Listen to the episode and read the show notes
Topics of Discussion:
- Andrew Was Wrong(?) About ERA Ratification Rescission
- Infinite Yodel – Emolument Litigation
- Listener Questions
- T3BE – Answer
Thomas: Hello and welcome to Opening Arguments, this is episode 361. I’m Thomas Smith, that’s Andrew Torrez, that means we’re just starting our next rotation in our 720. How’s it going, Andrew?
Andrew: [Laughs] I like to feel like I’m on a skateboard in midair-
Andrew: And yeah, except [Sighs]
Thomas: The podcast is just one long trick.
Andrew: I’m ollying it, man!
Thomas: Yeah. Beto would be proud.
Thomas: Okay, we’ve got a lot to talk about again, especially I’m very curious to hear the emoluments ruling. I think Andrew’s been on the front lines of telling us what to expect there, but even still it seems like a depressing ruling so we’re gonna find out what’s really going on there. We’ve got some potentially Andrew Was Wrong, Andrew Was Right? We’ll see, and maybe some listener questions in the Wild Card segment if we have time.
Just a quick reminder, please go on that YouTube as a personal favor to me! And also ‘cuz I think you’ll enjoy it, go on that YouTube channel, watch the videos, like and subscribe, all that good stuff, and share. Really appreciated if you do that. Thank you so much.
Alright, Andrew, you have a little pre-segment thing?
Andrew: I do, I do! I’m super, super excited. So I would say the reaction to our baseball law second halfisode a week ago-
Andrew: Was largely positive. We have a few, you know [Angry Impersonation] sportsball and I get that, okay? I wanna say a couple of things. Number one, look, like we said on Friday’s episode, we live in some dark times man. [Laughs] So as we put the show together, remember part of the original mission for this show was to be an online law school, was to break down stories in the news that have a legal component that the media’s getting wrong and we did not expect that we would elect a criminally insane gameshow host that every story in the news would be how this monster is destroying the country. I love being able to cover some other stories.
I do also get when people are like, ah, well, sports kinda aren’t my thing. So here’s what I think I want us to do, Thomas, as long as you’re game. After we recorded last week’s episode, which, by the way you could skip all the baseball stuff and still had a complete episode in and of itself. [Chuckles] We still gave you an hour of non-baseball content!
But after breaking down the Houston Astros cheating scandal, which a lot of you loved and a tiny amount of you hated, ex-Dodgers pitcher Mike Bolsinger, I dunno if you remember him or not, he was bounced between-
Thomas: I actually don’t.
Andrew: Really? He was Triple A depth, I think he made a couple of starts.
Andrew: But the Dodgers don’t rely on a lot of Triple A depth guys.
Andrew: They don’t have to, they have a payroll of $800 billion.
Thomas: Bazillion-trillion dollars.
Andrew: Yeah. So he went to the Toronto Blue Jays and his last start was against the Houston Astros.
Andrew: And they pummeled the ever-loving crap out of him and he was sent down to the Minors the next day, couldn’t get a job in Major League Baseball and is suing the Astros. It’s super neat! I managed through skullduggery, because this is a State Complaint, so it’s not available online. A bunch of people were like hey you should talk about- and I managed to get a copy of the Complaint!
Andrew: I have it and I think we should break it down as a Patreon special, what do you think?
Thomas: Oh put me on the spot here. I think we should just do it as the episode. There’s like two haters of baseball law, don’t listen to them.
Andrew: [Laughs] Alright!
Thomas: Don’t listen to the haters, Andrew!
Andrew: Well Thomas and I will debate that offstage, but you’ve got that coming.
Andrew: Either as a Patreon bonus or as an upcoming episode.
Thomas: Well I’m excited.
Andrew: And if you’re a patron, weigh in. I guess don’t weigh in…
Andrew: If you’re not a patron, become a patron and then weigh in and then you can not become a patron again.
Thomas: We’re just gonna do what we want because it’s good content, that’s what I say.
Andrew: [Laughs] There you go.
Thomas: Look forward to that, everybody.
Andrew: We’re excited, I love it.
Thomas: Can’t wait.
Andrew: I can’t wait to do it.
Thomas: Alright! Now it’s time for Andrew Was Wroooong?
Andrew Was Wrong(?) About ERA Ratification Rescission
Andrew: Yeah, so a couple listeners wrote in to sort of correctly say that in last week’s episode, before we got to the baseball law part when we were discussing the Equal Rights Amendment, that I didn’t go through the case law involving whether the State rescissions of the ratifications to the ERA are valid. That’s true? And the reason I didn’t go through that is ‘cuz there’s zero case law on that. There’s nothing to say other than if discussing ratifying a Constitutional Amendment, if that presents a nonjusticiable political question then that would also cover the rescission.
In other words, the court would also say yeah, we’ve got no power to determine. We can’t control what Idaho does, sorry! So I don’t know where to flag this as an Andrew Was Right or Andrew Was Wrong, I certainly did not cover what would happen in rescission but that’s because there’s nothing to cover [Laughing] and it will be subsumed by the question of is this justiciable or not?
