Update 900 — Sup. Court and the Economy:
Docket Includes Tests of Trump’s Authority
On Monday, the Supreme Court began its new term, with a docket that includes several cases pivotal for the Trump administration’s economic agenda. Among these cases are ones challenging the President’s tariffs, his authority to fire heads of agencies such as the FTC Commissioner, and the legality of his attempt to remove Federal Reserve Governor Lisa Cook.
All these cases raise issues concerning the extent to which President Trump — or any president — can exercise greater or even unilateral executive power to reshape the American economy. The range of decisions could vary from a complete rebuke of the administration’s overreach of existing checks and balances to a flat-out emboldening of the president’s authoritarian efforts.
Best,
Dana
Supreme Court to Decide on Key Tariffs
On November 5, the Supreme Court will hear arguments in a case that will decide the fate of a critical piece of President Trump’s economic agenda. As the self-proclaimed “Tariff Man,” the President has sought to implement a sweeping tariff regime, a hallmark of his presidency thus far. In mere months, he levied historic tariffs on dozens of trading partners under varying executive authorities. To be tested by the high court will be the constitutionality of tariffs implemented under the International Emergency Economic Powers Act (IEEPA). Those include reciprocal tariff rates revealed on “Liberation Day” – which have since been paused and revised a number of times – as well as trafficking tariffs related to fentanyl entering the US from Canada, Mexico and China.
Source: Bloomberg
For more details on this Presidential power and the history of IEEPA, take a look at our past analysis on the topic here and here.
Two cases – which were granted expedited hearings – will be heard in conjunction on November 5:
- Learning Resources v. Trump: Two educational toy manufacturers, Learning Resources, Inc. and hand2mind, filed a suit against the Trump administration on the grounds that IEEPA does not authorize the President’s tariffs. This case was first filed in the US District Court for D.C. which found that the Constitution grants Congress the power to tax and impose duties. The Court will also consider the major questions doctrine, examining whether IEEPA permits the President to tax, given that there is no clear statutory authority for it to do so.
- VOS Selections v. Trump: A group of five small and mid-sized businesses that rely on imports challenged the President’s tariffs, arguing that the tariffs exceed the statutory authority of the President. The plaintiffs also challenge the underlying justification of bilateral trade deficits as an “unusual and extraordinary threat” to the United States as the basis for the claim of an emergency. The case was heard by the United States Court of International Trade (CIT), a three-judge panel that specializes in trade disputes, and it unanimously found that the President exceeded his authority in implementing the tariffs. This case was heard alongside a case brought by a dozen states, State of Oregon v. US Department of Homeland Security, in the US Court of Appeals for the Federal Circuit, where the CIT’s decision was upheld with a 7-4 split.
Issues at Hand
IEEPA gives the President broad authority in a time of declared emergency to regulate economic transactions. While Congress passed on many trade authority powers in times of emergencies to the Executive Branch over the 20th century, lawmakers and legal experts still question the legality of the president’s sweeping actions. The administration argues the term “regulate… importation” within IEEPA’s language can be interpreted as the authority to tariff imports. It also contends that under a declared emergency, and in matters of national security, the president maintains deference.
At the core of the case will be how the Court reads IEEPA. In a textual reading, the Act does not refer to tariffs, and the Federal Circuit makes clear that without a clear reference, the administration should not have interpreted IEEPA to justify such expansive tariffs. In the D.C. Federal Circuit Court of Appeals’ opinion on V.O.S. Selections, it states:
“…whenever Congress intends to delegate to the President the authority to impose tariffs, it does so explicitly, either by using unequivocal terms like tariff and duty, or via an overall structure which makes clear that Congress is referring to tariffs. This is no surprise, as the core Congressional power to impose taxes such as tariffs is vested exclusively in the legislative branch by the Constitution; when Congress delegates this power in the first instance, it does so clearly and unambiguously…”
Possible Outcomes
The Court’s decision could take one of several forms. For instance, the ruling could grant all of the President’s IEEPA tariffs – meaning both fentanyl-related and reciprocal – lawful or not. It could also grant partial approval for some of these tariffs. There is also a chance that the Supreme Court will rule that the tariffs are not only illegal – in part or whole – but that the administration must refund illegally collected duties from American importers. There is no official process or timeline for how such a massive tariff refund program would operate.
In previous instances where the government was forced to return unlawfully collected export taxes, like United States v. United States Shoe Corp (1998), exporters had to follow specific procedures to qualify for a refund, such as filing a protest and requiring proof of payment of the tax. It stands to reason that the scale of the IEEPA tariffs could mean that an unprecedented rebate or refund program would be implemented.
