Each edition of Tax Matters consists of free-flowing responses by three tax practitioners to a question regarding a current issue in tax law and policy. Tax Matters commentaries provide insightful perspectives on a broad range of topics, making important contributions to the dialogue within the tax bar about cutting-edge issues. Although the commentaries are certainly of interest to the academic community, they are primarily directed toward tax professionals and their clients.
Prompt on the King v. Burwell case
Once again, the U.S. Supreme Court will be deciding the fate of Obamacare—in the case of King v. Burwell. Also, once again, the future of American healthcare reform will turn on how the Supreme Court reviews a provision of Obamacare that was enacted through the tax code.
Whereas the earlier Supreme Court challenge was based on review of the individual mandate provision of I.R.C. Sec. 5000A, this new challenge is based on review of the premium tax credit provision of I.R.C. Sec. 36B. This premium tax credit provision was designed to make health insurance affordable for low and moderate income Americans who do not receive health insurance from their employers or from other government programs.
The question to be decided in King v. Burwell is whether Obamacare’s premium tax credits will be available within the majority of U.S. states that allowed the Department of Health and Human Services (HHS) to establish a marketplace for purchasing health insurance policies (an “Exchange”) on behalf of those states. The plaintiffs in King v. Burwell argue that Obamacare’s premium tax credits are only to be made available within states that acted to establish their own Exchanges.
The plaintiffs’ arguments are based on language in I.R.C. Sec. 36B referring to Exchanges “established by the State”. Examined in isolation, this language certainly does appear to authorize premium tax credits only within states that have affirmatively acted to establish Exchanges on their own. However, in an earlier co-authored essay, I argued that the definition sections of the Affordable Care Act define the word “Exchange” as a statutory term of art so as to specifically include Exchanges that HHS establishes on behalf of the states. Moreover, numerous other commentators have argued that the overall structure and purpose of the Affordable Care Act supports that premium tax credits were intended to be available within all states.
Although this dispute turns on technical questions of statutory interpretation, the real-world stakes are incredibly high. If successful, most commentators agree that the King v. Burwell challenge would seriously threaten the continued viability of Obamacare’s reforms, at least within the majority of states that have not acted to establish their own Exchanges. Indeed, some commentators argue that the Supreme Court siding with the plaintiffs would likely signal the “death knell” of Obamacare.
So far, the debates over King v. Burwell have largely focused on Constitutional law, Administrative law, and other non-tax-law considerations. Might there be unique tax law perspectives that could be brought in to better illuminate these debates? Does it matter that the provision being reviewed (I.R.C. Sec. 36B) was enacted through the tax code? More generally, how should tax lawyers or state or federal government officials respond if the King v. Burwell challenge is ultimately successful? Finally, how should the Supreme Court decide this dispute, and what implications might follow from the Supreme Court’s decision?
By David Gamage, Assistant Professor, University of California, Berkeley, School of Law
 For a more in-depth discussion of I.R.C. Sec. 36B, you might refer to a prior Article of mine: David Gamage, Perverse Incentives Arising from the Tax Provisions of Healthcare Reform: Why Further Reforms are Needed to Prevent Avoidable Costs to Low- and Moderate-Income Workers, 65 Tax L. Rev. 669 (2012). Available at SSRN: http://ssrn.com/abstract=2067138.
 See, e.g., Adler and Cannon, Taxation Without Representation: The Illegal
IRS Rule to Expand Tax Credits Under the PPACA, 23 Health Matrix 119 (2013).
 David Gamage & Darien Shanske, Why the Affordable Care Act Authorizes Tax Credits on the Federal Exchanges, 71 State Tax Notes 229 (2014). Available at SSRN: http://ssrn.com/abstract=2389446.