If the question is justiciable then this goes back to an OA episode 1 premise. In general if there’s no law and a question is justiciable, you can ask yourself what’s the common sense result here and that will be the weighted side of the coin. So yeah, if you ask me if this is a justiciable political question then I think yeah, the Supreme Court is likely to say that State legislatures are free to rescind their ratification of Constitutional Amendments, and I’m okay with that as a result.
I think you well-articulated the common sense approach on episode 359, I think the intuitive answer is if the courts can adjudicate this then they’re likely to say yes, those rescissions are valid.
Andrew: All of this sits on top of, two days ago right as we were recording the House of Representatives voted to repeal the 1982 time limit on ratifying the Equal Rights Amendment.
Andrew: So that doesn’t-
Thomas: So that’s interesting.
Andrew: Yeah. It doesn’t in any way change the analysis from 359 but it still does sort of throw everything into disarray.
Thomas: What’s the voting, so the Senate, do they also have to approve that or how would that work?
Andrew: So this is another thing where we don’t know.
Andrew: Because the original amendment was offered up and approved by both Houses of Congress by 2/3 the subsequent time limit and extension was only approved by a bare majority.
Andrew: Yeah, so we just don’t know.
Thomas: Wow. What a fascinating legal issue.
Andrew: It’s almost as if there should be a podcast dedicated to talking about this thing.
Thomas: Trying to give you a little shout out.
Andrew: Thank you!
Thomas: This really is twists and turns, this is what the show would have been without Trump, really. Mostly stuff like this.
Andrew: [Sighs] I like to think, man!
Thomas: Someday we’ll get back to it.
Andrew: I love living in that alternative universe.
Thomas: We will be analyzing the damage of Trump for like a decade. And that’s fine, it’ll be a good recurring segment.
Thomas: Alright, well that’s super fascinating. I honestly have no idea if you were wrong or right, I didn’t really catch the verdict.
Andrew: That was a thing, I was a thin.
Thomas: Did you just maybe not – Andrew Was Incomplete or something?
Andrew: Incomplete, there we go!
Thomas: Andrew was incomplete.
Andrew: Do you remember the first Mythbusters where they used to do myth busted, myth confirmed?
Thomas: Oh yeah.
Andrew: It was on two sides of like a license plate and then they added- it wasn’t inconclusive, it was something like-
Thomas: Yeah, I thought it was inconclusive or something like that.
Andrew: Yeah, but it was one of those things and then all of a sudden, yeah. So I kinda feel like Andre Was Right, Andrew Was Wrong, Andrew Was Inconclusive, so there we go.
Thomas: Okay. Well is it time to talk emoluments?
Andrew: Let’s emolumize.
Thomas: Is this… I mean, we can yodel? I guess? I dunno.
Andrew: There’s no more! Yodel Mountain is dead.
Andrew: Long live Yodel Mountain.
Thomas: Woah, woah! You’re gonna just spring this on us right now that there’s no more yodel? We’re not even doing the intro? Wow, okay. Psh. Stop everything, folks, this is major news. I dunno, we gotta replace it with something. Eh, there’s still gonna be Trump impeachable stuff we’re covering all the time.
Thomas: There’s nothing that says- look, again, as I covered last week it’s Mario where he runs off the screen to the right and comes back to the left, so he’s still yodeling we just don’t go off the top.
Andrew: Yeah, I do not wanna be sued by Nintendo of America. [Laughs] That is for damn sure!
Thomas: I rule that we can still use the yodeling intro because Yodel Mountain isn’t dead, we’re caught in an infinite yodel, it’s the opposite. Okay? Have I made my case. Is this good … debate? You’re the debate judge, did I?
Thomas: Be it resolved.
Andrew: I like the idea that it’s an infinite yodel.
Thomas: It’s an infinite yodel because the yodeler never falls off the top of the mountain, Andrew, so if anything it should be more yodeling now.
Andrew: Yeah. I agree, I agree.
Thomas: So anyway, Brian, punch it. Yodeling.
Infinite Yodel – Emolument Litigation
Thomas: Okay, what happened with this emolument litigation? I saw a lot of people were very sad about this, but I also saw you saying, well this is kind of what we expected.
Thomas: So is this what we expected? [Laughs]
Andrew: So this is 100% what you have been led to expect on this show from the beginning in this case, and this case is Blumenthal v. Trump, and we’re going to discuss the history. There are multiple different emoluments clause cases, but this one is the one brought by certain members of the House and Senate in 2017. You may recall 2017 being the time in which the Democrats were the minority in both the House and the Senate.
Andrew: This week in front of a 3 judge panel of the D.C. Circuit, that panel ruled 3-0 that the plaintiff’s lack standing to bring this particular litigation. I will tell you I do not think that this case will be appealed. This ruling, this order was issued on February 7th, 2020, so the parties have 30 days, they have until the first week of March to determine whether they’re going to appeal to the Supreme Court and/or, as has been the case in a lot of these cases, petition for en banc review. It is – and look, they could probably get en banc review if they wanted, I don’t know that they will.
Andrew: Because this is, in my view, the weakest of the three emoluments clause cases on precisely this issue of standing. Let’s break down what this case is about and what the argument is and why you should not be distressed about this.
