UNITED STATES v. HATTER
In 1982, when Congress extended Medicare to federal employees, then-sitting federal judges began to have Medicare taxes withheld from their salaries. In 1983, Congress then required federal judges to participate in Social Security, except for those who contributed to a "covered" retirement program. A "covered" program was defined to include any retirement system to which an employee had to contribute, which did not encompass the noncontributory pension system for federal judges, whose financial obligations and payroll deductions therefore had to increase. A group of federal judges, who were appointed before 1983, filed suit arguing that the 1983 law violated the Constitution's Compensation Clause, which guarantees federal judges a "Compensation, which shall not be diminished during their Continuance in Office." Ultimately, the Court of Federal Claims ruled that a 1984 judicial salary increase cured any violation. In reversing, the Federal Circuit held that the Compensation Clause prevented the government from collecting Medicare and Social Security taxes from the judges and that the violation was not cured by the 1984 pay increase.
Did Congress violate the Compensation Clause when it extended the Medicare and Social Security taxes to the salaries of sitting federal judges? If so, was the violation cured when Congress increased the salaries of all federal judges by an amount greater than the new taxes?
Legal provision: Article 3, Section 1, Paragraph 2: Good Behavior and Compensation Clause of Federal Judges
In a 6-1 opinion delivered by Justice Stephen G. Breyer, the Court held that the Compensation Clause prevents the government from collecting Social Security taxes from federal judges who held office before Congress extended those taxes to federal employees and that the Compensation Clause violation was not cured by the 1984 pay increase for federal judges. In a 5-2 split, the Court held that the Government could collect Medicare taxes from the same class of judges. On the Medicare question, Justice Breyer, wrote that "this Court has held that the Legislature cannot directly reduce judicial salaries even as part of an equitable effort to reduce all Government salaries. But a tax law, unlike a law mandating a salary reduction, affects compensation indirectly, not directly. And those prophylactic considerations that may justify an absolute rule forbidding direct salary reductions are absent here, where indirect taxation is at issue."
Argument of Paul R. Q. Wolfson
Chief Justice Rehnquist: We'll hear argument now in Number 99-1978, United States v. Terry J. Hatter.
Mr. Wolfson: Mr. Chief Justice, and may it please the Court:
When Congress brought Federal judges within the coverage of the Social Security and Medicare programs, they began to share with the vast majority of all other Americans the costs and benefits of a universal program of social insurance that benefits society at large.
The obligation to participate in those programs posed no threat to the central purpose of the Compensation Clause, which is to protect the judiciary from interference from the other political branches.
As this Court recognized in O'Malley v. Woodruff, judges are also citizens, and the Compensation Clause does not grant them an immunity from participating in the burden of Government, whose Constitution and laws they are charged with administering.
A nondiscriminatory tax that falls on judges as well as most other citizens does not violate the Compensation Clause.
The concern that the Framers had with Congress' possibly abusing its power to set judges' statutory salaries does not apply to Congress' application and extension of a nondiscriminatory tax on income.
Now, the Framers understood that when Congress exercised its authority to enact statutory salaries, it would have the opportunity for mischief.
Justice Scalia: Excuse me, how does that nondiscriminatory get into it?
Suppose Congress simply reduces the salaries of all Federal employees, officers and employees, and judges among them.
Surely the fact that it was nondiscriminatory wouldn't prevent it from violating the Compensation Clause, would it?
Mr. Wolfson: That is correct, Justice Scalia.
Justice Scalia: Although you could say they're clearly not trying to impair the independence of judges.
Mr. Wolfson: That's the holding, of course, of Will, which is that a nondiscriminatory reduction in Federal employees' salaries that includes judges does violate the Compensation Clause, but it's one thing to say that a direct reduction of judges' salaries violates the plain language of the clause, because it is, after all, a diminution of their compensation that is owed to them for their services, but it's another thing... and... but it's another thing to say that a tax, which is not a direct reduction of their compensation but is an obligation that they must share with all other citizens, implicates the Compensation Clause.
Justice Scalia: Why is that, because a tax doesn't have anything to do with their compensation, and therefore it doesn't count?
Why would a discriminatory tax violate the Compensation Clause, then?
Mr. Wolfson: First of all, I think--
Justice Scalia: If it doesn't have anything to do with compensation, you could do it discriminatorily, I assume.
Mr. Wolfson: --I'm not sure it would violate the Compensation Clause itself.
It very likely would violate fundamental principles underlying Article III, a discriminatory tax, even if it didn't fall on judges' compensation.
If... one... there are two, essentially two different principles here.
One is a reduction of judges' compensation, and another is discriminatory treatment of judges in some way which might or might not be directed at their salary or at their income.
I think the same principles would apply, a discriminatory tax principle would apply if Congress--
Chief Justice Rehnquist: Well, what cases support the... your second hypothesis?
We've had cases involving, you know, the Compensation Clause and decided them one way or the other, but what cases support this second line of argument?