 See, e.g., Timothy Jost, ‘Tax Credits in Federally Facilitated Exchanges Are Consistent With the Affordable Care Act’s Language and History, Health Affairs Blog, July 18, 2012, available at http://healthaffairs.org/blog/2012/07/18/tax-credits-in-federally-facilitatedexchanges-are-consistent-with-the-affordable-care-acts-language-andhistory/print; Judith Solomon, Health Reform Law Makes Clear That Subsidies Will Be Available in States With Federally Operated Exchanges, Center on Budget and Policy Priorities, July 16, 2012; Amy E. Sanders, A Gap in the Affordable Care Act: Will Tax Credits Be Available for Insurance Purchased Through Federal Exchanges?, 66 Vand. L. Rev. 1259 (2013).Textualism v. Contextualism – King v. Burwell
The Supreme Court is poised to hear argument in King v. Burwell, No. 14-114, a case that touches upon a central mechanism of the Affordable Care Act (“ACA”): tax credit subsidies payable to economically-eligible citizens. This feature of the ACA works in tandem with the individual mandate upheld in National Federation of Independent Business v. Sebelius, to allow lower income persons to purchase health insurance and to assure that insurance pools contain healthier, younger people to offset adverse selection that might drive up insurance costs.
Section 36B of the Internal Revenue Code, which was enacted as part of the ACA, authorizes federal tax credit subsidies for health insurance coverage that is purchased through an “Exchange established by the State under section 1311” of the ACA (emphasis added). The question presented in King is whether the IRS may permissibly promulgate regulations to extend tax-credit subsidies to coverage purchased through exchanges established by the federal government under Section 1321 of the ACA. This is a classic case that pits conservative textualists, who believe in literal plain-meaning review of specific statutory language, against judicial “contextualists,” who argue that the Court should not focus on a single provision, however specific its terms, that is at odds with the overall legislative scheme.
As even casual observers of the ACA understand, Congress provided for the establishment of insurance exchanges to be marketplaces for health insurance in the states. The ACA provided for the establishment of exchanges by the states themselves but, where states refused to do so (and most did), the federal government could, and did, step in to establish state-based exchanges on its own.
The supporters of King argue that the Court need go no further than the literal terms of the provision; in other words, “States” means “States.” And, in the face of the argument that to rely on that view would gut the entire ACA program, these conservatives reply that Congress could have done otherwise but, instead, used the subsidy provision as a “carrot” to get the states to opt in. The Petitioners cite specific evidence of record to support this view and to negate the argument that Section 36B was just the product of sloppy draftsmanship. To them, the failure of that option lies at the feet of Congress (actually the Democratic majority that provided all of the votes to pass the ACA, the extraordinarily lengthy terms of which actually were created by the Executive Branch), and it is not for the Court to rewrite the statute.
Faced with the clear language of Section 36B, the government’s response is often quite tortured but, putting aside the immense amount of handwringing and overstatement in the Solicitor General’s brief to the Court, there are two essential, and potentially attractive, features of the government’s argument. The first is that the tax credit subsidies are a necessary component to make the ACA work and to eliminate them would then keep many people from being able to purchase health insurance and would result in a disparate number of unhealthy, and therefore more expensive, people in the insurance pool. This is demonstrably correct, but does it justify the Court’s (rather than Congress’s) fixing the statute?
The second pillar of the government’s argument is that, taken as a whole, a mosaic of provisions of the ACA demonstrate that Congress intended that the subsidies at issue would be available to the citizens of every state, irrespective of whether a given state had its own exchange or one created by the federal government.
Professor Gamage and other tax specialists argue that the ACA’s definitional sections describe “’Exchange’ as a statutory term of art so as to specifically include Exchanges that HHS establishes on behalf of the states.” Besides noting that a given state governor might strongly disagree that a federal exchange was established on behalf of, rather than just in, a state, one notes that this argument goes further than does the Solicitor General, who, with a clearly discernible apprehension, argues that the total relevant context of the ACA affords the tax credits to all eligible persons regardless of the sponsorship of the exchange in their states, and spends considerable ink describing what it claims is health insurance disaster that would occur if the government were to lose.