In fact, I can cut to the chase on that. There are two other emoluments clause cases, one of which is still currently pending before the D.C. Circuit, one involving private plaintiffs and the other involving friend of the show Brian Frosh, the emoluments clause litigation brought by the Attorneys General of Maryland and the District of Columbia.
This was a lawsuit brought by the House and not brought by the Democratic majority, but brought by certain representatives and senators.
Andrew: That’s why it’s Blumenthal v. Trump, it’s Senator Richard Blumenthal. Here’s the gravamen of the allegations: because Trump maintained ownership of his companies while allowing them to conduct business with foreign governments, Trump is accepting payments and other financial benefits from foreign states without the consent of Congress.
The emoluments clause says that what you have to do, because remember, the foreign emoluments clause doesn’t say the President can’t get gifts from overseas, what it says is that the consent of the Congress, that the President must get consent of the Congress before accepting any present, emolument, office or title of any kind whatsoever from any foreign state.
So, look, this kind of thing happens all the time… before we had a criminally insane, corrupt, gameshow host as President. George W. Bush would travel to X country and they would bestow certain gifts upon him and he would come back and direct his staff to file a memorandum to go before Congress and they would do either one of two things, he would either say hey, this foreign leader gave me this thing that’s really personal to me and I would like to accept it as a gift, assuming that you know that this is not gonna interfere with our foreign policy I would ask Congress to approve of this and then Congress can either approve or not.
Or you would say “this foreign leader gave this gift and I would like to put this gift in the National Archives, or donate it to The Smithsonian” or whatever. That’s the way this works.
Andrew: So the gravamen of the lawsuit brought by Blumenthal-
Thomas: Give me that gravamen!
Thomas: Just dish me a, shovel me some gravamen-
Andrew: Oh, it’s steak gravamen? Yeah, yeah!
Thomas: -out of your gravamen wheelbarrow.
Andrew: [Laughs] Put it on top of a baked potato, it’s delicious.
Thomas: [Laughs] Going a different way, but okay.
Andrew: I was thinking gravy, but that’s just-
Thomas: Ah! That’s good too. I was just going with gravel, but yeah, okay.
Andrew: [Laughs] You doctors have been telling us to drink 8 cups of gravy a day.
Andrew: So what that means is, the decision on whether to approve of accepting an emolument is by the plain text of the Constitution, in the power of Congress. The lawsuit says look, Trump hasn’t done that. Even though he’s got a Republican Congress that could easily rubberstamp on this, he’s just taking their money.
I’m gonna read a little bit from Blumenthal’s brief here, just for context. “Foreign officials flock to the President’s hotels and resorts, paying hundreds of thousands of dollars for celebrations and blocks of rooms. Ambassadors explain that hosting events at Trump properties is (quote) ‘a statement that we have a good relationship with this president.’ Prime ministers travel in motorcades from the President’s Washington D.C. hotel straight to the White House to meet with him, and this is just the start.
Foreign governments are paying Trump untold amounts of rent at his commercial and residential towers. Many signed leases soon after he took office. Foreign states have granted the President lucrative intellectual property rights and have donated public land, approved permits, and eased environmental regulations for Trump branded developments.”
Back to Blumenthal, “Increasingly brazen, President Trump just last week announced that he was awarding the next G7 summit to his resort in Doral, Florida, only to reverse public course after a public outrcry in the aftermath-
Thomas: It’s Doral.
Andrew: Oh is it? Really, okay. Well, anyway… I don’t golf, so there it is.
Thomas: Yeah. Fair.
Andrew: “Disparaging (quote) ‘you people with this phony emoluments clause,’” (end of quote).
Andrew: “Worst of all because the President is not obtaining Congressional consent before accepting benefits from foreign governments, the full range of those benefits and the governments providing them remain unknown.” So that’s the argument, it’s a pretty good argument. That conduct seems super bad!
Andrew: Seems like the kind of thing that you would want Congress-
Thomas: [Impersonation] Case closed!
Andrew: Case closed! The problem is that there’s a very recent case called Raines v. Byrd from [Laughing] 1997. So, recent for lawyers.
Andrew: And in the Raines case, the Supreme Court said that individual members of Congress do not have standing to bring a lawsuit when they claim they didn’t get to vote on a thing. So let’s talk about that case. Here, Congress in 1994 passed the Line Item Veto Act and various members, six representatives, filed a lawsuit that said the Line Item Veto unconstitutionally expanded the President’s power and violated the requirements of bicameral passage by granting to the President acting alone the authority to cancel and thus repeal provisions of federal law.
Crucial to their argument in this case, Raines, was that they had standing, that they suffered a justiciable injury that could be remedied by the Supreme Court because they were members of Congress and they would not get to vote on individual deletions from the line item veto that the President is going to remove from future budgets. So the idea is hey, the President now has this law, now has the authority delegated to him from Congress under this law where he can strike out individual line items in the budget. That, these Congressemen argued, violates our rights as members of Congress, to vote on stuff! Because we’re members of Congress and we get to pass the law.
The Supreme Court, 8-1, said no, you don’t have standing. As an individual member of Congress you don’t have an individual right to vote on stuff.
Andrew: What you do have is Congress as a whole-
Thomas: As a whole, yeah.
