accountabilitybloke (old blog)

we have moved to mjdubnick.dubnick.net/blog

Limits of Judicial Activism I: The Spillover Effect of the US Supreme Court decision [Repost from CLMR, UNSW] (http://goo.gl/9k2T3)

The US debate over health care — and specifically about the Affordable Care Act of 2010 (ACA) — is truly a “local” issue. For those of us who believe US policy machinations ought to be a global concern, it would be shocking to learn that many folks in the rest of the world find the tumult over ACA a reminder of just how quaint and strange the American political system really is.

Obviously the same cannot be said for policy decisions (or non-decisions) related to economic matters that have clear global implications, e.g. financial regulation, transnational environmental policies, etc. Thus, the ACA-focused litigation that came to a head in Thursday’s Supreme Court decision might seem like an interesting sideshow. And the fact is, were it just about US health care policy, the case might just be of passing interest to international observers. But there is more to what occurred than non-Americans might think — both politically and (more important) constitutionally.

Politically, there is the possibility that the health care issue might become the THE focal point of the upcoming election — not only the contest for the White House, but also the races involving all of the US House and 1/3rd of the US Senate. The most obvious theme has already been struck when Mitt Romney took the podium and declared “repeal and replace” as his mantra (at least for now). Clearly, for those in the global community concerned about who will sit in the White House as the US’s “chief diplomat”. But there is also the matter of that tricky part of the ACA that was not given full backing by the Court: mandatory state participation in the Medicaid mechanism that was as important to implementation as the “individual mandate.” The foundation of this part of the ruling goes back to the principle that states (as sovereign entities in a federal system) cannot be forced to become agents of the federal government. They can be given incentives (through grants, etc.) to adopt and adapt to national laws, but they cannot be coerced — or for that matter “taxed” — into cooperation. In the decision, Roberts is very explicit about how to resolve this — convert the state mandate provision into a grant-giving provision. Simple enough, except for the fact that such a change would require a change in the ACA — a change that is likely to become a very heated political issue over the coming months.

And then there are the constitutional implications of the decision. By explicitly rejecting the rationale that the ACA individual mandate was justified under the Commerce Clause, the Roberts decision may have opened the floodgates to all sorts of challenges to US economic policies, especially in the regulatory arena. If such challenges emerge and are successful, the result may be a slow de-nationalization of American economic policy, which in turn can lead to a diminished role for the US in some sensitive sectors of the global economy.  Deregulation has been bad enough, but imagine what can happen when the central government’s authority over banks and other financial services are challenged and turned over to the states.

The ruling also sent a message to federal policymakers that taxing and “extraction” policies are more likely to pass constitutional muster than the assertion of national jurisdiction through regulatory policies and means. It boggles the imagination to consider all the different ways taxation can be used to pursue national policy objectives. Under due process standards, current law offers firms subject to regulation the ability to shape and challenge specific rules and rulings. But as long as it applied fairly and equitably, taxes do not allow for for the exercise of influence via bargaining, cajoling, etc.

The closest analogy is the “luxury tax” mechanisms used in major sports leagues to control the spending of teams. You can spend lots of money to buy the best players for your team, but at a certain point the tax kicks in at such progressively higher rates that only the foolhardy would invest more. Now, consider how this might be used in lieu of regulatory oversight for banks and other financial services companies. Want to make sure banks are not too big to fail? Impose a “luxury tax” mechanism. Want to stop excessive executive compensation? Use taxes. Of course, these tax-based mechanisms are already on the books in many jurisdictions, but at present it is one of several policy options. The Roberts decision in the ACA case may have cast doubt on the constitutional alternatives to taxation approaches.

For those of us in the States who are quite pleased with today’s decision as it related to health care (I happen to live in Massachusetts, the only jurisdiction with and ACA-like system already in place), the implications of the decision is quite positive. But those who view it from the outside as another bit of odd political Americana should not take the ruling too lightly. It just might have global impacts in the long run.

June 29th, 2012 Posted by | accountabilitybloke | no comments