efforts to prevent money laundering. the kato institute recently hosted a discussion on whether the obama administration overreached in extending tax credits and subsidies for -- the

circuit courts are currently split with the d.c. security ruling that federal subsidies are only available in health care exchanges established by the state. meanwhile the fourth circuit court of appeals -- were permissible at the discretion of the irs. this is two hours. >> i am david bose, i'm the executive vice president of the cato institute, i know there are more people who are going to be coming in, but we're going to go ahead and get started and try and stay on time today. the subject for 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 obama care. but they are not lawsuits about

obama care. they are lawsuits about the rule of law. back in 2011, the supreme court quietly re -- 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 cannon, one of our scholars here at cato were the first to blow the whistle on this problem. the aca, they pointed out, only authorizes those taxes and those subsidies in a state if the state establishes an exchange. the irs persisted, it's been spending billions of dollars in subjecting tens of millions of employers and individuals to

penalties that are not permit bid 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 implementing 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 the health care law. someone unearthed this video of jonathan gruber who is widely held 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 prromney's health care plan. and jonathan gruber was discovered halfway through the discussion of all of these things, making this point about the aca.

>> that means your citizens don't get the tax credits. >> so there is a guy who knows more about this law than anybody else does, and he says if you're a state and you don't set up an exchange, that means your citizens don't get their tax credits. tomorrow the supreme court will meet to decide whether to take up one of these lawsuits. two of these 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 indiana attorney general greg zeller, who was the first to challenge the irs in court. in between we will have one panel of scholars debating the legal merits of this case. >> on october 8, 2013, greg zeller became the fourth person and the second attorney general to file aç legal challenge to that irs regulation in indiana, the irs. he was joined as a plaintiff by 39 indiana school systems, those

public school systems say they have had to reduce the hours of nonsupport staff, like bus staf staff -- regular zeller 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 quail, first in the senate office and 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 school of law. welcome greg zeller.

>> 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. and hopefully we'll condense this and try to take some questions. i'm almost sorry that you mentioned my ten years in the federal government with senator and vice president quayle. in indiana, i deny it and i have learned the federal government is not a well loved institution and congress even worst, so it was a clintonesque deny, deny, deny. i guess that was my brother skippy that was actually in the white house and not your attorney general. but i think i have resolved my

checkered past by suing the federal government several times. that's very popular in the state of indiana. let me explain when i come to washington, i have to explain a little bit about states. what you have read ins books is not exactly true. first of all, it's true that al states are not alike, since we're sovereign, we have our ability to create our own sovereign government in the way we choose. indiana is one of six states which has chosen i think a little bit more of a conservative past in our history, and we have created the office of 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 of -- which would allow you to do things based on the need of the population that you serve. if you're a staff statutory office, you represent the state government. we don't have the same expansive role to be able to represent the people as individuals, so i thits it's a distinction that plays out in this area. a little history that proves out that point. in the leadup to the passage of the i fordable carable, our

senator richard luger recognized that in the stature of the attorney general, my office was able to do research for the so this dates back to kind of the quaint days when senators represented state legislators before the 17th amendment. so senator luger, seeing the coming of the affordable care act, asked my office to do a report. we did a 675-page report that told the senator that there was some substantial constitutional issues being raised by the way they have structured the affordable care act. and i knew in kind of in conclusion that should it pass in its current form which at the time it was unlikely, everybody assumed that it would be changed when it went through the house and back to the senate. i said that if it passed in its current state, i would feel

compelled to when it did pass, there were a number, i think 13 attorneys general that filed maybe minutes after the president's signature. indiana was not one of those, the original lawsuit focused on original mandate, and 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, but our real focus was on that relationship between the federal government and the state, being coerced to expand our medicate program or loses all of the moneys that we currently were giving from the previous deal with the federal government. so i think that, as you look through the court's decisions, chief justice roberts, again, i'll throw out a shoutout to our hoosier born supreme court justice, but the three points that were made clear in his decisi

decision -- i 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. finally in saving the constitutionity of the case in the affordable care act, he found that there was a taxing authority being implemented by the federal government in which they had that authority to have a tax penalty. so when you look through the history since the passage, and the supreme court's decision, all of the states have now made their choice.