At the risk of oversimplification, I suggest that for those “contextualists,” i.e. ,Justices willing to expand their analysis beyond the cabined language of Section 36B, a better initial point of reference than an implied term of art defining what an exchange is might be reference to the definition of who is entitled to the subsidy at issue that does not depend upon implication. Thus, the Court might look to I.R.C. § 36B(a), in which Congress provided that a premium tax credit “shall be allowed” to any “applicable taxpayer.” That term is defined as a taxpayer whose household income is between 100 percent and 400 percent of the federal poverty level. Thus, the government can argue, not without force, that Section 36B(a) defines all income-eligible taxpayers as potentially eligible to receive a credit— regardless of their state of residence or whether that state has elected to operate its own exchange. The question then remains: which Justices are likely to reach a contextual conclusion.
Most Court observers believe that there is little question that the three most consistently textualist Justices—Scalia, Thomas, and Alito—will accept the literalist argument and vote to strike down the regulation. It also is likely that the four most judicially liberal Justices—Ginsberg, Breyer, Sotomayor, and Kagan—will accept the government’s “totality” argument. Given Chief Justice Roberts’s surprising position in NFIB and Justice Kennedy’s general unpredictability, those two justices are likely to be determinative in resolving the competing arguments.
It is worthy of note that, only a little more than a week before the argument in King, the Court handed down its opinion in Yates v. United States, No. 13–7451 (decided February 25, 2015). While a bare majority of the Justices (actually a plurality plus one) reached what it described as a literalist application of a provision of the Sarbanes-Oxley Act, Justice Kagan wrote in dissent:
I agree with the plurality (really, who does not?) that context matters in interpreting statutes. We do not “construe the meaning of statutory terms in a vacuum.” Tyler v. Cain, 533 U. S. 656, 662 (2001). Rather, we interpret particular words “in their context and with a view to their place in the overall statutory scheme.” Davis v. Michigan Dept. of Treasury, 489 U. S. 803, 809 (1989).
What is interesting about this dissent is that, with its contextualist emphasis, it was joined by Justices Scalia, Kennedy and Thomas. Indeed, the prevailing Justices argued much the same thing. Time will tell if this presages anything with regard to King.
One final observation: the King case scenario is an example of what one charitably might call poor government. The problematic language of Section 36B is either the product of mere poor draftsmanship and review or of intentionality on the part of Executive Branch drafters whose work was rubber stamped by the legislators who were determined to enact what they were sent by the President. Within days of the oral argument, the Secretary of the Department of Health and Human Services informed the Court that there is no “back up plan” and that if the Fourth Circuit is reversed and subsidies are denied in states where there is no state exchange low-income citizens will experience massive increases in average monthly premiums and significant loss of coverage. These arguments are likely to have resonance with certain Justices, but the Court should not have to hear them because to do so enmeshes the Judiciary in what essentially is a political policy conflict. It is not improbable that the government will be upheld but, in a more responsible environment, the Supreme Court, indeed any court, should be able to decide cases on the basis of literal statutory terms.
 132 S.Ct. 2566 (2012).
 I.R.C. § 36B(b)(2)(A).
 Patient Protection and Affordable Care Act § 1321, 42 U.S.C. § 18041 (2010).
 I.R.C. § 36B(c)(1)(A).
 Yates v. United States, No. 13-7451, 2015 WL 773330, at * 14 (U.S. Feb. 25, 2015) (Kagan, J., dissenting).
Why Should Tax Lawyers Care About King v. Burwell?
In June 2015 the United States Supreme Court will decide King v. Burwell, and that decision could have significant implications for the long term viability of the federally mandated health insurance system established by the Affordable Care Act. If, as the petitioners argue, Treasury Regulation § 1.36B-2 is invalid to the extent that it extends the premium tax credit to individuals who purchase health insurance through an exchange established by the federal government, as opposed to an exchange established by a State, there is a significant risk that millions of taxpayers who have purchased health insurance through the federal exchange program will withdraw from that program. While that might be catastrophic to President Obama’s signature health care program, regardless of one’s views on that question, there are several other important reasons why tax lawyers should care about the Supreme Court says in King v. Burwell.
