The Supreme Court yesterday struck down Trump’s IEEPA tariffs, saying the law’s authorization to “regulate…importation” does not include the power to impose tariffs. The majority’s strongest argument is simple: every time Congress enacts a tax authority, it uses the word “duty,” closes the measure, imposes a time limit, and requires procedural requirements. IEEPA has none of this.
The opposition pushed back with a soundly appealing argument: The IEEPA authorizes the President to be forbid it is completely self-imposing, and therefore warrants little self-tax action. If Congress offers the nuclear option, why would it withhold a conventional weapon? Indeed in his press conference Trump, in his arrogant way, made this argument:
“I’m allowed to cut off any trade…I can destroy trade, I can destroy a country, I’m even allowed to force a foreign country to destroy borders…I can do whatever I want to them…I’m allowed to destroy a country, but I can’t charge a small fee.”
The argument is attractive but fails by a general consequence in principal-agent theory.
Congress wants the President to act quickly in a true emergency, but it does not want to give up general control over trade policy. So the right design for deploying an inspection tool: give the President the authority to use it only in a truly urgent situation.
Import bans serve as a screening device precisely because they are so disruptive. Blocking causes immediate and massive damage. “It’s an expensive brand.” The President who asks for it speaks convincingly: this is serious enough that I am willing to incur huge costs. Taxes, by contrast, are cheap—especially for the President. Taxes raise revenue, which eliminates political pain. Tax events are widespread and easy to get wrong—prices go up, intermediaries get blamed, consumers don’t look directly at policy direction. Most importantly, pricing is adjustable, making it a useful weapon in negotiations, releases, and targeted programs. Taxes under the chief executive implicitly carry the message—I am the king; Give me a lump of gold and I’ll lower your prices. Tax flexibility is more politically attractive than prohibition and is thus a less credible signal of an emergency. The “less inclusive” argument reverses the logic. Asymmetry is key.
Not surprisingly, the same structure appears in real emergency services. The fire marshal may have the authority to close roads during an emergency but that does not mean the fire marshal has the authority to toll the roads. Road closures are expensive and self-inflicted – they disrupt traffic, create immediate complaints, and the king has every incentive to remove them quickly. Tolls are cheap, manageable, and when they exist they tend to persist; they generate revenue that can fund the agency and build districts to sustain it. No one thinks that granting an emergency shutdown authority gives them the authority to impose taxes, even if the latter is a small authority. The instruments of closure and toll have completely different structures in political economy despite operating on the same roads.
The majority reaches the correct conclusion by noting that tax rates are taxes over which Congress, not the President, has authority. That is constitutionally correct but the deeper question is why The Framers put the taxing power in Congress – and the answer is political economy. Income tools are very easy for an executive to use because they can be targeted. The constitution exists to solve that incentive problem.
Once you see that, the argument of the “big includes the small” argument folds in on itself. The principal can authorize the am agent to take urgent action while holding back the cheek of cheap money, not in spite of its seeming softness, but because of it. A blunt instrument is self-limiting. The income tool does not exist. That asymmetry is what preserves the separation of powers that is part of the Constitution – and how an endless emergency response team can destroy it.
