REVIEW & OUTLOOK
Obama’s Tax Law Rewrite
Where’s the law that gives Jack Lew the power to raise taxes?
Updated Aug. 7, 2014 2:25 p.m. ET
It’s going to be a busy autumn of law-writing for the Obama Administration. The President has said he plans to act unilaterally to reinterpret the immigration statutes, and now the Treasury Department says Secretary Jack Lew is looking for heretofore undiscovered legal ways to block corporate overseas tax inversions. The not-so-minor detail missing here is any legal justification.
Let’s focus today on tax inversions, which allow corporations to relocate overseas in a way that reduces their tax liability. Mr. Obama has conceded these are legal, and as recently as July 16 Mr. Lew told CNBC that “we have looked at the tax code. There are a lot of obscure provisions that we do not believe we have the authority to address this inversion question through administrative action. If we did, we would be doing more.”
Jack Lew Bloomberg News
But lo, on Tuesday a spokeswoman announced that Treasury “is reviewing a broad range of authorities for possible administrative actions” to limit inversions “as well as approaches that could meaningfully reduce the tax benefits after inversions take place.”
Hello? That sure sounds like rewriting tax law by executive fiat, which violates the Constitution’s separation of powers. The rewrite is all the more legally suspicious since no one at Treasury or the Justice Department seems to have been aware of this power before Mr. Obama began denouncing the “unpatriotic tax loophole.” From where does Mr. Lew derive this power to act like a one-man Ways and Means Committee?
Then again this Administration doesn’t seem to care if it has a legal explanation for its unilateral actions. That stands in marked contrast to other recent Administrations, which typically consulted the Justice Department’s Office of Legal Counsel (OLC) for advice on controversial legal issues. The CIA insisted on such advice for its enhanced interrogation program after 9/11, for example. You can disagree with John Yoo’s OLC opinion, but it was a serious legal case.
Heritage Foundation Chief Economist Stephen Moore on how the executive branch is finding legal loopholes to prevent American business from moving abroad. Photo credit: Getty Images.
By contrast we’ve heard little about the legal advice presented to Mr. Obama, with the exception of the justification for drone killing in the war on terror. Was OLC asked for its views on Mr. Obama’s decision to suspend enforcement of ObamaCare’s employer mandate? The Administration won’t say. How about the selective nonenforcement of the marijuana section of the Controlled Substances Act?
As it happens an OLC precedent is directly relevant to tax policy. President George H.W. Bush campaigned in 1988 on cutting the capital-gains tax, but Democratic Majority Leader George Mitchell used a filibuster to block it in the Senate as the economy stumbled.
As Mr. Bush sought re-election in 1992, these columns urged him to use what we believed was his unilateral authority to index the capital gains tax for inflation—a way to boost the economy by other means. Our legal argument was that the term “cost” as written by Congress in the tax code is ambiguous and doesn’t mean the “purchase price” of a stock as interpreted in Treasury regulations.
The White House counsel’s office wrote a lengthy memo explaining Mr. Bush’s legal power to do this. But the Treasury’s legal department disagreed, the Justice Department was asked for its opinion, and the OLC lawyers sided with Treasury. Mr. Bush declined to act, the economy took longer to recover, and Bill Clinton won the 1992 election.
So now we have a President in an election year looking for a way to raise taxes on corporations after he couldn’t get Congress to agree. Has anyone asked Treasury’s career lawyers or the Office of Legal Counsel? Someone should. And when the next President arrives in 2017, one of his first acts should be to release publicly all of the OLC memos making the legal case for Mr. Obama’s many illegal acts, assuming there are any.
Copyright 2014 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit