John McGinnis
Subject: Can Congress fix the Trump tariff refund problem?
Bio: Constitutional Law Professor at Northwestern
Transcript:
Larry Bernstein:
Welcome to What Happens Next. My name is Larry Bernstein. What Happens Next is a podcast that covers economics, politics, and history.
Today’s episode is about the question: Can Congress fix the Trump tariff refund problem?
I’m joined by John McGinnis, a constitutional law professor at Northwestern.
The Court has decided that about $165 billion will be refunded to importers—money that, in many cases, could be seen as a windfall. I think there may be room here for a bipartisan solution, and John helps us think through what Congress can—and can’t—do.
Thanks to John for joining us.
John, in the recent Learning Resources court case, the Supreme Court ruled against Trump’s tariffs arguing that he lacked the authority. I want to delve into the aspects related to the refund and the ability of Congress to rectify what Judge Kavanaugh called the upcoming mess.
Let’s start with the basics. What were the facts in the case, how and why did the court make its determination?
John McGinnis:
The president relied on the International Emergency Economic Powers Act, which is an extremely broad statute that allows him, once he declares an emergency, to interdict and to prevent any transactions with foreign nations. The problem for the president was that while it had broad language, it did not mention tariffs. And moreover, Congress has a variety of other permissions to the president to impose tariffs, but under more constrained limitations. And so, what the court said was that given the language of the statute that does not mention tariffs, given the other statutes that do mention tariffs, the president did not have authority over tariffs with respect to this statute.
The majority was split in its reasoning. The three conservative members of the majority relied on the Major Questions Doctrine, which suggests that when Congress gives the agencies, or in this case, the president, the executive authority, that is going to have a very substantial effect on the economy or the structure of powers between the states and the federal government, Congress must do so clearly. And those three justices concluded it was not a clear enough statement to meet that hurdle.
The other three liberal justices do not like the Major Questions Doctrine because they see that as constraining the administrative state generally. And they found under straight-up statutory interpretation, particularly relying on these other adjacent statutes about tariffs, that the president lacked authority under IEPA. There was a 6-3 majority to declare that the president for these tariffs were, to use the legal word, ultra vires outside of the president’s authority.
Larry Bernstein:
It seems to me that John Roberts believes that his adaptation of the Major Questions Doctrine is one of his most important contributions to our legal canon. The six conservative justices agree.
What was bizarre was that his group of 6 was split on whether the Major Questions Doctrine applied in this tariff case. Tell us why the Major Questions Doctrine is so important to Roberts and why he thinks it is critical to the separation of powers.
John McGinnis:
The Major Questions Doctrine has been most written about in administrative law in the Roberts Court. I think the reason that John Roberts likes it is it is a statutory substitute for something called the Non-Delegation Doctrine. The Non-Delegation Doctrine is a constitutional doctrine which says that Congress cannot delegate its powers unless it gives sufficient detail. Previously, that doctrine has not had much bite since the New Deal. The Court has never struck anything down because of the non-delegation doctrine. And yet it seems to many observers of the administrative state to allow Congress to essentially abdicate its responsibilities and give unbridled discretion to the executive. And so that threatens the separation of powers.
The problem is that if you really reinvigorated the Non-Delegation Doctrine, I think the conservatives and John Roberts suggests that this might upset settled regulatory law. So instead of having that constitutional doctrine, it suggests that the Major Questions Doctrine solves that problem because it applies to new powers. So, it is prospective.
It does not upset the apple cart, and yet it forces Congress to speak clearly, at least to say, “Oh yes, we really do want to delegate this substantial authority to the executive branch and therefore has accountability, less so than actually filling in the details that the non-delegation doctrine would require, but still a move to accountability.”
That is the understanding of the Major Questions Doctrine as a poor man’s Non-Delegation Doctrine, a way of trying to go back to principles of the separation of powers in a world where we operated against those principles for a very long time.
Larry Bernstein:
Justice Kavanaugh in his dissent articulated why he thought the Major Questions Doctrine did not apply in this case. And specifically, he thought that this existing statute was sufficiently defined, and that Congress historically had delegated a substantial amount of power and leeway to the president in foreign affairs. What did you think of Kavanaugh’s dissent?
