Wednesday, August 23, 2006

More on the Murphy decision

A few more comments on Judge Ginsburg's shoddy, reckless, and foolish opinion:

1) The whole tone is one of absurdly showy "I'm a great judge!!" He's preening before an imaginary audience.

2) He assumes without argument that the enactors of the 16th Amendment intended their current understanding of the term "incomes" to be constitutionally binding, as opposed to anticipating that experience could rightly bring refinements in the understanding.

3) Amazing disregard of policy and common sense. By policy here, I don't mean tax policy. I mean sound judicial policy in deciding where to intervene, based on what courts are and are not good at doing. Ginsburg apparently thinks that this type of reasoning has no place in constitutional (or one presumes statutory) interpretation, even in the face of ambiguity.

The silly path he takes here, of using antiquated accounting concepts to say that return of "capital," compensation for purely psychic injury, etc. cannot be taxed is one that the courts tried right after the Sixteenth Amendment was passed. Within a few decades, they gave up, because they realized they could not do it well. The sorts of line-drawing judgments that it requires call for a legislatve response. So the courts got out of the business of fine-tuning the boundaries of what cash inflows are and aren't taxable.

In other words, it was sound judicial policy to leave this sort of thing to Congress, or else it was bound to become a complete mess. Are judges supposed to ignore this? Must we assume that the enactors wanted all future courts to ignore it?

Policymaking by judges can get a bad name because it can mean "my preferences regarding controversial political issues." But to jump from that to saying that judges cannot make reasonable judgments about where they can and can't do a good job, given their institutional characteristics, is something else entirely.

4) Ginsburg has one policy-minded hobby horse in the opinion. He abhors the idea that, under the Sixteenth Amendment, Congress can define income however it damn pleases. But again, if common sense were permitted under his theory of judging (if his biases can even be dignified with such a term), he would recognize that this (simply including gross and net receipts of cash) is not the place where policing by the courts is needed to make sure that our government remains one of limited and enumerated powers.

5) Can the rules taxing imputed interest on original issue discount bonds constitutionally be sustained under Ginsburg's view? I doubt the folks in 1918 anticipated that either. What's more, if I arrange a pure arbitrage where I deduct cash interest that is offset by imputed interest accruals, is it unconstitutional to deny the deductions? (After all, while we're at it, why not sweep away as well the idea that deductions are merely a matter of legislative grace. An income concept requires them.)

6) Ginsburg draws a constitutional wall around the issue of whether damages are paid for pain & suffering, etc. or for lost wages. In practice, these are extremely interchangeable categories in terms of actual settlements or jury awards? Constitutionally irrelevant as well?

7) Quick question for any reader who has the time to look into this: has Ginsburg been involved in any of the D.C. Circuit's opinions regarding Bush's claims of essentially dictatorial and unlimited war powers? If he has supported Bush's claims, he is flat-out guilty of hypocrisy in the first degree. No one (John Yoo notwithstanding) could seriously maintain that Bush's interpretation of his war powers follows from original intent. Rather, the claim would have to be that the powers have to evolve to meet today's needs, etc. - a theory of constitutional interpretation that cannot be squared with Ginsburg's opinion here.

22 comments:

Brian Rookard said...

I agree, the Murphy decision is absurd.

The court looks at the 16th Amendment as the source of the power to tax income. That's wrong. The power to tax income is found in Article I, section 8, clause 1 of the Constitution. As the Supreme Court stated in Brushaber v. Union Pacific R., 240 U.S. 1, Congress has a plenary power of taxation and can tax everything (except exports). The power to tax incomes predates the 16th Amendment. The purpose of the 16th Amendment was merely to make sure that income taxes were put in the category of indirect taxes, and not subject to apportionment.

The Murphy court seemed to view the 16th Amendment as some kind of limitation on the power to tax incomes ... as if "if it's 'income,' and the statute is taxing 'income,' then Congress can't tax it.

Huh?

Congress is not limited to taxing incomes ... if it's not income, then the tax should be considered as a tax on something that's not income ... and then ask, would they still have the power to tax it anyway. Well, a tax on damage awards isn't a tax on exports. And it's also not a tax on real property or a capitation tax (so it's not a direct tax and doesn't need to be apportioned). Therefore, it should be considered good.

Probably the best case the DC Circuit should have read to straighten out their muddled thinking on this is the case of Penn Mutual Indemnity Co. v. CIR, 32 TC 653, aff'd 277 F2d 16. The Tax Court ruling in this case was a model of clear thinking on how to approach these types of issues.

Daniel Shaviro said...

Interesting. But I had thought Ginsburg was correct that one needs the 16th Amendment, because otherwise apportionment among the states (obviously not a feature of the current income tax) would be required.

Anonymous said...

As a father of two sons you well know that when babies are born it is indeed an ugly and messy business. While this is an ugly decision, if it stands, what type of son will it grow-up to be? What-if Congress is wrong to tax the status of one's mental-health via the existing IRC 61? If it is Congress's intent to tax the mental, but not the physical in injury-awards damages, at what cost do we retain our sanity without being taxed on it? If not Congress and the Courts, who is to intervene?

Brian Rookard said...

The 16th Amendment is an anachronism, and isn't even needed anymore. If the 16th Amendment were repealed today, there would be no constitutional problem. The courts would promptly declare that the decision in Pollock v. Farmers Loan & Trust is dead, that the Supreme Court doesn't even follow it anymore, and that the income tax is an excise, and that the prior decision (Springer v. U.S., 102 U.S. 586) is now the law of the land once again.

The Supreme Court gave up the entire rationale of Pollock (which declared that a tax on income from real property is a tax on the underlying source of income) in the case of New York v. Graves, 300 U.S. 308.

The income tax will never be declared a direct tax ever again.

The Murphy decision is such a silly decision ... this is one of those cases where the Supreme Court should step in and really lay the smack down on the DC court for a truly ludicrous opinion. I (along with my cohorts in crime over at Quatloos.com) have been arguing with the tax protestor crowd for quite a long time and so we've gone over this whole 16th Amendment stuff time and again. When I read the decision I was flabbergasted (given what I know about the legal decisions involving the 16th Amendment.) The IRS really dropped the ball and the precedent is all there ... this should have been a slam dunk and this is a decision that should never have been rendered.

You should come and join us some times over at Quatloos.

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