that was a sovereign, based on our authority as a state sovereign, it was not manage dated by a federal solve republican, it was something that the state chose. it's not the way that the affordable care act was written, because if you look through the first few paragraphs of the act, it says this is an exercise -- that's what we defted girps, that's what we challenged, we were i'll admit a little bit surprised about a saving under a tax penalty. that's not the subject of my remarks today. the real issue, when you think about it from the perspective of six 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 -- where the states actually won under a 5-4 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 standardables and terms and conditions of ememployment. now i'm still not happy about garcia, and frankly i would like another shot. now the question, under of the rule of law is whether the federal government has the ability through the irs to regular laid my sovereign state under a taxing authority. you know, 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 to demonstrate that under our challenge, it's not so much just scott pruett and explained from a congressional 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 the, what i would consider a

somewhat draconian tax penalty, the math is that you count up how many employees you have, the state has 28,000 employees and you multiply 2,000 times your workforce and that is your tax penalty. even if you were just to misa few employees being covered 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 have joined, i was talking to a few people in the hall, they're usually not standing next to me during my election process. but they were very concerned about the way we educate our children and our school corporations as 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 aid, the people that work in the cafeteria, under indiana's law, 37 and a half 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 toil. so they therefore had to crete a whole process of moving people down to 30,000 or les. i would be willing to defend if they were sued under a tax

penalty, as i am willing to defend my state. as i thought about it, it was enough not to wait to be penalized. 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 obama care, which as it's been kind of labeled, but it really reflects the fact that whether the federal government can require an employer under their taxing authority to be subject to the same dictates as trp

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. state is really the intergovernmental tax immunity that we have lived with as part of our federal society and the sovereignty of each. i have joked among our legislators, and some of them didn't think it was a joke, but i have talked about if there was a tax penalty, we could have a 100% reciprocal tax.

if you think about it, if we're going to break the deal between the sovereigns of intergovernmental tax immunity, that the federal government has the tax penalty authority, does that mean the state as sovereigns themselves 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 treats states not as sovereign but as taxable entities that people raise for consideration, i know there's a number of people from the academy, if you congress tend that states are taxable entities, and can be taxed as

employers, it's not about health care, it's not about health care, it's a question of federalism and what is left of federalism if the federal government has the so with that question, i think i'll conclude by saying, this is the obligation of state we often sip federal funds and have sold part of our sovereignty and we explain about the springs, but we have entered into a deal with the so republicans and are subject to rules and regulations, i do think it's time for states to do more in the goal of checks and balances that our constitutional.

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 in our state government to do more in terms of being the sovereign and challenging the acts of our federal sovereign friends when they get out of line. is 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 and please wait for a microphone to get to you so everyone can hear. >> i'm sam castle, in regards to

the groovr video, the groover video was discovered a few days how big and i don't know if richard winestein is here in the audience, i think he ought to be thanked for actually finding it and posting it on the web. but my question is, if you look at the oklahoma ruling, that has a very interesting discussion of the groover video, and i was won'tering what extent if any that played a role in any of the -- >> well, it was an 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 a frame work of oral arguments. so we're still at the district court level and it was not-we're not briefing and arguing in

front of the court of appeals. so it was very limited in terms of his questions, and i think it really didn't explore anything like what i saw come out of the oklahoma case that went up to the court of appeals. >> any other questions? in that case, we're really on time. so let me simply ask the panelist or the first panel to come up here.

my name is bob barnes. my job will be to give them subtle signs that they have gone on too long, i'll do something like that. and to move things los angeles to sort of help with your questions, when you have some. and 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.

the memorial professor of law, director of the center of distance law and education. he teaches courses in environmental, administrative and constitutional law. his work has appeared in publications ranging from the harvard and environmental law review and the supreme court economic review to "the wall street journal" to the usa today. testified before congress a dozen times. he is contributing editor to the national review online and a regular contributor to washingtonpost.com. he along with michael cannon is the co-author of taxation without representation, the illegal irs rule to expand tax credits under the ptaca which appeared in the journal health matrix, he's credited with being responsible for the current

solidify indication. >> he teaches legal writing, statutory interpretation, the place of writing and brief writing. he earned a ba in matt aches and a ba in economics from brown and his jd from columbia law school. he was a kent scholar, executive mack managing editor of the columbia law review. after law school he clerked for girard limplg, the united states district court for the southern zriktd of new york, i'm sorry, and -- before entering academia,

she practiced civil litigation in seattle, white collar criminal defense and civil litigation in new york. breeann garard. i hope i said it right, is constitutional accountability center's and pell rat counsel. richard counsel in the firm's supreme court and appellate practice. prior to joining melvin myers, he was an attorney advisor in the office of legal counsel at the justice department. he also served as a law clerk for justice steven briar. for academic -- the duke law journal, northwestern university law review, the washington law review, the american university law review and the yale law and policy review, he's one of the drafters of the am meek cuss brief on behalf of members of