Mr. Wolfson: --Mr. Chief Justice, I think the cases like Plaut v. Spendthrift Farm show that there are broader principles protecting the independence of the judiciary that go beyond some political interference, that go beyond just the Compensation Clause, but I want to add, even if I'm wrong, and even if one should analyze the discriminatory tax on judges' salaries under the Compensation Clause, that doesn't mean one would have to also conclude that a nondiscriminatory tax violates the Compensation Clause, because the clause would still be interpreted in light of its central purpose, which is to protect judges from interference with their function by the political branches.
Justice Scalia: Well, but maybe... you call it a central purpose, but it's not the only purpose, and it's clear that another purpose is to enable those who come to the bench, setting aside a lucrative profession, to be able to be sure that they will get so much money over the term of their lifetime service.
You acknowledge that's one of the purposes.
Mr. Wolfson: --I certainly acknowledge that that is a benefit that the Compensation Clause has, but I think it's... I think it's--
Justice Scalia: A purpose.
Mr. Wolfson: --Well, I'm not sure that I agree that that is a central purpose of the Compensation Clause.
Justice Scalia: --You disagree with Alexander Hamilton, then?
Mr. Wolfson: But I... Hamilton said that that would certainly be a benefit of the clause, but I think that even if that's... even if that's so, and even if I agree with you, it doesn't necessarily follow... it doesn't follow, in fact, that every expectation that a judge had, that he brought with him, or her, when taking office, was protected from any disparagement or any adverse effect by later action in Congress.
After all, the same claim was made in Will.
The judges argued that the formula for adjusting the statutory salary had been built into the statute at the time they took the judges, and they fully expected that those adjustments in salaries would come automatically each year, and yet Congress in 2 years prevented those salaries from taking effect.
Justice Scalia: But there, it was because they had not yet become effective, and therefore they were not part of the compensation that the judges had--
Mr. Wolfson: But the broader point is that it just is not the case that every single expectation that a judge has about his financial position when he takes office is something that the Compensation Clause freezes in place.
For example, Congress surely could have raised the rate of the general applicable income tax on all citizens in the exact same amount as was the amount of the Medicare and Social Security taxes in this case, and Congress could have done so, in fact, because it had decided that from this point on these programs of social insurance should be financed out of general income tax revenues instead of a separate tax on income.
Justice Scalia: --Perhaps, but is it fair to equate payments into a retirement system with general taxes?
I mean, when employers offer compensation, they offer a compensation package, which very often includes retirement plans.
Some of them are contributory, some of them are noncontributory, but that is part of the whole scheme of compensation, and it may well be the case that the general taxes are something entirely different, but does that necessarily show that contributions to retirement schemes are entirely different?
Isn't that much closer to involving the compensation of the judges?
Mr. Wolfson: Well, I think that they bear elements, Social Security bears some analogizing to a contribution to a retirement scheme, but it also is principally a tax that is laid on the wages and salaries of every earner.
Chief Justice Rehnquist: It's quite... it's actually quite different from other compensation schemes, where you get out what you--
Mr. Wolfson: Right--
Chief Justice Rehnquist: --a fraction of what you paid in.
Social Security, you can go for just a few quarters and get the whole deal, and pay 60 years and get nothing more.
Mr. Wolfson: --The... not only that, but there's both a floor and a ceiling in Social Security benefits.
Congress has also made clear by statute that it can adjust Social Security benefits, and that there are no contractual or vested rights in a particular level of benefit, so--
Justice Ginsburg: And you could be... you can be a bachelor, or you could have nine children, and it would be the same.
It's a tax.
It's not like the Civil Service retirement system that's also a piece of this case.
Mr. Wolfson: --Right.
Justice Ginsburg: It's not a tax.
Mr. Wolfson: It's a pay-as-you-go system, principally, and it operates on a principle that a large fund is being financed by all taxpayers, and that all taxpayers... and that all wage-earners also derive a benefit from it, but there's no direct connection.
Justice Scalia: This was meant to replace for these judges the Civil Service retirement system, wasn't it, which they previously had been entitled to participate in?
Mr. Wolfson: Actually, no.
The judges... the judges themselves, while judges, did not participate in the Civil Service retirement system.
Now, Federal employees did participate in an entirely separate, self-contained system, CSRS, and Congress did not bring incumbent Federal employees into Social Security on a mandatory basis.
Justice Scalia: Congress replaced that element of compensation with the Social Security system for other Federal employees, right?
Mr. Wolfson: For Federal employees--
Justice Scalia: And yet you say that it really has nothing to do with--
Mr. Wolfson: --Well, I--
Justice Scalia: --retirement or compensation for retirement.
It seems to me Congress thought it very much did.
Mr. Wolfson: --Well, I... no, I don't think that Congress thought that Social Security is a Civil Service retirement system.
It is not a contributory retirement system.
It is... it obviously does, as does a Civil Service retirement system, go to the... go to citizens' interests in retirement income security, and Congress didn't want Federal employees to have to pay twice for retirement income security.