Andrew: Exactly, has a right to vote on stuff. This motion, in granting the motion to dismiss the D.C. Circuit, 3-0, diverse panel, says this case is really no different from Raines. The members were not singled out. Their alleged injury is shared by the 320 members of Congress that did not join the lawsuit and their claim is based entirely on the loss of political power. We can therefore resolve this case simply by applying Raines. That is we do not and need not consider whether or how Raines applies elsewhere in order to determine that it plainly applies here.
Then there’s an internal cite, the cardinal principle of judicial restraint is if it’s not necessary to decide more, [Laughing] it is not necessary to decide more!
Andrew: The Supreme Court’s recent summary of Raines is that individual members of Congress lack standing to assert the institutional interests of the legislature in the same way that a single house of a bicameral legislature lacks capacity to assert interest belonging to the legislature as a whole. District court erred in holding that its members suffered an injury based on the President depriving them of the opportunity to give or withhold their consent because only the institution can assert an institutional injury provided that the injury is not wholly abstract and widely dispersed.
So that’s the result of the case. It’s not, like I said, that was always a huge obstacle from the beginning and it sort of illustrates when you go back and look at this the choices that you have to make as a legislator in trying to check Trump of do we bring the case now? Do we wait until we recapture the House of Representatives? I can’t blame Blumenthal and these Senators and Democratic House members that signed onto this Complaint. It was 2017, Trump was and is corrupt and you’ve gotta do whatever you can.
Thomas: Do whatever you can, yeah.
Andrew: So this result does not foreclose on the Democratic House of Representatives bringing a separate suit. Now whether they will is entirely a political judgment, but I wanna read you from the conclusion.
Thomas: Alright well before you read to us from the conclusion-
Thomas: We’ve gotta take a quick break and then we’ll find out later.
[Commercial – vistaprint.com promo code “OA” for free shipping on business cards]
Andrew: [Laughs] Sorry, I have a friend who whenever we play cards together quotes from the old Busch’s Baked Beans commercial-
Thomas: Oh! [Laughs]
Andrew: Where he’s like “roll that beautiful bean footage.”
Thomas: It’s the best.
Andrew: [Laughs] Anyway! So now I’m gonna roll that beautiful bean footage here. Here, regardless of rigor our conclusion is straightforward because of the members, plaintiff’s class, 29 Senators and 186 members of the House of Representatives do not constitute a majority of either body and are, therefore, powerless to approve or deny the President’s acceptance of foreign emoluments. For standing, the members inability to act determinatively is important and conversely the size of their cohort – I said class, I wanna make clear that this was not a Rule 26 class action thing, cohort is the beter word.
The size of their cohort is not, so long as it is too small to act. That is, we assess this Complaint filed by 215 members of Congress no differently from our assessment of a Complaint filed by a single member. So what that means is this does not apply to bar a lawsuit brought by the entire House of Representatives, that is by majority vote, so absolutely tomorrow Nancy Pelosi could authorize a vote on whether to bring a lawsuit alleging emoluments violations by the President of the United States. Would not be barred by this conclusion.
So that’s the political outcome. We certainly could have a debate on whether the Supreme Court rule here makes a lot of sense. I could easily envision in a post-Trump world saying yeah, if the minority doesn’t have standing this will never come before a vote, and that would be a very good argument.
Andrew: It was an argument made but rejected by the other side, but the D.C. Circuit is not going to overturn the Supreme Court. The Supreme Court has said if you’re an individual member of Congress or here if you’re 186 members of the House of Representatives but less than a majority, you don’t have standing. It’s a totally straightforward ruling, you shouldn’t read anything into it, it does not determine anything on the merits and there you go.
Thomas: Alright! So there’s still two other ones that could go a different way, right?
Andrew: Absolutely, absolutely.
Thomas: What do you think about whether or not the House should try to do this? It seems like a good idea to me.
Andrew: Yeah, I would say certainly my view right now is if I were Nancy Pelosi I would do so. I think this kinda gets into the larger question. People have said the House should reopen impeachment inquiries on X, Y. My view is we tried impeachment and the other side said well we’re gonna break impeachment away from you and there’s no sense playing a rigged game when the other side says-
Thomas: Well hold on, you don’t think we should impeach over this new horrific abuse of power in the Stone case and all that?
Andrew: I think we- so let’s-
Thomas: What is the cost of doing it?
Thomas: We’re not passing anything. Actually, I should take that back. People always miss this. The House has passed hundreds of good bills.
Andrew: Yes, they have.
Thomas: The argument of “stop focusing on impeachment, start working to fix the”-
Andrew: Oh that was good, you almost McConnelled that voice there. You just needed a little bit more swallowing your marbles
Thomas: [McConnell impersonation] Oh I think Democrats should focus on running the country or coming together, maybe we’ll get some bills done. Yeah, they’ve already done all that!
Thomas: They pass the bills then McConnell kills them, he goes [McConnell impersonation] I’m the grim reaper of the Senate. Stupid argument. There’s no cost to impeaching, and I wanna emphasize, it should be on new different grounds, you shouldn’t try to re-do the same impeachment I don’t think, but this is a new level. I know this is not directly what we’re talking about in this show, but re: last show, if you haven’t listened to that listen to it. This is a new level of criminality and norm breaking and all that, you don’t think we should just impeach on this too? Or at least start the investigation process!
