Let’s Talk About Tax

On June 28, in a 6-3 decision along ideological lines, the U.S. Supreme Court—in Loper Bright Enterprises v. Raimondo—overturned a seminal 1984 administrative law case, Chevron U.S.A. Inc. v. Natural Resources Defense Council. While Chevron, unlike Brown v. Board of Education or Roe v. Wade, may not be a case well known to the public, the Chevron decision (and its resulting “Chevron Deference” doctrine) is familiar to most every lawyer and law student. Until today, Chevron affected how every federally regulated industry received guidance and conducted its daily business. The Court’s decision in Loper Bright will have wide-ranging implications for every business subject to federal economic, environmental, medical, or other regulations—and, certainly, for taxpayers.

Under the traditional Chevron “two-step” analysis, a court interpreting a statute administered by a federal agency would first have to ask “whether Congress has directly spoken to the precise question at issue.” Chevron, 467 U.S. 837, 842 (1984). If “the statue is silent or ambiguous with respect to the specific issue,” then Chevron requires the court to defer to an agency’s reasonable interpretation of a statute. Id. at 843. In effect, the Chevron test made it easy for judges to defer to and uphold the legality of agency regulations that constituted “permissible construction[s] of the statute.” Id.

After the Loper Bright decision, however, “[c]ourts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.” Loper Bright, 603 U.S. _____, slip. op. at 35 (June 28, 2024). The majority opinion, authored by Chief Justice Roberts, concluded that courts must interpret statutes using “traditional tools of statutory construction . . . free from the influence of the political branches.” Id. at 26. Thus, Chevron’s historical deference to agencies was said to undermine the courts’ job of “say[ing] what the law is.” Id. at 32. Moreover, the Court noted, Chevron risked over-deferring to agencies, which can change radically from administration to administration. To the majority, “Chevron thus allows agencies to change course even when Congress has given them no power to do so.” Id. at 33.

Unsurprisingly, dissenting Justices Kagan, Jackson, and Sotomayor disagreed. Per Justice Kagan: “Congress knows that it does not—in fact cannot—write perfectly complete regulatory statutes.” Id. at 2 (Kagan, J., dissenting). She argues that Chevron “does not maintain that Congress in every case wants the agency, rather than a court, to fill in [statutory] gaps.” Id. at 14. Rather, she contends, “when Congress does not expressly pick one or the other, we need a default rule,” and Congress “basically never” hesitates to authorize an agency to interpret its statutes. Id. In the dissent’s mind, “Congress knows that the Department of Health and Human Services” can regulate Medicare reimbursements “and that courts cannot.” Id. at 10.

The Justices’ arguments in Loper Bright largely mirror arguments that Chevron’s (often conservative-leaning) opponents and (often liberal-leaning) supporters have made for decades. Chevron’s opponents raise very real concerns about judicial independence, seeing the courts a check on agency overreach. Chevron’s supporters see its deference to agency experts as a practical and dependable rule of thumb.

But there is no reason why administrative agency deference should be a partisan issue. After all, Republican and Democrat administrations alike have contributed to the explosive growth of the executive branch and the administrative regulations issued by the federal agencies. As cumbersome as regulatory compliance (and issuance of guidance) may be, businesses occasionally appreciate the specificity and consistency that regulatory guidance provides over ambiguous statutes. And politicians of all stripes seek to balance consumer protection with checks on excessive government regulation.

That this decision to overturn such a centerpiece of administrative law fell along ideological lines contributes, unfortunately, to the narrative that judges are partisan actors instead of apolitical legal experts trying to reach the right conclusion.

The immediate takeaway from Loper Bright is that courts will be more likely to make independent judgments on a statute’s meaning and less likely to defer or default to agency interpretations. Taxpayers will likely have an easier time advocating for interpretations of statutes that may not conform to Treasury regulations. For many taxpayers, Loper Bright may constitute a welcome check on federal power, perhaps at the expense of the specificity or certainty that Treasury regulations occasionally provide. However, Loper Bright may also result in disparate tax treatment by allowing some taxpayers to avoid Treasury regulations while binding similarly situated taxpayers to the regulations, depending on the leanings of the relevant judicial forum.

Time will tell where and how judges will draw new lines regarding deference to an agency’s expertise and to its regulations. But Loper Bright also raises more unsettling questions—about respect for judicial precedent, the proper amount of deference to accord executive branch agencies, the increasingly evident ideological differences between administrations (which are then reflected in the political appointees who head the federal agencies), and the (in)ability of our Supreme Court to put ideological differences to the side.