As the President’s signature economic policy hangs in the balance, American businesses continue to pay the price of Trump’s tariffs and hold their breath as the Supreme Court decides its fate.
Case on Firing of Independent Agency Members
One case the Court plans to address in the new term, Trump v. Slaughter, has broad implications for Trump’s power over the federal government agency appointments. The case concerns Rebecca Kelly Slaughter, who served as one of the two statutory Democratic commissioners of the Federal Trade Commission (FTC) until this March, when Trump fired her along with the other Democratic commissioner, Alvaro Bedoya.
According to the FTC’s charter, the agency is independent, with a bipartisan commission where members serve staggered seven-year terms. A commissioner can only be fired “for cause,” not at will, by the President. As such, Slaughter sued to block Trump from firing her in a case that has slowly made its way through the federal courts. A US District Court ruled in Slaughter’s favor back in July, with the US Court of Appeals for the District of Columbia ruling the same in a divided decision. In September, however, the Supreme Court ruled that Trump could proceed with firing her while the case moved forward, with the three liberal justices dissenting.
Humphrey’s Executor/Unitary Executive Theory
The reason the Court’s decision to allow Trump to fire Slaughter is so striking, even though it does not represent the final decision on the matter, is that it indicates that the conservative justices are primed to overturn an important 90-year precedent known as Humphrey’s Executor. In the landmark case of Humphrey’s Executor v. US (1935), the Court ruled on whether President Franklin Roosevelt had the authority to fire one of President Herbert Hoover’s appointees to the same agency at the center of Trump v. Slaughter, the FTC. In this decision, the high court ruled unanimously against the Roosevelt administration. The Supreme Court ruled that the FTC was explicitly established to be impartial, and its duties were neither political nor executive. Instead, the FTC is quasi-legislative and quasi-judicial in function, and Congress could legitimately decide to insulate it from direct control by the sitting president.
This set an important precedent for how independent federal agencies are chartered and organized. Numerous federal agencies have been established in a manner that mirrors the assumptions outlined by Humphrey’s Executor, with bipartisan commissioners appointed to a panel that makes decisions by consensus. These commissioners can only be fired “for cause,” such as breaking the law or dereliction of duty. This insulates essential agencies, such as the aforementioned FTC, the Federal Communications Commission, the National Labor Relations Board, and the Federal Reserve (see below), from political interference when they act on matters ranging from decisions on antitrust actions to allegations of election fraud.
Despite Humphrey’s Executor being a long-respected legal precedent that underpins much of the federal bureaucracy, far-right conservatives have gained momentum with their argument that protections from presidential firing in all cases except “for cause” are an unconstitutional check on the president’s supremacy over the executive branch. Their theory is called the unitary executive theory (UET), a once-fringe theory stating that Article II of the Constitution, which vests executive power in the president (the so-called “vesting clause”), also vests the president with direct authority over all officials and agencies that exercise any part of the executive branch’s power. The theory first emerged as a proper legal framework during the Reagan administration, as a handful of conservative lawyers wished to justify expanding the power of presidents such as Reagan and later George W. Bush.
Until recently, this theory has been fringe because one of the key court cases that UET advocates point to for legitimacy, Myers v. United States (1926), was explicitly addressed and rolled back by Humphrey’s Executor, where the Court found that Myers only applies to the president’s firing authority for purely executive officials. For agencies established by Congress to perform quasi-legislative roles, such as the FTC, the Court found that the president must respect the agency’s charter if it restricts his firing authority.
There are several other reasons that legal scholars have long rejected the UET, such as the fact that it would infringe upon Congress’s broad authority to pass laws structuring the federal government, as established under Article I, and runs counter to what is known about the Founding Fathers’ attitudes toward independent federal agencies. For example, in 1790, the First Congress established the Sinking Fund Commission to handle the national debt, an agency that had a similar structure to the FTC and whose decisions were explicitly shielded from presidential interference by way of an independent commission making its decisions. This was an agency proposed by Alexander Hamilton, voted for by then-Congressman James Madison, signed into law by President George Washington, and for which Thomas Jefferson served on the commission. None of them expressed any concerns that the Commission’s independence interfered with the power of the President over the executive branch.