That statute at issue in King v. Burwell states that a taxpayer will be allowed a tax credit determined by premiums paid by the taxpayers for coverage in qualified health plans “which were enrolled in through an Exchange established by a State under 1311 of the Patient Protection and Affordable Care Act. . .” The Supreme Court will have to decide whether this language means that the tax credit is available only to taxpayers who obtained coverage in exchanges established by a State, or whether it also is available to taxpayers who obtained coverage in exchanges established by the federal government for those living in the more than thirty States that did not establish their own exchanges. If the Court concludes that the statute is not ambiguous, the decision likely will rest on how the Justices parse the words quoted above.
In their respective merits briefs before the Supreme Court, the parties debate whether it is plausible that Congress intended to condition the availability of the premium tax credit on the establishment of exchanges by States. One problem with this line of inquiry is that it presumes that the Supreme Court can divine the “intent” of the 535 individuals who served in Congress in 2010 – or at least the small majority of those individuals who voted in favor of the Affordable Care Act. Unlike legislation that was drafted decades ago through “regular order,” the Affordable Care Act, like many other statutes enacted in recent years, was developed largely behind closed doors, making it harder for citizens (and courts) to truly understand what might have been intended. Committee reports are not much help, as they too are drafted behind closed doors, and because the reports often do not provide sufficient detail to inform readers of all of the nuance that may lie in the legislation. For these and other reasons, some members of the Supreme Court tend to view legislative history with disdain, and focus their analysis squarely on the words of the statute. Other members of the Supreme Court, perhaps influenced by prior experience in the legislative branch, embrace legislative history as a useful tool for judges to better understand statutes. While it is difficult to predict how the Supreme Court will come out on the underlying issue in King v. Burwell, it is probably safe to predict that the opinions will continue the debate on whether courts should refer to legislative history in their analysis, and how much weight legislative history should be given.
Because the merits of King v. Burwell turn on the validity of a Treasury regulation, the case presents yet another opportunity for the Supreme Court to address the scope of the Treasury’s authority to interpret the Internal Revenue Code. The petitioners argue that because the statute is not ambiguous, Congress did not leave a gap for the Treasury to fill. They further argue that it is not plausible that Congress would give the executive branch the discretion to fill a gap that could lead to billions of dollars of annual federal expenditures, and that if there is any ambiguity in the statute, the ambiguity is in the provisions of the Affordable Care Act codified in Title 42, and as such the Treasury does not have authority to interpret those provisions. On the other side, the government argues that the petitioners’ reading of the statute is not the only plausible reading, and that the Treasury regulation’s contrary reading “is at least a reasonable one warranting deference under Chevron.” From my vantage point, it is not clear that the Supreme Court needs to address these questions if it concludes that the statute is unambiguous. But if the Court provides a roadmap for how to determine when a statute is or is not ambiguous, that might help tax lawyers when analyzing the scope of the Treasury’s authority in other contexts.
So, why should tax lawyers care about King v. Burwell? Regardless of one’s views on the Affordable Care Act, the Supreme Court has an opportunity to inform the larger debate on how statutes are to be interpreted and how far the executive branch can expand on Congress’s words through regulations. Beyond that, there are two broader, systemic issues presented in this case that all of us should care about. First, complex legislation should be drafted and debated in a transparent manner, with opportunity for discussion and input from the public at large, and from all members of Congress. And legislation should be accompanied by reports that address, in detail, the competing views espoused during the discussion and debate, the positions adopted in the ultimate legislation, and the reasons why those positions prevailed. Second, the continued expansion of the scope of programs administered by the Internal Revenue Service, which call upon the agency to delve far beyond questions concerning the computation of income and collection of taxes imposed thereon, creates undue burdens on the core function of the tax collector. The requirement that the Internal Revenue Service devote its scarce resources to administer the Affordable Care Act has hampered its ability to issue timely guidance in other areas, and has added fuel to the fire for those who seek out opportunities to demonize the agency. If the government prevails in King v. Burwell, the agency will continue to be demonized, and its priorities will continue to be questioned; if the government loses, the agency will then face the dilemma of whether to use its collection apparatus to recoup the premium tax credits paid to millions of taxpayers who enrolled in the federally-sponsored exchange, or to instead exercise its authority under I.R.C. § 7805 to limit the retroactive effect of judicial decisions and permit those taxpayers to keep the subsidies they have already received. Regardless of the choice the agency makes, it is sure to face some criticism. One can only hope that other observers will recognize that the true fault lies with how we got to this point, and for that the agency should not bear the blame.