John McGinnis:
I think he is right that in general foreign affairs as a constitutional matter, the president has greater powers than in domestic affairs, and perhaps that suggests the Major Questions Doctrine should not apply. The question for him is, what is foreign affairs? Because this is a question about tariffs, and it is quite clear in the Constitution that the power to regulate foreign commerce is in Congress. That is part of Article One powers that is expressly stated. So, it is a little odd to say for tariffs that the president has any peculiar powers in that respect. There is a case called Curtis Wright and other cases where it suggests that previously the Supreme Court had been somewhat open to larger delegations in the context even of tariffs.
He has some precedent on his side. I do not think he’s correct as an original matter that foreign affairs encompass imposing tariffs. What it does encompass is speaking on behalf of the United States, deciding what countries to send ambassadors to, and therefore what countries to recognize. The hard question for Kavanaugh is what are the contours of foreign affairs? And there the majority has the better argument, or at least the plurality in the opinion written by the Chief Justice.
Larry Bernstein:
I thought the most interesting opinion in this case was written by Judge Gorsuch because he goes after everyone. He attacked the three liberal judges by saying, it’s peculiar that you rely only on the statutory interpretation instead of the Major Decisions Doctrine, because previously you allowed for an expansive understanding for Biden’s executive order to write-off $190 billion of student debt.
9
About his conservative colleagues who decided the Major Questions Doctrine did not apply in this case, he was also very tough on them saying, “You can’t be serious. This is clearly the greatest use of powers by the president without direct delegation to anything I have ever seen. So, what are you talking about?
What did you think of Justice Gorsuch’s concurring opinion in Learning Resources?
John McGinnis:
It was his greatest tour de force as a justice, although one wonders whether it will make him friends going forward.
Larry Bernstein:
Or not
John McGinnis:
It was an especially important opinion, and he did make some excellent points. With the liberal justices, it’s absolutely true that with respect to things like student loans, they gave a very expansive reading. I think the most extraordinary example was they allowed in a statute that gave some authority for the CDC to regulate diseases, they allowed it to declare a nationwide eviction moratorium, which seemed extremely peculiar because the language seemed to be connected to diseases. I think he did call out correctly the liberal justices on that.
With respect to the conservative dissenters, his point was essentially the one I gave before, which was, this is really in Congress’s bailiwick. After all, this is regulating foreign commerce, and this is an extraordinary breach of power.
With respect to Barrett, that is the most interesting debate intellectually. Barrett is a strict textualist and says we should not consider any values other than those in the text of the statute. And you might wonder, “Well, where do you get the Major Questions Doctrine?” And her argument is it is a matter of ordinary language, that when someone is given a lot of power, you would expect people to be clearer. And she gives a homely example in another case. Let’s say you told a nanny to go have fun and gave her a credit card and that would not authorize the nanny to go on an extended trip in hotels, right?
So that is her argument and Gorsuch says, “Well, that’s not right.” The roots of the Major Questions Doctrine, he says, “Go back to agency law before the Constitution.” The idea of that there is some substantive value of trying to constrain agents is very well established in the law. And we should reflect that in our law. It’s not just a matter of ordinary language, and that I’m sure is going to get a lot of attention from academics. In many ways, I think this is his best opinion since he joined the court, best analytically and of academic interest.
Larry Bernstein:
I read a few opinions each year, and so I do not understand what is typical. Were these opinions and argumentation typical of the court, or do landmark decisions see this kind of disagreement?
John McGinnis:
0
This is atypical of the court. There is often a concurrence, but this is quite unusual. Barrett responded to Gorsuch as well. There were only two judges who did not write opinions: Sotomayor, and Alito. And so that is very unusual. And it is a testament both to the importance of the case but also to the centrality of the Major Questions Doctrine going forward in administrative law.
A lot of them wanted to get in their positions about its scope or justification. What I do think it suggests beyond the question of tariffs is how central the Major Questions doctrine has become and how entrenched it is in the law. Because even the dissenters seem to completely agree that it applies domestically, and we have three members of plurality who agree. So there seems to be a strong six-member majority for the Major Questions Doctrine even if they do not entirely agree on its justifications.
