General Practice, Solo & Small Firm DivisionMagazine

Legislative Update / E. E. Anderson

The Federalism Trend Continues

IIn a number of rulings in the past seven years, the Supreme Court has cut back congressional powers in favor of states’ rights. Federalism, a term used to describe this devolving of power from the federal government to the states, was strengthened very recently by a number of Supreme Court cases.

The most notable one was Alden v. Maine, No. 98-436, decided on June 23, 1999. This action was filed by a group of Maine probationary officers who claimed that the state had violated the overtime provisions of the Fair Labor Standards Act of 1938. The question involved whether a private citizen could use a federal law to sue a state in a state court. By a 5 to 4 decision, the Court said "no."

Two other cases decided the same day, College Savings Bank v. Florida Prepaid Post Secondary Education Expense Board, No. 98-149 , and Florida Prepaid Post Secondary Education Expense Board v. College Savings Bank, No. 98-531, invalidated federal patent and trademark laws that permitted lawsuits against state agencies. In the first of these two cases, the Court denied congressional power to authorize suits against states for alleged false and misleading advertising under the Trademark Act of 1946. In the second case, the Court ruled that states had constitutional immunity from private suits alleging federal claims of patent infringement.

In the Alden case, the Court, in an opinion written by Justice Kennedy, held that Congress lacks authority under Article I of the Constitution to subject a state to suit by a private party for damages in the state’s own courts without the state’s consent. The Court reasoned that "the sovereign immunity of the States neither derives from nor is limited by the terms of the Eleventh Amendment," but instead "is a fundamental aspect of the sovereignty which the States enjoyed before the ratification of the Constitution, and which they retain today...except as altered by the plan of the Convention or certain constitutional Amendments." "The generation that designed and adopted our federal system considered immunity from private suits central to sovereign dignity." Only if there is "compelling evidence" that the states surrendered this power "pursuant to the constitutional design," can Congress subject them to private suits in their own courts. According to the majority, neither the Supremacy Clause nor specific Article I powers constitute such compelling evidence.

Nonetheless, the Court explained that states remain bound to follow federal law, and added that states could consent to suit and that state sovereign immunity does not bar all suits against municipalities or state officers. The Court noted that in this case the United States could have brought a back wage action against the state under the FLSA, but had not done so.

Justice Souter, writing for the dissent, countered that "[t]he Court’s federalism ignores the accepted authority of Congress to bind States under the FLSA and to provide for enforcement of federal rights in state court." He analogized the majority’s ruling to the Lochner-era due process cases and concluded that he "expect[s] the Court’s late essay into immunity doctrine will prove the equal of its earlier experiment in laissez-faire, the one being as unrealistic as the other, as indefensible and probably as fleeting."

The rulings in the three cases evidence a deep ideological divide among members of the Court over how to balance federal and state power. Next term, the Court will have yet another opportunity to review the doctrine of federalism in several similar cases.

Espionage Report

The Clinton administration’s policy toward China has been one to choose engagement over isolation in an effort to support a more stable and open China and to ensure that China assumes its responsibilities for peace and security in Asia. Some critics argue that this policy may have contributed to China’s theft of our top nuclear secrets from the Department of Energy’s (DOE) national weapons laboratories. While some Republicans have called for the resignation of Attorney General Reno and NSC’s Samuel Berger, Democrats have countered by noting that these security problems occurred during the Reagan and Bush administrations as well.

The United States did not become fully aware of the magnitude of the counterintelligence problems at the Department of Energy’s national weapons laboratories until 1995. At that point, a PRC national provided secret People’s Republic of China (PRC) documents to U.S. authorities. These documents included U.S. design information on the W-88 thermonuclear warhead used on our Trident D-5 missile. This stolen information provided the PRC thermonuclear design information on par with our own. Congress began investigating the Clinton administration’s dealings with the Chinese, and it became apparent that Hughes Electronics Corporation and Loral Space and Communications Ltd., might have compromised national security in helping the PRC determine the causes of their rocket failures in 1995 and 1996.

DOE weapons scientists and counterintelligence personnel, and the CIA, knew in April 1995 that PRC had acquired classified design information on the nuclear warhead W-88. Yet President Clinton has said he was not aware of this information until July 1997. Then-DOE secretary Hazel O’Leary has said that in July 1995, she conveyed her suspicions to White House Chief of Staff Leon Panetta. John Deutch, then-CIA Director, said that within days of that briefing, he confirmed the DOE’s findings to Panetta. In November, Deutch briefed White House National Security Advisor Anthony Lake, yet Lake denies it. Subsequently, DOE officials briefed Sandy Berger, who had replaced Lake as the national security advisor. Berger claimed that he briefed the president on this matter in April 1996, but the White House insists the president was not informed until July 1997.

To investigate this espionage matter, the bipartisan House Select Committee on U.S. National Security and Military/Commercial Concerns with the People’s Republic of China was formed. The chair was Representative Christopher Cox (R-CA). The committee completed its classified report (generally referred to as the Cox Report), in December 1998, but because of White House concerns, the unclassified version was not released until May 25, 1999. The principal findings of the report are:

1. The PRC stole design information on our most advanced thermonuclear weapons.

2. Security at our nuclear weapons laboratories fails to meet even minimal standards.

3. The stolen information enables the PRC to deploy significantly smaller thermonuclear warheads on smaller mobile missiles, all of which will be able to strike the United States.

4. Illegally obtained technology may be used to attack U.S. satellites and submarines.

5. U.S. manufacturers (Loral Communications Inc. and Hughes Electronics Inc.) transferred missile design information without obtaining the legally required licenses.