 I.R.C. § 36B(b)(2)(A).
 While a plain reading of the statute might seem to favor the petitioners’ argument, given that States establish exchanges under section 1311 of the Affordable Care Act, but the federal government establishes exchanges under section 1321 of that act, it can be difficult to predict how the Supreme Court will read a statute. For example, in Yates v. United States, No. 13-7451, 2015 WL 773330, at * 5 (U.S. Feb. 25, 2015) the Court recently concluded that the phrase “any record, document or tangible object” does not encompass all tangible things, but rather that it means only those “objects one can use to record or preserve information.” While welcome news to Mr. Yates, the fisherman who faced a potential 20 year sentence for destruction of fish, the Court’s plain reading of the underlying statute appears to have added words to the statute that Congress did not actually include.
 See, e.g., Conroy v. Aniskoff, 507 U.S. 511, 519 (1993) in which Justice Scalia, in a concurring opinion, stated: “We are governed by laws, not by the intentions of legislatures.”
 See Stephen Breyer, On the Uses of Legislative History in Interpreting Statutes, 65 S. Cal. L. Rev. 845 (1992).
 There is also the question of what constitutes “legislative history”. For example, Justice Breyer has described committee hearing testimony from individuals (not members of Congress) and floor statements by members of Congress as within the rubric of legislative history. See, e.g. Allied-Bruce Terminex Companies, Inc. v. Dobson, 513 U.S. 265 (1995). On the other hand, Justice Scalia appears to take a narrower view of what constitutes legislative history. See United States v. Woods, 134 S.Ct. 557, 568 (2013) (concluding that a “bluebook” prepared by the staff of the Joint Committee on Taxation was not a legitimate tool of statutory interpretation, but that, “like a law review article, may be relevant to the extent it is persuasive”).
 Brief for Petitioner at 18, King v. Burwell, No. 14-114.
 Id. at 51.
 Brief for Respondent at 55, King v. Burwell, No. 14-114.
The Premium Tax Controversy and the Supreme Court: Will the Rule of Law Prevail?
On March 4, 2015, the U.S. Supreme Court heard oral arguments concerning whether individuals who purchase qualified health plans (health plans) through Healthcare.gov, the Federally-facilitated exchange (the Federal Exchange), are entitled to receive premium subsidies from the premium tax credit in section 1401 of the Patient Protection and Affordable Care Act (ACA), codified in 36B of the Internal Revenue Code. In King v. Burwell, the Court has been asked to determine the legal significance of the following language in section 1401 of the Affordable Care Act, which provides that the credit is available to individuals who purchase a health plan “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act.” A decision is expected by the end of June 2015.
The decision has tremendous economic health consequences to people in States that opted not to establish exchanges because approximately 70% to 80% of the individuals who purchase health plans through the Federal Exchange receive some form of tax credit to subsidize their health plan premiums. If the Court decides in favor of the Department of Health and Human Services (HHS), the Court will have to address other knotty issues to reach that result like the importance of legislative intent when the language of a statute is clear on its face. Even this will be problematic because much of the deliberations concerning the ACA took place behind closed doors, there was deal-making to garner votes for the ACA, such as the so-called “Cornhusker Kickback” and there is very little traditional legislative history for the ACA. Furthermore, there will be virtually no prospect for technical corrections legislation to correct legislative glitches in the ACA for the foreseeable future. Hopefully, the Court will disregard after-the-fact explanations of so-called legislative intent offered by proponents of the ACA in amicus briefs and focus on the words, legislative language, legislative procedures and actual actions of legislators before the ACA was enacted.
