The Tax Trench Deepens

Abstract

Congress, long divided, has been in gridlock for decades. The result has been regulatory ossification. Existing statutes lack the flexibility to manage the country’s many technological, social, environmental, sectoral and market challenges. However, without a Senate supermajority vote to override the filibuster, new legislation fails. While the budget reconciliation process has provided one of the few pathways around the filibuster, that process is limited to budgetary outlays and revenue measures. Consequently, a “tax trench” has been worn from Congress repeatedly pushing major regulatory and public benefits legislation through the process as tax provisions. Now, the tax trench is set to deepen. Following a spate of cases decided in 2024, the U.S. Supreme Court has placed a series of checks on federal regulatory authority, discretion and enforcement capacity. In Loper Bright Enterprises v. Raimondo, the Court overturned Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., holding that the courts must interpret regulations pursuant to the standards set forth in the Administrative Procedure Act, rather than deferring to executive branch expertise. In Corner Post v. Board of Governors of the Federal Reserve System, the Court held that the statute of limitations under the Administrative Procedure Act begins tolling when the plaintiff faces an injury, effectively eliminating the time-bar for claims that an administrative agency has exceeded its authority in setting regulations, and possibly a broader swath of challenges. In Securities & Exchange Commission v. Jarkesy, the Court held that defendants are entitled to a jury trial before an Article III court when administrative agencies seek to enforce civil damage claims that are “legal in nature.” Nevertheless, tax legislation continues to provide a pathway through this gauntlet of new hazards. This Article makes three contributions. First, it reviews the foregoing cases and their impacts on existing regulation: limits to executive branch interpretive authority, uncertainty within the administrative process and impediments to enforcement. Second, it identifies, within each of the recent U.S. Supreme Court cases that have curtailed administrative authority, certain tax exceptions to these limits. Finally, it argues that these tax exceptions may permit regulatory action or public benefits in the form of tax legislation to pass scrutiny.