A recent report by the President’s Foreign Intelligence Board, chaired by former Senator Warren R. Rudman (D-NH), recommended the creation of a semi-autonomous agency within DOE responsible for security, or a completely separate agency to run the weapons programs. Republican senators hoped that this report would bolster their effort to implement a similar proposal, and they introduced an amendment to the Fiscal 2000 Intelligence Authorization Act recommending the creation of a new organization in DOE, called the Agency for Nuclear Stewardship. However, Secretary Richardson objected to this amendment as undermining his authority, and said he would recommend that the president veto the bill. After a third rewrite, the amendment creating this new agency was favored by Secretary Richardson and adopted by the Senate. The vote was 96-1 on the amendment. In the House, however, leaders want the amendment to be a freestanding bill, and not part of broader legislation addressing other subjects. On August 12, 1999, Secretary Richardson recommended disciplinary action against three officials in the Los Alamos case.

Tax Cut Legislation

During the week of July 12, House Ways and Means Chair Bill Archer (R-TX) unveiled a $864 billion tax-cut package. The bill would use up almost the entire $1 trillion on-budget surplus, the part not derived from Social Security revenue. As the result of a number of compromises, the $864 billion figure was later reduced to $792 billion. After a last-minute proposal by Mr. Archer, which stated the proposed gradual 10 percent income tax cut would take effect only if interest on the national debt drops each year from 2002 to 2009, the bill passed. The vote was 223 to 208, with four Republicans voting against the bill, while six Democrats voted for it. The key provisions of the House bill H.R. 2488 are:

Income tax. Across the board 10 percent cut in income tax rates, phased in over ten years. After 2001, cuts would kick in only if interest on the national debt drops.

Estate tax. Phase down, and eventually repeal the tax on inheritances.

Marriage penalty. Allow married couples to claim a standard deduction of $8,600, versus the current $7,200 deduction.

Capital gains. Cut rate for most investments held for at least one year from 20 percent to 15 percent.

Alternative minimum tax. Ensure that personal credits do not cause middle-class people to become subject to the tax, and gradually repeal the tax over ten years.

In commenting on the Republican bill, Speaker J. Dennis Hastert (R-IL) said, "This is a great win for the American people, people who go to work every day, that punch a time clock, that get on a train and commute into the city." He also said, "Mr. President, we say, What’s wrong in letting American taxpayers keep more of their hard-earned money. We trust them to spend it right, and we think you should too."

Meanwhile, in the Senate, the Finance Committee on July 21, passed its version of a $792 billion tax-cut plan. Significantly, all Republican members of the committee supported the plan, as well as two Democrats, Senators Bob Kerry (D-NE) and John B. Breaux (D-LA). The Senate took up the $792 billion bill during the week of July 26, and on July 30, passed S. 1429 by a vote of 57-43.

On August 2, conferees were appointed, and an agreement was reached by 10:30 p.m. the next day. On August 5, the House adopted the conference report on the bill by a vote of 221-206, and the Senate adopted it late that day by a vote of 50-49. Several Senate Republicans were opposed to Mr. Archer’ "trigger" in the House bill, which stated that cuts in the income tax brackets would take effect only if the interest on the national debt remains steady or declines. However, when it became clear that the legislation would not pass without the "trigger," the Senate bill included it.

There were some significant differences between the House bill and the bill finally adopted. The across-the-board 10 percent cut in income tax rates was changed to a 1 percent cut by 2005. Thus, the 15 percent bracket would fall to 14 percent and the 39.6 percent bracket would fall to 38.6 percent. The marriage penalty provision in the House bill of a standard income tax deduction of $8,600 for married filers prevailed. The capital gains rates for individuals would be reduced from 20 percent to 18 percent, and they would be indexed for inflation. Estate, gift, and generation-skipping taxes would be eliminated by 2009.

The president will not have the opportunity to veto the bill until Congress returns from its recess in September, as Senate Majority Leader Trent Lott (R-MS) has decided to hold it.

Patients Bill of Rights

On July 15, 1999, the Senate, after a week of bitter partisan debate, passed S. 1344, a patients bill of rights, by a 53 to 47 vote. The bill approved a limited set of federal rights for patients in managed health care plans. During the debate, Democrats attempted to broaden the bill’s coverage, seeking to allow patients who are denied care to sue their managed care companies for damages. The Senate rejected this provision by a 53 to 47 vote, saying that it would increase costs, as well as the number of uninsured individuals. President Clinton called the bill "a patients bill of rights in name only," and said he would veto it. Vice President Gore called the bill "a fraud."

The Senate bill applied many new rights to the 48 million Americans in health plans that are now exempt from state regulations. These include patient protection involving emergency room care, access to obstetricians/gynecologists, and the right to keep a doctor during a course of treatment. The Democrats wanted to cover 113 million others who live in states that may or may not have approved these protections.

Both parties agree that patient protection mandates raise costs. The Congressional Budget Office (CBO) estimates that the Democratic proposals would raise costs 4 percent to 6 percent. The CBO also assumes that for each 1 percent increase in health costs, at least 200,000 people will lose coverage or not get it at all. Thus, a premium increase of 6 percent would add at least 1.2 million to the rolls of the uninsured.

The bitter debate on this bill has been based on clear philosophical differences between the two parties. The Republicans opted for a more modest federal role, deferring to states in the regulation of health care for the majority of Americans, and limiting the number of people covered by any federal protections that do pass. The Democrats, however, are trying to expand HMO protections to millions not presently covered. CL

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