Andrew: So you got to where I am, which is at this stage, February 2020, 10 months out from the election, I would, as the Democratic Congress, use my oversight powers, use my investigatory powers, compile and prepare and hand off a clean record to the next President. Again, not shilling for a particular candidate, but some candidates have-
Andrew: -expressed the desire to appoint an independent commission-
Andrew: -to investigate Donald Trump and his cronies, and that’s what I would do. I would say this, look, even if Donald Trump never spends any time in prison I think it is important for history, you look back at some of our landmark cases and landmark events were times, the reason the Pentagon Papers were a big thing was this was 1973. We were withdrawing from Vietnam, everybody knew it was a disaster, everybody knew it was a mistake, but having the government confirm that, having that information come out, made a difference and made a difference in the political trajectory of our country.
Having this information come out will make a difference and will make a difference in trajectory of our country, so I would absolutely continue the investigations, file lawsuits, but I don’t know that I would be doing it under the auspices of impeachment because Republicans have lost the right to participate in that process.
Thomas: I just look at it a different way. I look at it as forget Republicans. Just forget the Senate, forget all that, do what you would do if this were still a functioning democracy because then you make them be the ones breaking the- don’t give up your duties ahead of time so then they no longer have to do anything, make them be the people who are doing the bad thing. Don’t anticipate and then stop trying. I just don’t think that’s right.
Andrew: I respect that position, and maybe I can be persuaded of it? To me I just view that once the other side has said “oh yeah, we’re rigging the rules,” then you say okay, then I’m taking my ball and going home. It doesn’t mean you stop fighting, it doesn’t mean you stop compiling the evidence, but it does mean that you say oh okay, we’re not going through this nonsense again. I don’t view that as giving up, I see why you might say it that way, but I don’t view that as giving.
Thomas: Yeah, I don’t- it’s very, very interesting. I just firmly believe that you still do what the Constitution says you should be doing and let them not do it.
Andrew: Maybe, and I did not get the listener’s approval for this so I’m not gonna read that person’s name, but you know who you are. Another listener who wrote to Indiana Senator Todd Young, somebody who we identified as maybe being a potential voice of conscience. He wrote back, remember we read Todd Young’s letter to a constituent where he said “I promise I’ll explain my vote to you after impeachment is over.” Well this was the follow-up letter, different listener but here was Todd Young’s follow-up letter to explain his vote.
He says “I voted to acquit the President, I worked to remain impartial and open minded throughout the trial, but it must be acknowledged that a political fever permeated this process from the beginning dating back to not just the start of the House of Representatives impeachment efforts, but all the way back to November of 2016. The House’s rushed impeachment process denied the President due process,” that’s a [Clownhorn] lie, “and House managers failed to meet their heavy burden of proof to remove a President from office and from future ballots.
During President Nixon’s impeachment, then-Democratic chairman Peter Rodino of the House Judiciary Committee urged that the American people accept an impeachment, for them to do so it must be powerfully bipartisan. This has been dubbed the Rodino Rule and I embrace that standard.”
I’m not gonna read the rest of it, but basically the argument was this is not a bipartisan impeachment so I’m not going to accept it and I’m not going forward. It repeats the profoundly stupid and insulting lie that the President was denied due process, we have discussed that on this show on multiple occasions and that is easily disproven by, you know, reading documents. If Republicans are saying that you’ve gotta have Republicans on board before we consider this impeachment legitimate, then, you know, fine. Let them come on board.
But I view this as continuing to play baseball with the kid who’s like “well it’s my ball so I get 4 strikes before I have to sit down.” Okay, well, fine, but then I’m not playing.
Thomas: Well I’ll keep playing.
Andrew: Okay! Well there you go!
Thomas: [Laughs] Alright, well I think it’s time to move on, haven’t done this segment in a while. Listener questions!
Warren’s Wealth Tax
Thomas: First up, listener question from Nick. Alright Andrew, why not think of Warren’s wealth tax not as a property tax but rather as an income tax determined using the mark-to-market method of accounting that has been done since 1993? Oh I remember something about that from my schooling.
Andrew: I thought perhaps you might, and I thought that this was incredibly clever, so I wanted to give Nick some credit and analyze it.
So this goes back [Laughs] you can tell it’s been waiting in the queue for a bit when we analyzed Elizabeth Warren’s wealth tax. The question is, A, is a wealth tax in and of itself constitutional? We went through all of the various arguments, pro and con. Nick says look, we know income tax is constitutional, the Constitution was amended, it’s the 18th Amendment to permit that. It seems like we could classify the wealth tax as a kind of income tax and here’s why, and I’m gonna lean a little on your expertise so correct me if I’m wrong here.
Thomas: Oh. Uh-oh.
Andrew: [Laughs] So mark-to-market accounting says when you have an asset, that asset can be valued on your tax return for purposes of collecting income tax by its (quote) “fair value,” and that is the current market price as if you had sold it. There is a specific section of the Internal Revenue Code, it’s 26 U.S.C. § 475, involving dealers in securities.