congress and states legislature, she received her degree from emery university. and university professor of constitutional law and health law at vangder built university so with an ma and mb from yale. he's a selected member of the institute of medicine at the national academy of sciences, he served as a member. anded a minute of the advisory panel in the use of medical technology, office of technology assessment. in addition, he served as former seat governor, counsel on reforms. and that's tennessee's medicaid programs. he also has lit gate constitutional years in state

and federal court, i was particularly grateful for that lawsuit because it allowed me to write about high school football and covered the supreme court at the same time. most recently he's written and spoken about the state's constitutional challenge. the successful friend of the court brief on the issue in the supreme court. and has testified before congress about the issue. whether subsidies under the aca has accrued to income qualified person to purchase insurance under federally run exchanges. as you have heard, one of these cases, the appeal from the fourth circuit, is currently at the supreme court. it at least was, i didn't check 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 pattern if the court decides to take a case, if you wait 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 courts koumtd decide not to take the appeal or simply hold on to it for a while. so while there is some action plans for tomorrow, it's unlukely that we will find out riling away exactly what the court decided. with that, i'm going to turn things over to professor burn stein who's going to start us off. >> thank you very much.

from vanderbilt law school, delighted to be here, i want to give a shoutout to michael cannes and the stars of the issue that we're going to be talking about and whose work has really been crystallized and per sued this with vigor and not this intellectual and academic background, but with a real seven sus mission. tom miller who will be on the second panel at adi who's also been extremely important in working on this issue. this case, the issue was poo-pooed in the beginning, the king case out of virginia is now pending before the supreme court and the court will decide or at least potentially could despite

if tomorrow whether to take up the case or just when the case will be reviewed, if at all. it reminds me of a story i would 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 and it's a story of a man who calls home. a woman answers the phone and he doesn't recognize her and she says who is this? and she said i'm with the new cleaning service. and he said would you please put my wife on the phone and she said she's unavailable. why is she unavailable? because she's with a man upstairs in the bedroom. he said how would you like to earn a lot of money. how much money? $10,000. i want you to take the gun that's in the table, in the vestibule, i want you to go upstairs and shoot my wife and

the man she's with. 10,000, you have a deal. he hears the drawer opening, he hears her walk up the steps, he hears her open the door, the shots ring out, she comes back down and says i've shot your wife and the manage she's with, where do you want me to dispose of the body. he said i want u you to drag them across the steps, and across the patio. >> she said patio. she said there's no patio here. i think a lot of the opponents in 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 so resz departments of states that

have not set up health insurance exchanges. the federal government runs exchanges in about two-thirds of the states. the subsidy affects the large employer mandates because the mandate that is triggered by the law is trigger when one employee receives a federal subsidy, so if there's no subsidy that's available, then the employer mandate does not kick in. the affordable care act and there's been a lot of kind of sophisticated discussion and really acts is -- but the basic point is this. the affordable care act makes provisions for two types of exchanges, where persons can purchase medical care and medical insurance. section 1311 of the statute says

the state shall establish an exchange. the federal government cannot force states to establish a change. when this was drafted, somebody who had basic constitution 101 looked over this and decided that this is not a workable solution. but typical of this very large law, folks did not go back and change the language to 1311. so you have language that clearly connotates the states should be the source of the exchanges but realizes constitutionally it cannot be done that way. because of the anti-common deering principle. then you have section 1321. there's nothing in 1311 that takes butt the -- clearly the idea was for states to do this.

this is an oops provision, because 12321 provided that the federal government shall schedule up an exchange if the federal government opts 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 an 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 if states do not set up an excha e

exchange. now note the 100 to 400% of poverty means if you have under 100% of poverty income, you do not qualify for a subsidy. many states have not expangded medicate as a result of the nfib decision, tennessee being one of them. and as a result there are folks who have income under 100% of poverty who do not qualify for medicaid, they don't get a subsidy, they don't qualify for a subsidy. so what are the requirements for subsidy? under section 1401, there are bafblg 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, but by a state under section 1311 are expressly enumerated and limiting terms in section 14101. there is no comparable subsidy for those enrotted in an exchange established by the government under section 1321. so at the eptd of the day, that's all i should really need to say, i should 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, adopted a lul that the subsidies apply to both federally run and state run exchanges, even though there's no express statutory authorizizations for that, in fact it's the opposite. so what the plaintiff's claim in these cases? the court claims, the subsidies are provided for state run exchanges under section 1311 and

not for federally run exchanges under section 1321. and there's several rationales. the limitation of the subsidies was in fact purposeful. when the federal government realized that it could not main date the states accomplish -- to have the states run the exchanges, since coercion was not possible, therefore the subsidies were designed to encourage the states to set up the exchanges, the states are the gate keepers and that the letting tiff history supported this, that this was an induszment on the part of the federal government to enkurjs the state to set up an exchange. can't force them, but you can bribe them or incentivize them too. here would be a good place for the gruber clip.

