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SCOTUSblog, Tuesday, October 30, 2018; Railroad Retirement Act: BNSF: Please tax me more?
Daniel Hemel Guest
Posted Tue, October 30th, 2018 10:02 am
Argument preview: Please tax me more?
At first glance, BNSF Railway Co. v. Loos looks like an utterly unremarkable case on the docket for the Supreme Court’s November sitting. The petitioner is a frequent litigant before the court; the statute at issue (the Railroad Retirement Tax Act) is frequently litigated; and the amount in controversy ($3,765) is piddling by Supreme Court standards. But look again and you’ll see that, notwithstanding the rather drab window dressing, something quite extraordinary is going on.
BNSF, the largest freight railroad network in North America, is arguing that railroads and their employees should pay more in federal payroll taxes. Yes, you are reading that right: BNSF — the company formerly known as Burlington Northern and Santa Fe Railway — is arguing for a higher tax bill. Why would a for-profit corporation do such a thing? The answer appears to have nothing to do with the fact that the chairman and CEO of BNSF’s parent company Berkshire Hathaway, Warren Buffett, believes that Congress should tax the rich more heavily. Rather, BNSF says it’s concerned about the solvency of the Railroad Retirement System, upon which BNSF employees depend for their pensions. Respondent Michael Loos and those filing “friend of the court” briefs on his behalf argue that the railroad’s motivations are not nearly as altruistic. Rather, they claim that a victory for BNSF here — though leading to a higher tax bill in the short term — would actually allow BNSF and other railroads to pay less to injured employees in the long run.
To understand each side’s claims, it helps to step back and take stock of the statutory scheme that produces this peculiar alignment of interests. The Railroad Retirement Tax Act of 1937 — familiar to some readers from last term’s not-at-all-blockbuster case Wisconsin Central Ltd. v. United States — imposes taxes on “compensation” paid by railroads to their workers. Employers and employees each pay a “Tier 1” tax of 6.2 percent on compensation up to an annual maximum of $128,400. Employers also pay a “Tier 2” tax of 13.1 percent on compensation up to $4,674.60, and employees pay a “Tier 2” tax of 4.9 percent for employees on compensation up to $95,400. Together, these taxes finance a retirement system that provides more generous benefits to former railroad employees than to workers in other industries. Due to the existence of this separate system, lifelong railroad employees don’t receive Social Security benefits, and they and the railroads aren’t subject to Social Security payroll taxes.
....
For BNSF, this case is a gamble. If it succeeds, it may be an instance of “winning by losing by winning.” By winning here, the railroad will lose out by owing more in RRTA taxes on lost-wages awards but perhaps win in the long run by pressuring more injured workers to settle for less. As a business litigant before a business-friendly court, and as the petitioner before a court where petitioners win more than 70 percent of the time, BNSF likely believes that the odds are in its favor. But Loos has a strong textualist arrow in his quiver in front of a court where textualist arguments often trump. Here’s one prediction that seems reasonably certain: It will be a long time before we again see the subsidiary of one of the world’s largest companies come into the Supreme Court and say, “please tax me more.”
Posted in BNSF Railway Company v. Loos, Featured, Merits Cases
Recommended Citation: Daniel Hemel, Argument preview: Please tax me more?, SCOTUSblog (Oct. 30, 2018, 10:02 AM), http://www.scotusblog.com/2018/10/argument-preview-please-tax-me-more/
Posted Tue, October 30th, 2018 10:02 am
Argument preview: Please tax me more?
At first glance, BNSF Railway Co. v. Loos looks like an utterly unremarkable case on the docket for the Supreme Court’s November sitting. The petitioner is a frequent litigant before the court; the statute at issue (the Railroad Retirement Tax Act) is frequently litigated; and the amount in controversy ($3,765) is piddling by Supreme Court standards. But look again and you’ll see that, notwithstanding the rather drab window dressing, something quite extraordinary is going on.
BNSF, the largest freight railroad network in North America, is arguing that railroads and their employees should pay more in federal payroll taxes. Yes, you are reading that right: BNSF — the company formerly known as Burlington Northern and Santa Fe Railway — is arguing for a higher tax bill. Why would a for-profit corporation do such a thing? The answer appears to have nothing to do with the fact that the chairman and CEO of BNSF’s parent company Berkshire Hathaway, Warren Buffett, believes that Congress should tax the rich more heavily. Rather, BNSF says it’s concerned about the solvency of the Railroad Retirement System, upon which BNSF employees depend for their pensions. Respondent Michael Loos and those filing “friend of the court” briefs on his behalf argue that the railroad’s motivations are not nearly as altruistic. Rather, they claim that a victory for BNSF here — though leading to a higher tax bill in the short term — would actually allow BNSF and other railroads to pay less to injured employees in the long run.
To understand each side’s claims, it helps to step back and take stock of the statutory scheme that produces this peculiar alignment of interests. The Railroad Retirement Tax Act of 1937 — familiar to some readers from last term’s not-at-all-blockbuster case Wisconsin Central Ltd. v. United States — imposes taxes on “compensation” paid by railroads to their workers. Employers and employees each pay a “Tier 1” tax of 6.2 percent on compensation up to an annual maximum of $128,400. Employers also pay a “Tier 2” tax of 13.1 percent on compensation up to $4,674.60, and employees pay a “Tier 2” tax of 4.9 percent for employees on compensation up to $95,400. Together, these taxes finance a retirement system that provides more generous benefits to former railroad employees than to workers in other industries. Due to the existence of this separate system, lifelong railroad employees don’t receive Social Security benefits, and they and the railroads aren’t subject to Social Security payroll taxes.
....
For BNSF, this case is a gamble. If it succeeds, it may be an instance of “winning by losing by winning.” By winning here, the railroad will lose out by owing more in RRTA taxes on lost-wages awards but perhaps win in the long run by pressuring more injured workers to settle for less. As a business litigant before a business-friendly court, and as the petitioner before a court where petitioners win more than 70 percent of the time, BNSF likely believes that the odds are in its favor. But Loos has a strong textualist arrow in his quiver in front of a court where textualist arguments often trump. Here’s one prediction that seems reasonably certain: It will be a long time before we again see the subsidiary of one of the world’s largest companies come into the Supreme Court and say, “please tax me more.”
Posted in BNSF Railway Company v. Loos, Featured, Merits Cases
Recommended Citation: Daniel Hemel, Argument preview: Please tax me more?, SCOTUSblog (Oct. 30, 2018, 10:02 AM), http://www.scotusblog.com/2018/10/argument-preview-please-tax-me-more/
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