Here’s what happens: If you are a dealer, particularly in like futures but you could imagine it in other negotiable instruments as well, that at the end of the year, let’s say you have a bunch of options contracts and you haven’t sold those contracts, you’re sitting on, whatever, they’re in your inventory. They don’t have a value of zero! [Laughs] You haven’t bought or sold, but they still have a value in terms of your income.
So 26 U.S.C. § 475 is the mark-to-market accounting and it says any security which is inventory in the hands of the dealer shall be included in inventory at its fair market value, and the dealer shall recognize gain or loss as if such security were sold for its fair market value on the last business day of such taxable year.
Thomas: Hmm, interesting.
Andrew: Yeah, so totally straightforward.
Thomas: So I was gonna say, one of the reasons I wouldn’t be able to help you is because I remember this but I also remember 75 rules and sub-rules and sub headings of rules. It’s so impossible to know when exactly this applied for me to remember that based on my tax accounting education ten years ago. But from what you’re describing it sounds like it’s for use when- it’s like an equivalent to inventory, if you’re just a standard retailer or something where you have a bunch of inventory but for whatever reason the market price went way up or maybe if it goes way down, too, I don’t know what the rules are there if you get to take a loss.
But you’ve got a quarter-million widgets, and the widget market goes sky-high, you haven’t sold them yet for the profit, but I guess… so this is where it gets confusing, I don’t know if this is something that some people would want to do or not? Like it might be an optional thing, like you would take income in a year, ahead of when you might sell it, because you figure once you sell it, if it’s some sort of inventory, then you get the income anyway. So this would sort of be just doing it ahead of time? You know? And then presumably once you sell it you would have a different basis so you wouldn’t have the profit then.
But anyway, it sounds like this was used when there are people dealing in securities that are kind of like inventory, and it definitely doesn’t sound like anything being done with long term property.
Andrew: That’s right, but remember that the argument made in-
Andrew: In Eisner v. Macomber was that you can only tax somebody’s income, you can’t tax their property.
Thomas: Right. Oh, that’s a good point.
Andrew: So this certainly seems like it’s taxing property. The argument would go, if mark-to-market accounting, which is totally accepted and nobody has every challenged 26 U.S.C. § 475, not that we’re trying to give the Federalist Society any ideas.
Andrew: That that is an implicit acceptance that you should not read Eisner v. Macomber that broadly. If it’s permissible to tax the inventory of dealers-
Andrew: You could, Liz Warren’s wealth tax has to be put in as a law, so you could add it to 26 U.S.C. § 475-
Andrew: Instead of saying any security which is in the hands of the dealer, you could add in subsection, let’s see this is a, b, c, d, e, f? How many subsections is there? G? You could add in subsection (h) for inventory in the hands of certain non-dealers, and just put in-
Thomas: Well, inventory?
Thomas: The only problem is, with Warren’s plan which, who knows, maybe Bernie Sanders will wanna use, with Warren’s plan basically everybody will have to know their net worth at any time to know if they go above the $50 million or whatever the threshold was, so there’s gonna be a lot more language than that, right? [Chuckles]
Thomas: There’s also gotta be, okay, there’s this new part of filing taxes which involves… well.
Andrew: Sure. And here I’m offering up my assistance as a lawyer to the campaign. In light of the decision in Sebelius v. NFIB¸ which individually parsed out the individual mandate in the Obamacare regulation. If I were Elizabeth Warren, I would want to make sure that my proposal was enacted in as many sections of the U.S. Code and I would wanna accomplish as much as possible in ways that could not be struck down by the Supreme Court.
So embedding a part of the wealth tax, which would be on the net unrealized built-in gain of various assets being held by millionaires and billionaires-
Thomas: Well also not on the gain.
Thomas: It’s just on the asset.
Andrew: That’s the thing, though, right. If the Supreme Court says “we can’t tax you, it would violate Eisner v. Macomber to tax you not on the gain-
Andrew: But it doesn’t to tax you on the gain,” that’s still a pretty good result.
Andrew: That unrealized appreciation, which then wealthy people borrow against, is still a huge component of how rich people exercise political power in this country. It would be absolutely a major victory if you could get a significant portion of the wealth tax treated as standard accounting treating. So I thought this was just incredibly clever.
Andrew: Very, very smart and Nick, thank you so much for writing in with it.
Thomas: Great question! Alright, we’re gonna move on to our next question, but before we do, we gotta take one more quick break.
[Commercial – echolonefit.com/opening]
ABA 509 Reports
Thomas: Okay, listener Sam Brady asks, “Thank you for the advice aimed at people considering law school in the most recent Q&A. One part was avoiding student debt. 509 reports are ABA-required disclosures that law schools make about diversity, class sizes, scholarships and more, they help prospective students see how much a school gives in different types of scholarships and what LSAT/GPA profile they would need to be competitive for a scholarship.” This is just a Comment?
Thomas: Because I don’t see a question in there. Well what did you want to say about it?
Andrew: No, I wanted – A, I wanted to thank Sam for writing in, being a fan of the show, plugging our live Q&As which we do at the end of the month which are a lot of fun!