How SCOTUS Might Rule
Regardless of established legal precedent, it looks increasingly likely that the Supreme Court is going to overturn Humphrey’s Executor after it hears oral arguments in December. In an earlier emergency docket decision on the case of Wilcox v. Trump, the Court allowed Trump to fire a Democratic member of the National Labor Relations Board, stating flatly that, “Because the Constitution vests the executive power in the President, he may remove without cause executive officers who exercise that power on his behalf, subject to narrow exceptions recognized by our precedents.” The conservative justices hinted at the possibility of a carveout specifically for the Fed by arguing that the Fed is “quasi-private” and “uniquely structured.” The three liberal justices dissented in this case, with Justice Kagan stating that the Court “blessed” Trump’s “blatantly illegal firings” with their decision while creating a “bespoke” exception “to reassure the markets.”
Between the Wilcox emergency docket decision and their decision to let Trump go ahead and fire Slaughter while they consider the case, it certainly seems like the conservative justices are ready to kill Humphrey’s Executor. Such a move would massively expand presidential power at a time when the Trump administration has proven eager to trample established norms and legal precedent to do precisely that.
The implications that this would have for the US economy are broad and would be difficult to fully quantify. Looking just at the FTC, which handles a good deal of the federal government’s antitrust enforcement, Trump or a future president could pressure the FTC to pursue antitrust actions against corporate donors to his political rivals while turning a blind eye to monopolistic practices by his own donors. Depending on how the Supreme Court rules, it could be difficult for Congress to ever sufficiently protect the independence of agencies from presidential interference in future legislation, given the sweeping nature of the UET’s stance on executive power. The Court clearly realizes the implications of such a move to a certain extent, hence the conservative justices’ attempt to create a carveout for the all-important Fed in the Wilcox case, but how exactly it would go about preserving the Fed’s independence while undermining the independence of every other agency by overturning Humphrey’s Executor remains to be seen.
The Case of Fed Governor Cook
The Supreme Court is also set to rule on Trump v. Cook, in which it will consider whether President Trump can remove Lisa Cook from her position on the Federal Reserve Board of Governors. The case will have wide-ranging implications for the independence of the Federal Reserve and public confidence in the institution. The court is expected to hear oral arguments in January.
President Trump has conducted a campaign to seize control of the Federal Reserve and is seeking to secure a majority on the Fed’s Board of Governors to gain influence over the Fed’s traditionally politically insulated monetary decisions. Trump has called for the Fed to cut interest rates by an unprecedented 250 basis points despite inflation ticking up steadily in recent months. Trump has repeatedly threatened to fire Fed Chair Jerome Powell over his resistance to acquiescing to these demands.
In late August – ahead of the Fed’s mid-September interest rate decision – Trump attempted to remove Fed Governor Lisa Cook from her position on the Fed’s board, pointing to allegations by Federal Housing Finance Agency Director Bill Pulte that Cook committed mortgage fraud. Cook has denied these allegations and has not been charged with a crime.
No President has ever removed a Fed governor. Trump cannot legally fire any member of the Fed board for refusing to lower interest rates. The president can only legally remove a member of the Fed’s board “for cause,” according to Section 10 of the Federal Reserve Act. “Cause” usually refers to serious misconduct or malfeasance in the officeholders’ performance of their role.
Cook challenged her attempted removal. Last month, US District Judge Jia Cobb granted Cook’s request to block Trump’s attempt to remove her, saying, “The best reading of the ‘for cause’ provision is that the bases for removal of a member of the Board of Governors are limited to grounds concerning a Governor’s behavior in office and whether they have been faithfully and effectively executing their statutory duties.” This decision allowed Cook to participate in the September Federal Open Market Committee (FOMC) meeting.
The Trump administration has appealed this decision. Last Wednesday, the Supreme Court issued a brief, unsigned order in which it declined to allow Trump to immediately remove Cook from the Fed’s board and deferred ruling on Cook’s status until after it hears oral arguments. The order will allow Cook to participate in the FOMC’s next two meetings in October and December.
As a group of former Treasury Secretaries, Fed Board Chairs and Governors, Council of Economic Advisers Chairs, and economists noted in an amicus brief opposing Cook’s removal while the case proceeds, “Congress intentionally designed the Federal Reserve System as a uniquely independent entity, largely insulated from political pressures that could otherwise prioritize short-term economic gain over long-term stability and growth.” They also caution that reducing central bank independence can result in higher inflation and higher borrowing costs.
Scope of Presidential Economic Authority
The running theme of this Supreme Court term will be Presidential power and the extent to which the conservative justices want to further empower a president who has already upset the balance of power in Washington by accumulating so much of it. As such, the Court’s decisions could have broad-reaching implications regarding the scope of the executive’s economic policy and personnel authority. If the justices seek to make rulings consistent with the intent of Congress and the Founders, they need to recognize that some limitations on the executive branch in our checks-and-balances system of government are needed, regardless of a given administration’s ideological bent.