I believe the legislative intent to limit premium tax credits to residents of States that established exchanges is clearer than one might think, based on how Congress approached Medicaid expansion. There, Congress explicitly told the States that they either must participate in Medicaid expansion, which is funded in the near term by the Federal government, or lose the Federal share of Medicaid support in its entirety. The legislative intent to coerce States to participate in Medicaid expansion was so clear that the Court found it unconstitutionally coercive in National Federation of Independent Business v. Sebelius.
Similarly, it does not require a great leap of logic to reach the same conclusion about premium subsidies for commercial health plans purchased through State exchanges. Just as did for Medicaid expansion, it is reasonable to argue that Congress wanted to incentivize States to establish their own exchanges and that it did so with the “carrot,” tax credits under section 36B for health plans purchased through State exchanges, and the “stick,” no tax credits for health plans purchased through the Federal Exchange. Congress also offered the States generous grants totaling more than $4 billion to fund the development of State-run exchanges. Obviously the “carrot” and “stick” approach coupled with generous grant funding failed in all but 16 States and the District of Columbia, but that should not give license to the Court to ignore the clear statutory language in section 1401 of the ACA.
The ACA will not fail if the Court finds the section 36B Treasury regulations invalid; while important, availability of the tax credit subsidy is in reality only a small piece of a complex statute much of which will be difficult politically to repeal. Instead, State legislatures and governors in States that elected not to establish an exchange will face the same political challenge they faced with Medicaid expansions as originally enacted: Do they continue to oppose the ACA on political grounds at all costs to their residents? Or do they compromise on a matter of economic interest to their residents and establish a State exchange rather than rely on the Federal Exchange?
More is at stake. Words of a statute, particularly words that are part of the Internal Revenue Code, have meaning and should be given their meaning by courts. That is the rule of law. And that rule of law should be followed irrespective of whether one is in support of the ACA or would like to see it repealed in its entirety.
 I.R.C. §36B(b)(2)(A).
 The “Cornhusker Kickback” was a deal struck to secure Nebraska Senator Ben Nelson’s crucial sixtieth vote to invoke cloture and render the Patient Protection and Affordable Care Act filibuster-proof. The deal gave Senator Nelson’s home state – Nebraska – $ 100 million in Medicaid funds to fund Medicaid expansion and anti-abortion language and also exempted Blue Cross and Blue Shield of Nebraska from the annual fee on health insurers found is section 9010 of the ACA. See ACA § 10905(c); Statement of Senator Mike Enzi (R-Wio.), Cong. Rec. S13813, at S13814 (Dec. 23, 2009). Senator Carl Levin (D-Mi.) obtained similar relief for Blue Cross Blue Shield of Michigan. Id. The Cornhusker Kickback was eventually repealed by another enactment, a reconciliation bill entitled the Health Care and Education Reconciliation Act of 2010, which was introduced and passed shortly after the Patient Protection and Affordable Care Act. The legislative history and logic regarding the use of reconciliation in this matter is a tortured one, complicated by the special election of Republican Scott Brown to fill Ted Kennedy’s vacant Massachusetts Senate seat. For a fuller history regarding the use of reconciliation in the passage of the Patient Protection and Affordable Care Act, see Tonja Jacobi and Jeff VanDam, The Filibuster and Reconciliation: The Future of Majoritarian Lawmaking in the U.S. Senate, 47 U.C. Davis L. Rev. 261 (2013).
 See John Cannan, A Legislative History of the Affordable Care Act: How Legislative Process Shapes Legislative History, 105:2 Law Lib. J. 131 (2013-7).
 132 S.Ct. 2566 (2012).
 See Paul Demko and Darius Tahir, Funding Woes Imperil Future of State-Run Insurance Exchanges, Modern Healthcare 8 (Jan. 12, 2015)(“So far the CMS [Centers for Medicare and Medicaid Services] has dispensed more than $4 billion in grants to help launch state-run exchanges. In December , the agency issued its final round of grants, roughly $265 million to 10 states with existing state-run marketplaces ….”