Thomas: Yeah, and getting better production involved, too.
Thomas: They keep improving on that.
Andrew: [Laughs] We handle a lot of these freewheeling questions, if you’re a patron you get to ask the questions and upvote with the heart on which ones you wanna see answered. One of the things that comes up time and time again is people who listen to the show and say hey, I’m thinking about becoming a lawyer, and I love that those folks write in and I love that we’re a resource for them.
Sam’s story, I gave you the intro comment, Sam’s story was great. So he talked about using these ABA 509 reports to put together a spreadsheet to figure out how, with his grades and his LSAT scores, where he could go to law school essentially for free.
Andrew: On the basis of putting together the various available scholarships. I’m gonna include the link to the ABA 509 reports which are searchable in the show notes and recommend that – I thought this was such a clever thing to do in terms of taking control of your destiny if you are thinking about going to graduate school.
Let me say really, really quickly, this is also, you know, part of life going forward as our cherished governmental institutions are falling apart. Being accredited by the American Bar Association is really, really important to schools, so this is entirely voluntary. The ABA says “we want you to report the following information to us, and if you don’t that’s gonna affect whether we decide to accredit your school or not.” So there’s this voluntary market-based exchange of information where schools comply and send over the information and the ABA makes that available to you as the consumer.
Really super cool! And since the biggest issue right now in law school, really, is cost, I thought this would be, particularly in February-
Andrew: As folks are thinking about applying to law school, take advantage of it.
Thomas: Yeah, good call. The advice from that Q&A if you didn’t catch it, which you absolutely should, everybody! Either on the YouTube – hey! Another reason to be subscribed to the YouTube because you will get notifications for the Q&As as well as the weekly videos we’re now doing.
Anyway, if I remember right I think we both kind of agreed because this is how I feel about regular school with my kids, I want them to spend as little as possible. It’s not worth the bone-crushing debt you get now, the job market just isn’t working out, and it seemed like you said that’s even more true for law school. So, you know, it’s in that vein that’s like find a way to go as cheaply as possible because it just doesn’t seem to be necessarily worth the return of going to a bajillion-dollar school anymore.
Andrew: Yeah, or know what you’re doing, right?
Andrew: It’s not to say-
Thomas: Yeah, if you plan to go into super-duper [Laughs] rich person law, I guess.
Andrew: Well, look, I’m far from gonna bag on somebody who decides to go to Harvard Law School.
Thomas: Yeah, I’m not-
Andrew: Harvard, for example, has a really great program because they have such a huge endowment, where if you go and you go into public interest law, which when I graduate- I’m sure the numbers are higher now – but when I graduated, it was you had to report back and if you took a salary that was $40,000 a year or less for, I believe it was 4 years. You know, check this out, don’t [Laughs]
Andrew: Then they would forgive your student loan debt.
Andrew: Right, not a lot of schools get a chance to do that, but yeah, definitely, know what’s available to you, know what your options are, so you don’t get stuck with oh my gosh, I now have $300,000 in legal debt and I’ve got a job at, you know, Covington & Burling but I never wanted to be working in a huge law factory.
Thomas: [Laughs] Law factory.
Andrew: You know-
Thomas: Every day I punch in at the law factory!
Andrew: [Laughs] I mean that’s kinda how it felt to me, but your mileage may vary. It really is, this is an expensive investment in your future and the more information you have the better you’ll be doing it. Definitely not saying “don’t go to an ivy league law school,” that would make me a huge hypocrite, but I am saying go in with your eyes open and go in knowing that 95% of your class will be funneled into Covington & Burling and the like. If that’s not what you wanna do, you have to go in with a plan not to be there and with a plan to pay for it.
So I absolutely loved Sam’s question – not a question-
Andrew: But I wanted to share him as a resource with folks who are listening who are thinkin’ about law school.
Thomas: Awesome! And the other great thing about Harvard Law is, as Dershowitz and Ted Cruz have shown, you can be completely full of shit and it doesn’t matter! Pretty cool!
Thomas: Anyway. [Laughs]
Andrew: Can I just? I just wanna declare my undying love for you, right here, right now in front of our audience, Thomas.
Thomas: [Laughs] Oh wow!
Andrew: There it is.
Thomas: I hope it doesn’t make everybody – get a room, us! Alright [Laughs] It’s time to thank our all timers, our Hall of Famers over on Top Patron Tuesday on patreon.com/law and Andrew, I think it’s your turn first.
[Patron Shout Outs]
Thomas: And now it’s time for T3BE, the thrilling conclusion!
T3BE – Answer
Andrew: Yeah, so Thomas, you got a lot riding on this one, man-
Thomas: Do I?
Andrew: This is a 6 question winning streak.
Thomas: Yeah, that’s true.
Andrew: Yup, yup.
Thomas: I guess that’s some amount of pride riding on it.
Andrew: This is a big curveball. Plaintiff sued a defendant. During the defendant’s case the witness testified that the plaintiff told him “I was barely touched by the defendant’s car.” You’re thinking is that hearsay? Is it going to be admissible? And you’re like well, yeah, that seems like a statement against interest which you totally got during the analysis, but then, as the bar often does, it likes to mess with you while you’re taking the question.