michael cannon has been promoting it. the you run the grouper clip for me? the federal government has been sort of slow in putting up the backdrop, in part because they want to squeeze the states to do it. what's important to remember politically and you're not the -- blatant enough political reality that states will get their act together and realize that there are billions of dollars at stake here. but once again the politics can get ugly around that. >> and so, gruber was one of the architects of the structure of the plan, hiss economic model was influential driving this. but we don't need john and grouber to read the statute, any person that can read the statute, the idea was section 1311 states should run the

exchanges, the federal government cannot force the state to do it. and so the incentive structure was put in place to encourage and strongly incentive vise the state. this is my view in this is as the court fourth circuit says the language says what it says, or it is what it is. this is an important philosophical principle. the affordable care act provides subsidy to one kind of exchange that says nothing got a subsidy for one kind of exchange. what the congress did is the key. not what we intended, we don't psycho analyze the congress, there's a case called railroad requirement board against fritz, we look at the statute and we determine what the statute did. we don't go background and look at the purpose in broader terms and in ethereal terms, we look

at what it actually did. and in this case, what congress did is not what it's intended is the critical part. and judge griffith in the dc circuit picked up on this and said if there's a gap in the statute, it's really for congress, it's a separation of powers issue, it's for congress. so wimpb of the courts, the fourth circuit and the descent into the -- this is the rationale that developed with one of the colleagues i think in the constitutional accountability center, my old friend si laz rest, it allows for the federal government to stand in the shoes of the state governments and if they stand in the shoes, meaning that under section 1321, the federal government can set up such an exchange as contemplated by

section 1311. but this is somewhat problematic, because there's an express provision for subsidies and no such comparable provision in any explicit way for federal exchanges under 1321. with the concept of established on behalf of the state, those are not the same things, from a textur tex point of view, state governments are insent vised and the state government is now standing in the shoes, but it's very different. it means that the federal government has the authority to it set up an exchange. i find this to be an awful lot of analytical weight on a very small analytical term. then the courts have looked at the broader intend, which is what i call the earlier psycho

analysis. this is problematic also. it is true that there's language in the affordable care act, that there's a goal of establishing or moving towards universal covera coverage, but intent, in the abstract motion is not really very satisfactioning. it proves too much. and here's the example. clearly congress wanted to cover, to expand ed indicate and actually tried to coerce states to expangd medicaid by threatening the loss of all medicaid if they didn't expangd medicaid. the supreme court 7-2 found that that was coercive and unenforceable. now we have situations where nearly half of the states are not expanding medicate. all these folks with the income in the 100% to 400% of poverty range qualify for subsidy. you have folks who are too poor

for subsidies. if you're in the 100% to 400% of poverty range, but on medicate you fall under 100% of poverty, there's no subsidy for you. can't the irs make a rule if you're not on medicaid you income under 100% of poverty, you qualify for subsidy on the exchange. if you look at the broad intent, that's what congress would have wanted because they thought everyone wanted to fall under medicaid. that's not the case. 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 would refuse to expand medicaid. never contemplated the nifb case and therefore we as an administrative agency as a

regulatory body can, in fact, expand those 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 the language of the statute limits the statue from 100 to 400% of poverty. so 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 the supreme court said or the particular 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, they are not right, that this was not an intentional strategy, but in fact was an

oops provision? and was 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 it to play out, the right way to do this is to go back to congress and get a change or a fix. 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 in the states and lot of pressure on states like

tennessee and others that have not established an exchange to establish the exchange. that's not a static situation. there's tremendous pressure to do that. the issue will be business clie gnat on the one hand versus subsidies for more folks. then in terms of broad issues, i've mentioned the separation of power. that's what this is really 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. 60% in the senate. 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 require the advocates of the affordable care act to negotiate with the republicans and require the republicans to negotiate with the democrats. because if the plaintiffs win, it will be a politically unsustainable position. on the sir question which will be decided tomorrow, i think there's no purpose in waiting. i think there will be -- i'll talk about if we have questions. i'll concludes 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. slides. here we go. great.