Larry Bernstein:
Immediately after the Learning Resources case was decided, Trump announced new tariffs applying other statutes. These new tariffs appear to fit the criteria required by this Supreme Court decision. The problem for Trump is that the powers delegated to the president in these other statutes are narrower and if implemented these tariffs would be for a short period of time before Congress would have to approve it going forward.
John McGinnis:
Because the other statutes would be more specific about tariffs. They would have met the clear statement rule. Congress clearly gives the president and some of his subordinates’ power to impose tariffs. So, I do not think any of the other statutes would run afoul of the Major Questions. There may be other questions about those tariffs, one of the statutes the president when he’s implementing it for balance of payments reasons. But as you say, these statutes are much narrower in scope and in time. And that is a problem for the president. What the president wants to do is impose tariffs and then negotiate good deals according to him with other nations. And things that are limited in time undercut his ability to threaten other nations and get them to the bargaining table.
Larry Bernstein:
In Kavanaugh’s dissent, he said, “We haven’t spent a lot of time talking about refunds.” And he says, “This is just going to be a mess. “ And since then, the tariff refunds got pushed to the Court of International Trade. Judge Eaton was put in responsibility for these collections, and he wants fast refunds.
Now we are getting to what I most want to discuss today which is the fact that the current process does not allow for a fair return of the refunds and what we can do about that.
I met someone the other day who personally owns an importer, and he told me that he paid the US Treasury over $1 billion in tariffs from his firm. And as a result, he will get a windfall of a billion dollars in tariff refunds.
I was just flabbergasted, but the courts are limited on who has standing on such a matter, and therefore the individual or corporation that paid the tax would be the one to get the refund.
Typically, the importer would have been the one to pay the tax, and the consumer would ultimately be the one who would pay the economic effect of the tax along with the foreign manufacturer. The importer would maybe have his margins fall slightly but probably not materially.
Kavanaugh said that this refund process will be a mess because even if contractually the importer had agreed to refund the consumer, that it’s difficult to properly refund, and in any case, it will be impossible to pay fair compensation to those individuals who were harmed by the tariff.
I believe that there is a bipartisan consensus that we should not enrich the importers. There might be a better result to give the tariff refunds directly to the consumer or for the government just to keep the money and treat this money as a tax. And I wonder what the constitutional limitations on a bipartisan legislation that would allow some other result other than the importer to receive a windfall profit.
John McGinnis:
Congress would have a lot of authority to make those decisions. I do not think it would work to give money to the consumers because it’d be very hard to identify who those consumers were. Moreover, there would be huge transaction costs given the small amount of money that would be due many of these consumers. Keeping the money, given our fiscal deficit, would be plausible. I do not think this would be afoul of any legal doctrine. Congress has a substantial authority to impose taxes retroactively. The only restriction of the constitution is a Bill of Attainder, and this would not be.
Larry Bernstein:
A Bill of Attainder is when a legislative act punishes a specific individual or group, and here this bill would tax people who import goods and that is nearly everyone. Do you think the judiciary will tolerate a bill that retroactively approves Trump’s tariffs ex post?
John McGinnis:
The court has some restraints on it, but the restraints I think would give way when there are these kind of good government reasons that you suggest.
So, I think this could be done. It certainly could be done for everything that has already been paid. As I understand it there is a lot of tariffs that are due but have not yet been paid and may already have been passed on to the consumer, I think that might be a little harder.
Larry Bernstein:
It is problematic to tax activity from years ago. But here, the President said there was going to be a tax, the money was collected, and then after the judiciary concluded that the President overstepped his authority that Congress then says that is what it wanted all along. That seems to be a reasonable result. The new law could then also handle transactions where the importer has yet to pay his taxes as well.
John McGinnis:
I think that’s quite plausible. There are equity arguments made, and the retroactivity doctrine is quite squishy and is open to those kinds of arguments.