So then in one sentence it says “on cross examination, should the court allow the plaintiff to elicit from the witness the fact that he is an adjustor for the defendant’s insurance company?” You did the thing that I love, particularly in a high stakes!
Andrew: By eliminating the “no” answers. You were like yeah, absolutely you should be able to elicit that fact. So you ruled out the “no” answers: no because testimony about liability insurance is barred by the Rules of Evidence; and no because it raises a collateral issue. I’m here to tell you that was a good elimination!
Thomas: Oooh! Both of ‘em?
Andrew: Yeah, both of them. It’s a yes answer.
Thomas: Oh, I was worried for a second and as I was thinking about it I was like oh, maybe it is the collateral issue because the rules that on cross-examination you can only – I just realized that’s what that’s referring to, huh? Right?
Thomas: The fact that you can only cross examine on stuff-
Andrew: On stuff that is within the scope of the original direct.
Thomas: I should’ve addressed that when I answered it, but I’m glad I still eliminated it either way. Wow! I was sweatin’ that one. Okay. Eh, Second Chance Bar Exam is still alive.
Andrew: Second Chance Bar Exam, still alive. Then the question is, for what purpose can you elicit from the witness the fact that he was the defendant’s insurance adjustor? Can you use it to impeach his testimony or can you use it to impeach his testimony and also for substantive purposes? That is to prove that there is liability insurance that will cover the damages in this trial. You picked yes for impeachment purposes only, which is 100% correct!
Thomas: [Cheers] Wow!
Andrew: Absolutely dead on, seven in a row.
Andrew: Yeah, the actual hard answer here for lawyers was A because-
Thomas: Yeah. Was I right that you brought up before that you can’t really talk about, was I on the right track there? Sorry, go ahead.
Andrew: Yup! No, you were exactly, you were 100% on the correct track. So Federal Rule 411 of the Federal Rules of Evidence, 411, bars admitting evidence of liability insurance to prove negligence or wrongful conduct.
Andrew: And you can see instantly why you would have that rule, because otherwise every single case, every single personal injury case would be plaintiff’s injury attorneys going hey, you should hold this guy liable even if you don’t think he did or not because, you know, what the heck? He’s got insurance, it’s some big company that’s gonna pay for it.
Thomas: Yeah, ka-ching, ka-ching, what do you care?
Andrew: Yeah, he’ll actually make, the plaintiff’s lawyer, and it will be a he, will actually do that, pulling down, make the ka-ching noise. It’s like pfft, eh? What do you care if Geico forks over $800 bucks in this case.
Andrew: You don’t care! So knowing that’s how jurors would respond, this is a specific application of the area where introducing the insurance is, while it’s potentially probative, the prejudicial effect greatly outweighs any sort of probative value, and I’m not even sure that it’s probative. Why is the-
Andrew: -fact that you have insurance an indication that you’ve driven recklessly? You know, this is maybe a tortured chain of inference there of you don’t care because it’s not your money.
Andrew: In whatever event-
Thomas: Look, the point is I got it right.
Andrew: Yeah! So you can’t introduce that evidence, but you absolutely can, and this is something, we’ve talked about this before, particularly in other hearsay cases or whatever, where you can get a fact in before the jury when you say “look, I don’t want you to know that this guy is an insurance adjustor because I want you to know he has insurance.” I want you to know that this guy is an insurance adjustor because he’s got a corrupt motive to lie on the stand.
Andrew: We’re not gonna have a rule, we’re not gonna say insurance adjustors always lie on the stand, but we’re gonna let the jury have all the relevant information to figure it out, which you immediately grasped the reason why and reason to the right answer. Great work!
Thomas: Well thank you! I’m gonna go ahead and say, and you can run this through the Bar Association and get their thoughts. I think if I get 10 of these in a row I’m a lawyer.
Thomas: I’m just gonna go ahead and say. I don’t know that that’s gonna happen, I’ve still gotta get 3 more in a row, but I think that’s fair. Can you talk to them? To the ABA? I think they would-
Andrew: I will file a letter on your behalf.
Thomas: I mean, ten in a row, that’s a lot, right?
Andrew: Ten in a row is a lot, yeah.
Thomas: I can’t coincidentally get 10 in a row.
Thomas: That means I should be a lawyer. Alright, once again for the seventh or eighth?
Thomas: Seventh time in a row, I’m the big winner, but Andrew why don’t you hop in your time machine and find out who the other big winner is this week!
Brian: Andrew was rocking out to White Snake a little to hard in his DeLorean this week, so I’m bringing it to you from my TARDIS. This week’s winner of T3BE is Sam Brady, who writes “I guess D. This isn’t some rando plaintiff gabbed to, it’s someone who has a stake in minimizing claims. If I’m plaintiff’s counsel I’m worried they Bill Barred and are only remembering half of ‘I can’t believe this is what shattered my spine I thought they barely hit me.’”
Everyone follow @creeptasticsam on Twitter.
Thomas: Alright, thanks so much for listening everybody. We love you, we’ll see you for a Rapid Response Friday, go subscribe to the YouTube channel pretty please, pretty please pretty please. See you on Friday.