pleasure to be back here. i wanted to start off by saying how i got involved in this issue. in early 2011 i was asked to present a paper at a conference on health care policy at the university of kansas looking at federal state interactions 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 preexemption or tax treatment to induce state cooperation in the achievement of goals. so in preparation for this conference, i did what one would have thought you should do in a statute like this. i read these. 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 that we are here is perhaps a consequence of the fact that sometimes people didn't read the bill. i read the bill and noted in the paper i presented in early 2011, the way the statute is plainly written, tax credits which must be authorized by congress because the irs only has the authority to recognize tax credits in so far as congress has authorized it to do so are authorized for the purchase of health insurance in exchanges established by a state under statute 1311. they are not otherwise authorized. in a room full of health care officials, federal health folks, no one thought this was controversial in february, 2011. the irs had yet to promulgate a rule authorizing tax credits and

federal 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 of the statute couldn't work. it offered no meaningful 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.

insufficient statement or explanation of statutory interpretation and a rule -- an 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 implement the law that hhs shall establish and operate. why is that important? because congress saw the difference between establishing the act of creating, authorizing of 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 subsidies established by the state under 1311.

language that was used repeatly in 1401. 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 put both there. i highlighted the establish by the state in the coverage provision because that's added very late in the drafting process. the reference to establish by the state in the premium assistance amount is language after it comes out of the senate finance committee, but later on in the process, the senate leadership including staff of senator majority leader harry reed are making fine-tuning adjustments to the statute, going through it line by 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. if reference to a section 1311 exchange is by definition an exchange established by the state, 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 would happen, of why this language would be there. the best explanation is it was convenient short hand for exchange. convenient shorthand that's longer and required members of congress to add 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. establish by the state is not used anywhere else in the statute except in provisions that are serving that purpose. now, in terms of why would congress do this because this is the question. why would congress think to do something like 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 comen dear, everyone knew that congress could make states a really good offer but it had to be an offer. the state that refused to accept the medicaid expansion as the statute was written would leave the poorest and most vulnerable people in that state without any help under the medicaid program. that's the way the statute was written. conditioning a whole lot of the statute's 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. in fact, the structure of using coverage month basis of how you define eligibility was, in fact, found in that prior statutory language, again, 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, someone significant in this statute to be invited to the white house when the statute was signed. he offered a paper 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 respect tax subsidies with savings accounts. pointing out that you and congress has done this before and you can do it. 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 states taking legislative action required. this was part of the debate not only among outside commentators. it was a mechanism, it was a tool that was discussed and proposed in the senate in other bills as well. it was a way to avoid the federal take over charge. one of the reasons the senate unlike the house wanted to go with a state exchange model was because there were some members of the senate, some democrats in the senate that were very afraid of going home and having to defend a bill that could be characterized as a federal takeover. so a bill that said states are going to create exchanges and

that made sure that states would do it was the way to bunt that charge. for example, the senate democratic policy committee in late 2009 in responding to the claim that the bill would be a federal takeover said there's no government takeover. why? because all health insurance exchanges are run by states. a claim that cannot be made based on command of states. because we know such a command is not constitutional. a claim that can only be made if we believe the statute provided incentives for state that would produce state cooperation. 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. why? because the federal government threatens to take away highway funding. if states refuse to cooperate, if 36 refuse to cooperate like in the clean air act like they have here, it 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 just 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 oppose this statute, opposed cooperating with the statute 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 mentioned other aspects of the tax credits. the fact that there's an income floor not just an income ceiling. there was an assumption states would cooperate. the idea states would just say no wasn't contemplating. was that a mistake? seems so. the sort of mistake that can be fixed by administrative fiat? of course 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. text r -- text. 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 spend 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 reflected in the statute that every state would cooperate. not once did anyone say contrary to the text of the statute, 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 exchange provisions. jonathan cohen said i wasn't paying attention to provisions. maybe that's why i wasn't aware of this. 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 some statements. we didn't find any. no one has come up with even a congressional statement with something contrary. i mentioned some states would cooperate. the last reason -- how am i doing 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. senate bill said state exchanges. we have to have a federal fallback kind of sort. 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 senate bill was the senate's negotiating center. 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. other limitations of the senate bill can be addressed through other means. 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.

there were no longer 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. >> thank you, jonathan. >> 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 i 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 to d.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 arguments in favor of government positions. that's 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 interpretation. my friends on the right, physically on the right and maybe politically on the right have been interpreting this statute and advancing in these cases theory of statutory interpretation that they call plain text or plain language meaning of the provision at 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 doesn't win on a technicality. it wins because the government's interpretation is the best and only reasonable interpretation under the statute. the reason this broader one is statutory interpretation is the proper one is that it's been endorsed very 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 scheme. 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 statute more generally. the overall design and object of statute, structure of the statute.