Larry Bernstein:
There is a lot of money involved here like $160 billion. As I think about possible bipartisan legislation, neither the Republicans nor the Democrats want the importers to earn a $160 billion windfall. The Republicans would like to keep the money and the Democrats would likely want to give money to the lower and middle class. I can also imagine that the Democrats would want to include a provision that limits Trump’s ability to create additional tariffs and there may be the rub.
John McGinnis:
Plausible and incredibly, you might say the coalition is going to come because of the fairness question, but also because our fiscal imbalance, it’s extraordinary how indebted the United States is at the moment. The debt to GDP ratio is getting up to 100%, which is the largest in peace time.
I guess the only reason you might not think it might happen is political polarization.
Larry Bernstein:
I totally agree that our politics are polarized, but what is unusual and what may allow bipartisan support is why would either party want to enrich in the importer who really did not pay the tax relative to the consumer who is their voter constituent?
John McGinnis:
It just is not practical to give it to the consumer.
Larry Bernstein:
Let’s say the idea that the federal government keeps the money may sound to some partisans as being unpalpable. What you could do is say, we are going to give $500 to every person who has adjusted gross income less than 50,000.
John McGinnis:
That is a very creative solution. Because it gives money out and with the cap, it would satisfy Democrats and giving money back would satisfy Republicans.
I have not heard anyone suggest this.
Larry Bernstein:
Congress passes lots of laws that are vague, and the courts may interpret them in a way that is inconsistent with Congress’s wishes. This must happen frequently and then the statute is amended accordingly.
John McGinnis:
It certainly has happened. The Congress does not overrule the court but changes the statute when the court has said it is not clear. Congress comes back and says, “Well, this is actually what we want.” It certainly has done so. The difficulty is that that is more likely to happen the greater the bipartisanship you have because without some bipartisan buy-in, it is rather difficult to move. There is a lot of inertia in Congress, and there is the filibuster in the Senate. There is a tradition of bipartisan fixes that is likely to work. But even with bipartisan matters, people can hold this up strategically in Congress and say, “Well, we actually want something else or otherwise we’re not giving this bipartisan fix.”
I would suspect that that kind of behavior is on the increase today. And so, this may be easier said than done.
Larry Bernstein:
With that John can you please end this podcast on a note of optimism as it relates to the Supreme Court’s tariff decision in Learning Resources.
John McGinnis:
I think the tariff case is going to be good for protecting the Supreme Court, precisely because Trump hates it so much. He is going to denounce the Supreme Court. And that is especially important for the Supreme Court today because the Supreme Court is very unpopular with Democrats. You may remember the last campaign, President Biden were considering statutory term limits to the Supreme Court, essentially kicking people off the Supreme Court and to pack the Supreme Court with additional justices when there’s unified Democratic government. I think this would be a huge danger to our constitutional system.
What makes me optimistic is that Trump, oddly enough, has given the Supreme Court a chance to show its real independence from the president, even while not departing from its own jurisprudence, and that is going to help insulate it from the most dangerous attacks that I could foresee might happen even beginning in 2029, if we see as is quite possible, a unified federal government controlled House, Senate, and President by the Democratic Party.
Larry Bernstein:
If you missed it, John previously spoke about How the Rich Improve Our Democracy..
I am doing a series of podcasts on the war in Iran.
Our most recent podcast was Iran’s Rope-a-Dope Strategy with Anthony King who is a Professor of War at Exeter University in the UK.
Previously, we had a podcast Allies Fighting Together with Yaakov Katz who is the former Editor in Chief of the Jerusalem Post and the author of While Israel Slept about the 10/7 massacre.
Before that What Will Define Success and Failure in the Iran War with Hal Brands.
I also did a podcast on the Opening the Strait of Hormuz with James Holmes from the US Naval War College.
I had a podcast on Fine Tuning the OODA Loop: Observe, Orient, Decide, Act Loop to Win the War in Iran with Israeli Brig. Gen. Eran Ortal.
We started the series with former Trump National Security Advisor John Bolton about what steps we need to take to win the war.
You can find our previous episodes and transcripts on our website
whathappensnextin6minutes.com. Please follow us on Apple Podcasts or Spotify. Thank you for joining us today, goodbye.
Check out our previous episode, Iran’s Rope-a-Dope Strategy, here.
