The Oct. 14 editorial Health care laws Indiana roadblock misunderstood the purpose and objective of the lawsuit filed by the State of Indiana and 15 school corporations against the IRS over the employer mandate as applied to government employers. This lawsuit asks the court a fundamental question: Can the IRS require Indianas state government to pay a tax penalty like any other employer?
Under our system of dual sovereignty, state government does not pay federal income taxes and the federal government does not pay state income taxes. As an employer, state government withholds taxes from the compensation we pay our government employees who owe state and federal taxes. But state government itself does not fill out an IRS income tax form.
So when the U.S. Supreme Court last year ruled that the Affordable Care Act is constitutional under Congress authority to impose taxes, it naturally raised the legal question of whether states also would be subjected to the ACA employer mandates tax penalties.
Now the IRS had promulgated a rule seeking to impose tax authority over state government by threatening us and school corporations with tax penalties. If that occurs, it would significantly alter the relationship between the federal government and states in a negative way.
We contend that the IRS rule contravenes the ACA statute Congress passed. When a federal agency exceeds the bounds that Congress itself authorized, it is appropriate for a state to ask a court to decide the question.
My office does not represent individuals or private sector employers but rather the sovereign authority of Indiana. When we realized state government could face tens of millions of dollars in IRS tax penalties if even one part-time state employee was misclassified in their benefits-eligibility category, I decided to bring this question to the courts, rather than wait for the state to be hit with an enormous tax bill – a penalty that would only serve to transfer state and local tax dollars to the federal IRS. School corporations also face the potential of burdensome penalties; this has forced many schools to reduce the hours of their part-time employees.
This isnt just an inconvenient work-around. The fact that a federal agency would infringe upon the sovereignty of state government – and that of the states political subdivisions, the schools – by forcing us to reconfigure our personnel policies under the threat of draconian fines should concern every taxpayer. Other school corporations can join the lawsuit as co-plaintiffs, and we anticipate that more will.
The editorial also implies that the lawsuit is directed at the whole of the ACA or that it is intended to discourage health coverage of citizens; neither assertion is correct.
Focused on the employer mandate, the lawsuit against the IRS seeks relief for state government and schools; it will be up to the court to structure a remedy. Our suit does not challenge the ability of citizens to shop for insurance coverage using the new federal exchange or to insure young people on their parents plans to age 26; it asks whether the IRS is correctly interpreting the ACA statute Congress passed.
As attorney general, my obligation is to defend our states authority and the decisions of our states policymakers. Our lawsuit is not a roadblock as the headline claimed but a reasonable and appropriate attempt by the state to ask the court for direction.