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Supreme Court Gives More Power to Govt Regulations

By Denis Kleinfeld
Monday, 31 Jan 2011 08:11 AM Current | Bio | Archive

Who really runs the United States? Is it Congress, or the administration, or the judiciary?

With all the vast amount of legislation passed by Congress — which is completely unread until after it is enacted and regulations issued or litigated — it is nearly impossible for the citizens and taxpayers to know exactly under what law they are liable.

In particular, with all the controversial legislation surrounding the need for health coverage and more doctors in the United States, it would seem logical that the government would do its part in facilitating the training of doctors and improving the healthcare system.

The recently decided Supreme Court case involving the Mayo Foundation shows that this isn’t the case.

For approximately 65 years, when medical students became "residents" in teaching hospitals, they were exempt from payroll taxes like FICA under the 1939 student exemption. Around 1990, somebody in the government decided that this wasn’t good for the government and that by changing the exemption, a couple of more dollars of tax could be grabbed. Litigation continued over the issue until the 8th Circuit ruled against the government.

In 2004, the Treasury issued an amended regulation which effectively overturned the 8th Circuit opinion. The amended regulation provided that employment of more than 40 hours a week isn’t "per se" incident to the worker's (that is the doctor's) education. Specifically, the amended regulation gave an example using a medical student. As a result, there is now FICA tax that needs to be paid.

The Mayo Clinic and other organizations pointed out the obvious to the Supreme Court: that after 65 years, the purpose of the amended regulation was merely to raise revenue and wasn’t really motivated by interpreting any law enacted by some now long-forgotten Congress.

Well, that argument wasn’t a winner.

In an 8-0 decision, the Supreme Court ruled for the government's ability to issue interpretive regulations even if they reversed 50 years of how the government, in fact, applied prior law.

This is a landmark decision which has vast implications.

What the Supreme Court says is that the court will give judicial deference to the interpretive regulations which significantly limits any taxpayer's (or presumably anyone else’s) ability to challenge the validity of the governments "interpretation" of legislation.

The decision of the Mayo case can be viewed narrowly.

Basically, for tax purposes, the government can legislate new tax law by just amending any prior position and making new interpretations that would bring in more money.

The government has always been given the edge when it came to the courts deciding whether the taxpayer could overcome interpretive regulations.

Effectively, when it came to tax law, the taxpayer was presumed wrong and the government was given the benefit of any doubt.

Now, this isn’t to say that every now and then the taxpayer didn't win a case. But, as the court has stated, "We may not disturb an agency rule unless it is 'arbitrary or capricious in substance, or manifestly contrary to the statute."'

And this, of course, is the central and critical problem when lengthy and vague legislation is passed by Congress. The consequence is that knowing how any law is applied is totally dependent on the agencies making regulations and rules.

Regulations and rules which have the force of law but don’t have to have explicit Congressional approval before they become imposed on the taxpayers and citizens.

This Supreme Court decision highlights the problems of allowing agencies of the government effectively legislate instead of having Congress do its job of enacting clearly understood legislation and actually be responsible for approving any further "interpretation" by any federal agency.

The Mayo Foundation case is a tax case. Medical residents will now be limited in claiming an ability to be exempt from FICA. However, the application of the principle of law the Supreme Court decided has wide and vast implications for every business and industry in the United States.

Federal agencies have the green light to be aggressive in essentially legislating by regulation and rule-making.

Clearly, it shows how the entire United States, with the blessings of the Supreme Court, can be controlled and run by the administration as opposed to Congress.

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Who really runs the United States?Is it Congress, or the administration, or the judiciary? With all the vast amount of legislation passed by Congress which is completely unread until after it is enacted and regulations issued or litigated it is nearly impossible for...
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