Delegating tax.

Author:Hines, James R., Jr.
Position:Tax lawmaking power delegation to administrative agencies

Congress delegates extensive and growing lawmaking authority to federal administrative agencies in areas other than taxation, but tightly limits the scope of Internal Revenue Service (IRS) and Treasury regulatory discretion in the tax area, specifically not permitting these agencies to select or adjust tax rates. This Article questions why tax policy does and should differ from other policy areas in this respect, noting some of the potential policy benefits of delegation. Greater delegation of tax lawmaking authority would allow administrative agencies to apply their expertise to fiscal policy and afford timely adjustment to changing economic circumstances. Furthermore, delegation of the tax reform process to an independent commission or agency offers the prospect of Congress committing itself to rational reform and long-run budget sustainability in a way that is more apt to succeed than piecemeal legislative efforts. The Article concludes with an analysis of the constitutionality of tax delegation, noting the applicability of recent Supreme Court decisions confirming Congress's broad discretion to delegate rulemaking authority to federal agencies, and arguing that tax policy is of a kind with other federal policies.

"Congressional delegation of broad lawmaking power to administrative agencies has defined the modern regulatory state."

--David J. Barron & Todd D. Rakoff (1)

"Taxation is a legislative function, and Congress ... is the sole organ for levying taxes...."

--Justice William O. Douglas (2)


The broad delegation of lawmaking power to administrative agencies is a well-accepted feature of modern U.S. policymaking. (3) Administrative agencies with vast lawmaking powers now oversee virtually every sector of the U.S. economy. The National Highway and Traffic Safety Administration (NHTSA) regulates not only the automobiles that Americans drive, but also the roads on which those cars are driven. (4) Congress has given the Food and Drug Administration (FDA) broad lawmaking power with respect to the food Americans eat and the drugs Americans take, both legal and illegal. (5) Imbued with extraordinary powers, the federal Environmental Protection Agency regulates the air and water. (6) The legislative branch has even delegated important aspects of the healthcare system to a regulatory body. For example, under the Patient Protection and Affordable Care Act (ACA), Congress recently empowered the Secretary of Health and Human Services, with the assistance of a new Independent Payment Advisory Board (IPAB), to make recommendations for cutting Medicare expenditures that will automatically become law unless a congressional supermajority rejects the proposals. (7) One could continue at great length, listing examples to illustrate the point that Congress regularly delegates enormous amounts of lawmaking power, (8) from control over the money supply (power delegated to the Federal Reserve Board) (9) to the process for closing military bases after the end of the Cold War (which Congress entrusted to the Base Closure and Realignment Commission). (10)

But what about tax law? In the same way that Congress has delegated lawmaking power in these other areas, has it done so with tax? The answer is yes--and no. Congress has obviously delegated a great deal of tax lawmaking authority to the Treasury Department and the Internal Revenue Service (IRS). This is evidenced by, if nothing else, the thousands of pages of Treasury regulations, the numerous revenue rulings and other forms of written guidance issued by the IRS, and the countless discretionary enforcement decisions made by the IRS every year--settling some tax cases, litigating others. (11) Congress has also delegated some tax decisionmaking authority to the U.S. Tax Court, which interprets tax laws and regulations when taxpayers bring disputes over IRS determinations of tax deficiencies. (12)

These examples of agency-based tax lawmaking, however, differ from the sort of broad policymaking discretion that Congress regularly delegates to agencies in other areas of law. For example, Congress rarely enacts tax statutes that set out broad tax policy principles and authorize the Treasury Department or some other regulatory agency to fill in the details. There is no tax equivalent, for example, to the language in the Clean Air Act empowering (and requiring) the EPA administrator to set emissions standards for "any air pollutant ... which in his judgment cause[s], or contributejs] to, air pollution which may reasonably be anticipated to endanger public health or welfare." (13) Moreover, there is at least some scholarly support for our claim that Congress generally delegates less broadly in the tax area than in other areas. In their study of all federal legislation between 1947 and 1992, Professors Epstein and O'Halloran find that tax legislation granted less policy and implementation discretion to executive agencies than did laws passed by Congress in any of fifty-three other substantive federal policy areas. (14)

This Article suggests that Congress should consider more extensively delegating authority in the tax area--or, at the very least, that Congress should think more expansively about what types of tax lawmaking power it is prepared to delegate. In this Article, as in most scholarship on congressional delegation, it is said that Congress "delegates" lawmaking authority when it enacts a statute that grants lawmaking power to an administrative agency or some other nonlegislative body. In other words, agencies exercise delegated authority postenactment. It is routine, of course, for Congress to rely heavily on its own staff, the Congressional Budget Office, the Council of Economic Advisers, and other important federal policy agencies (including Treasury and the IRS) for help conceiving and drafting legislation in the first instance. Those inputs are doubtless important to the lawmaking process; however, that sort of pre-enactment assistance is not what we, and not what others who write about regulatory agencies, mean by delegation. Thus, a move in the direction of greater delegation by Congress in a particular field of law implies that Congress has granted greater decisionmaking authority to parties whose actions will take place after the delegating legislation is enacted.

Another point worth emphasizing here is that greater tax delegation does not necessarily mean granting the Treasury Department greater authority. As discussed further below, what we have in mind is taking regulatory authority that Congress currently implements (in the minutiae) through the tax code and delegating more of that authority to some expert, and in some instances a politically independent, regulatory body.

Moreover, just because we seek to encourage consideration of greater delegation in the tax area does not mean that, in our view, Congress should replace the Internal Revenue Code (IRC) with a general standard, a single sentence that reads as follows: "The Department of Treasury shall promulgate all tax rules necessary to raise revenue sufficient to balance the federal budget and shall do so in a manner that is fair and efficient." Even if such an extreme delegation were desirable and constitutional (more on the latter question below), it is not a realistic possibility. Nevertheless, a number of considerably less extreme tax-delegation alternatives are within the realm of possibility but have never been used, or, so far as we are aware, seriously considered. This Article identifies three distinct types of tax delegation that have never before been used but are worthy of consideration, each for a somewhat different constellation of reasons and each subject to a different set of objections and qualifications.

First, when Congress wants to enact a tax subsidy for a particular type of investment or activity, it should consider doing so in the form of a general tax standard rather than in the form of a set of ornately detailed tax rules. The standard would provide the Treasury Department with a relatively general statement of the policy goals to pursue, empowering Treasury to issue rules to meet those goals and to change those rules as necessary to continue to meet them. The rationale for such a shift would be the standard relative-expertise or comparative-advantage story often used to justify broad delegations of regulatory authority in nontax contexts. As explained below, Congress already does some of this, but it could do more.

Second, and more controversially, Congress should consider delegating some control over income tax rates, which would be unprecedented in U.S. history. Such authority could be granted to the Treasury Department, or, perhaps more realistically, to some other, arguably more independent, agency such as the Federal Reserve or a newly created independent authority. Giving the Federal Reserve some control over income tax rates would allow it to coordinate fiscal policy with existing monetary policy in the hope of dampening business cycles. Moreover, the Fed or some other independent agency might be able to precommit to an optimal policy plan over time, which Congress notoriously struggles to do.

Third, in designing the tax system efficiently and fairly to promote long-run fiscal sustainability--a goal that has eluded Congress for decades--the legislative body should consider delegating the tax reform component of a long-run deficit-closure effort to an independent commission similar to the Base Realignment and Closure model. (15) The rationale for this move has to do with collective action problems that inhibit the legislative branch from taking action, even in...

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