of the fill buster rule and so forth has politicized this issue. i feel for judges who were just put on.

i think that this is very highly political. the distinction is made between split in circuit versus split in opinions. this is two fancy by half. and t doesn't past the smell test. i think it's always risky to predict the court's going to take the case because the odds are that it's not so certainly she's right about that. but i do think that this has an odor of bad institutional behavior and especially when you add the oklahoma case into the mix. i would not be surprised to see the court agree to hear this case. >> quick rebuttal. bad institutional behavior by the d.c. circuit? >> i mean i think that's the smell test. when you look at the federal rules, this provides for it in the circumstance. i think the politicization of the court is only happening because of accusations by that and i think that is actually why the supreme court may be hesitant to take it because given those kind of comments and the fact it's percolating and quickly in the lower courts it would look like a political move on the court's part to step in

now. >> let's take questions from you. please raise your hand, wait for a microphone. please state your name and any organization you're with if you would like to. this person was extremely quick. >> hi. maureen gravy with "the indianapolis star." indiana's challenge in addition to challenge to the subsidies as greg zoeller talked about this morning, they're challenging the sovereignty issue and whether to tax states as employers. can anyone address whether -- what you think of that part of indiana's challenge? >> i think that's a tougher case to make. i mean, he mentioned that he's concerned about garcia and it's certainly true that the garcia decision, the rationale that the court articulated, the idea that states have enough political weight in congress to protect their own interests has been thoroughly repudiated by the court, but the precise holding

that basically says when states act not as states but as employers or as service providers or market participants can be treated like any other under the commerce power is something that the court has reaffirmed quite regularly in the context of reaching over federalism decisions. so i think if that is going to be challenged, i think a district court is going to go against that. and i don't see many signs the supreme court is likely to revisit that part of its doctrine. >> let me say a word about that. in the nfib case, the states challenged the aca. the states did tee up an overruling of the garcia case and the supreme court denied setter on that issue. soy think garcia is not going to be overturned easily. on the other hand, there are some distinctions from what the indiana case is bringing up and the garcia case.

garcia basically says the federal government can impose working conditions, minimum/max hours laws on the states. this is actually slightly different. this is imposition of a tax on a state, not just requiring compliance but actually penalizing in a certain way. and that is a nontrivial diggs tin distinction. i think jonathan is right, it won't result in overturning garcia, but i think this is a nuance that arguably can put this into the commandeering category rather than the you must live by the rules as every employer must. >> anyone else? >> my name is todd kiefer. i write a blog, freemonkeymarket.com and also contribute to watchdogwire.com in the state of pennsylvania.

i'm sorry i don't have my source to cite my source, but the issue came up of what happens if it stands and the pressure comes on the states to then set up exchanges. from what i found there is $629 million still on the table of level-one awards to states that rejected the exchanges. seven states rescinded those award. but the $629 million is the states that did not. the other problem here is that january 1st, 2015, is the application deadline to apply for level. two exchange award. if the republicans control the congress, they certainly are then the -- the proponents would certainly not get any help there. would at that point obama choose to use his pen and his phone by executive order to extend those deadlines?

>> if i could -- >> sure. >> it's possible that the litigation could -- you know, ooh court could as part of its relief extend some of the deadlines. but two things. one, the fact these sorts of deadlines exist is an argument for dealing with this -- resolving this sooner rather than later. again, that's why appellate courts have always expedited these cases. the next panel i think is going to talk about some of the practical issues, but there are other things in the law that affect how this goes forward. for example, the waiver provisions which we be ginn in 2017 could arguably be used by state os obtain tax credits without having to create a full exchange. they might have to do other things. there's a lot of pieces in this law, which, again, when we look at it in its entirety -- and i don't think it's true those of us on this side fail to look at it in its entirety -- reinforce states have different ways of interacting and the way our system works is that if congress makes an offer to states, states refuse, and the voters of that state don't like it, then we vote people out. that's the way the system is

spoetzed to work. in my state of ohio, people don't get tax credits because we didn't create an exchange. if people of ohio don't like that, they can pressure state representatives to change that. and if because this litigation has dragged on ohio then can't get help, that would really be too bad. i think those that have tried to slow off this litigation, i think it would be a sad consequence if the mechanisms in the law that were designed to help states that wanted to make this election were effectively disarmed or disconnected because the federal government decided to slow the legislation down. >> anyone on this side? >> i think the idea because this involves a complicated regulatory scheme that that warrants a supreme court review now doesn't work. there's all kind of comp collated statutory schemes, complicated federal regulatory programs and the supreme court can't get involved in looking at the legal issues involved in the lower courts. i think the fact the lower courts are taking this seriously and expediting decisions will get this through the courts as

quickly as possible. >> who else? >> clay brockton from height. when can we expect to hear from the supreme court on this decision? and do you think the midterms could have any bearing on them maybe punting on this decision in maybe a couple weeks? >> that's an interesting issue. in due course the order list from today from -- i'm sorry, from friday will be disclosed monday if there's no decision. and i agree with those that have said nondecision is a possibility, then it would be pushed off into the future. it would be rescheduled for conference, at a subsequent conference. so we may not hear -- we'll know monday whether there's been a decision and if there's a decision what it is. we'll also know if there's been a nondecision or a deferral of that decision. so i think that that's what --

that will be monday's news. >> actually, we might not know monday i would say because even if the court decide to take this case from the fourth circuit they sometimes delay northern plainsing that until they've done another quick round to see if there are any structural problems with the case. >> not likely in this case because they'll want to expedite this so it will be heard this term. >> they have plenty of time for that. >> yeah. they could wait a little bit and still have time to get it heard this term. i think if there is a quick denial we'll see that on monday, but if we don't see it on monday it could mean a lot of different things, one, that there will be further conversation, they're still deciding, if someone disagrees with the decision not to hear, writing a denial, that will result in delay, or if they decide to hold it and see what the d.c. circuit does. >> basically, the court can take a case in january and still hear it in the current term. so. who else?

anyone else? question over here? >> my name is rich weinstein. professor adler, about three weeks ago you were dedebating professor bagley in michigan. >> uh-huh. >> you mentioned there was further research taking place. i think you were talking about what was going on with the cgi contract. could you expand on that? >> that's something that i think folks are still looking at. there's ban lot of research trying to figure out what the irs and various federal agencies thought of the statute. there's a house oversight committee report which shows that the irs, as it typically does when it was first drafting its rule, followed the language of the statute and it wasn't until somebody else in either irs or hhs saw a news report about problems this could cause and potential legal issues that someone decided they would depart from the texas statute.

there's a question with regard to the contracts whether or not similarly when the contracts for the computer operations of the exchanges were being developed, whether or not federal exchange -- the contracts for federal exchanges required the same capability of being able to calculate exchanges as the state exchanges. and there are some that have argued looking far more closely at these contracts than i have. reading the statute was bad enough. having to read these dozens upon dozens of pages of procurement contracts seems even worse. there is an argument made that the functionality that the federal exchanges were initially required to have or the congress was required to have for federal exchanges did not require the actual ability to calculate and provide a tax credit. that would be an indication again that folks that do this sort of thing on a routine basis within the bowels of the agencies when reading the statute read it the way i read it in my kansas