Cyprus, Chief Justice Roberts, and ObamaCare

Chief Justice Roberts used the Taxation Clause to uphold an otherwise unconstitutional health care mandate. The Chief Justice, the decisive fifth vote, decided to defer to the President and Congress rather than exercise the Court’s power to declare a law unconstitutional. He in essence granted a blank check to the President and Congress to regulate and tax with our worrying about judicial review. He took the cases of the New Deal to a new dimension. He did not create the precedents for the vast power of the government to use taxation to accomplish political goals, but his decision empowers the President and a future Congress. He affirmed the essentially plenary powers of Congress to impose taxes. The Court has recognized that the power to tax is the power to destroy, but so be it. The Fifth Amendment provides that the government cannot take property without due process of law. However, the government can do so through the Taxation Clause. The Taxation Power can be deliberately used to weaken or destroy a business, industry or activity. The simple test is whether or not it raises revenue. A classic example was the contest between Seattle City Light, owned by the city of Seattle, and the privately owned Puget Power to supply electricity to the residents of Seattle. The Supreme Court upheld a Seattle excise tax on private electricity as a revenue bill even though the clear intent was to give Seattle City Light a major cost advantage. The City succeeded in monopolizing the distribution of electricity to its citizens. The federal income tax was once a nominally high 91% and the inheritance tax (estate tax) reached 55%. We think of taxes being on activities, such as earned income or capital gains. It can also be on property and capital, such as property taxes, auto excise taxes, and inheritance taxes. Cyprus is imposing a tax that is really wealth confiscation. To bail out the two largest banks on Cyprus, the government is proposing a “tax” on bank deposits, 6.75% on deposits up to €100,00 and 9.9% above that, adding up to about €5.8 billion. This wealth confiscation, posed as a tax, is billed as a one time only emergency act, but it threatens to set off a run on other European banks. Cyprus could create another risk of eminent collapse of the world’s still fragile financial system, a threat which we narrowly escaped 5 years ago. Ironically it is being pushed to do so by Germany and the International Monetary Fund, which do not want to bail out Cyprus. A large percent of the European population will resort to keeping their money under the mattress. That will be cheaper and safer than depositing it in banks paying a low interest rate, almost zero, but the state then seizing a share of the wealth. Cyprus’ economy is about €18 billion, but its banks hold deposits approaching €70 billion, much of it by Russians. Cyprus, like Spain, Portugal, and Italy, has suffered an economic meltdown. Its top two banks would be liquidated without a bailout. They face a shortfall of €10 billion out of a total €17.5 billion banking deficit. Argentina three years ago seized about $14 billion in private pension funds, claiming it would stabilize them and pay a higher return to the investors. The actions by Cyprus and Argentina would appear unthinkable in the United States, but not after the ObamaCare decision. In addition, one of the little known provisions in the Dodd-Frank statute, enacted after the financial meltdown, grants the federal government the right to seize any non-bank financial institution or any business engaged in extensive financial operations, whose failure could pose a risk to the financial stability of the country. The Constitution will no longer protect us, thanks to Chief Justice Roberts.