Justice Scalia: Why is the contributory versus noncontributory factor, whether you get out as much as you put in, why does that have anything to do with whether it is realistically regarded as part of your total compensation?
Does it make a difference, when an employer hires you and promises you a certain retirement system, whether you contribute to it or not, or whether, you know, somehow it is tied to your wages or not?
It seems to me it's part of the total employment package.
Mr. Wolfson: Well, first, the question here is not whether judges' Social Security benefits are part of their compensation.
I mean, the question that we are presenting here is whether Congress could ask judges, or could require judges to participate in the financing of a system that operates for the benefit of society at large, and that is the obligation that was extended to judges for the first time in 1983 and 1984.
And the reason why that is different from a statutory form of compensation, or why, I should say, that the concerns that the Framers had with diminishing direct reductions of statutory salary don't apply here, is that when Congress enacts and shapes a general tax like Social Security, it legislates with the broad perspective of society at large, and it doesn't have a narrow focus on the judiciary, and when Congress sets the generally applicable tax rate, it is also constrained by political checks, by the popular political objection to--
Chief Justice Rehnquist: But you could say that Congress did have a focus on the judiciary here, since judges weren't included until 1983, and then it was decided to bring judges in, who had not been in before.
Mr. Wolfson: --Mr. Chief Justice, Congress... it's true Congress brought judges... Congress eliminated the exemption.
It did bring judges within the Social Security system, and that is part of a general progress of extension of the Social Security system over time since 1934 to the present.
I mean, it's one of many extensions that Congress has made.
In 1984, along with Federal judges and new hires in the Federal Government, it brought in employees of nonprofit organizations.
In 1986, it extended mandatory coverage to employees of State and local governments who weren't otherwise covered by a system similar to CSRS.
Justice Scalia: That may be, but when they do come to the step of extending it or not extending it to this very discrete group of individuals, judges, you're confronted with the problem that they may be induced to extend it or not to extend it on the basis of whether they like judges or not, on the basis of whether they think these judges have been coming out with decisions of the sort they like or not.
Once you allow Congress, whether it's part of a step-by-step proceeding or not, to single out judges for an imposition of this sort, you run the risk that, you know, that they're doing it for a wrong reason, and we can't inquire case-by-case whether they did it because they were mad at judges or not.
Mr. Wolfson: Well, first of all, there is no claim in this case that Congress did this for that reason, that Congress extended the coverage of the programs to judges.
Justice Scalia: I don't know how you'd find that out, to tell you the truth.
Mr. Wolfson: Well, second, this isn't... excuse me.
This is not the imposition of a special tax.
This is the... this is eliminating an exemption that had precluded judges from both the costs and benefits of the Social Security program, so that is a--
Chief Justice Rehnquist: Well, but many judges, speaking generally, had already qualified for the Social Security system in private practice.
--Many judges... many judges might have, Mr. Chief Justice.
Mr. Wolfson: Some judges might have not.
Judges also get a benefit that society at large has from having a fiscally sound Social Security program that benefits everybody.
After all, the logic of Social Security is not just that it benefits the people who pay in specifically for what they paid in.
It benefits... it is a program of social insurance.
It benefits us all that other people obtain Social Security benefits and are not impoverished, do not have to draw on public welfare resources--
Justice Breyer: The figures that I have said that 95 percent of those who were judges in 198... '82, '92... '82... '82, 95 percent had already maxed out, so as to that 95 percent, this had the effect of nothing but a tax.
Mr. Wolfson: --I don't think it would matter.
Justice Breyer: That's at least the figures I saw.
Do you have anything to the contrary, or do you think they're not right?
Mr. Wolfson: I think that there was a wide variety in judges' experience, and--
Justice Breyer: You think these figures are not right?
Mr. Wolfson: --I think it probably is the case that the majority of judges, majority of judges were already fully insured.
Justice Breyer: Now, is it also right that... is it also the case that when this was extended to, let's say... how many million in Federal employees were there in... there were about, say, 5, 10 million Federal employees, extended--
Mr. Wolfson: A couple of million, I think.
Justice Breyer: --A couple of million, all right.
As... if there were 2 million, let's say, 1,950,000 it didn't apply to, because there it was just for the future.
As to the remaining 50,000, there were probably less, probably 5,000, maybe 2,000, it did apply to them, but they were given the choice whether to opt in or not.
But for 800, there were only 800 out of that 50 million, or 5... 2 million that didn't... that had no choice, that had to take it, is that right, and those 800 were the Federal judges then sitting, so everybody else could opt out--
Mr. Wolfson: Well, that's not quite--
Justice Breyer: --but in fact only a few had to opt out because it didn't cover any sitting employee but for those few.
Mr. Wolfson: --Well, first of all it's not quite right, which is that in the first place one has to remember that close situation of employees of the legislative branch and Members of Congress, who before 1984 were not mandatorily covered by either CSRS or Social Security, and they were required, as of '84, basically to choose one, and so they were in roughly the same situation as Federal judges, which is that beforehand they were not subject to any mandatory contribution, and the other person who is similarly situated is the President of the United States.
Justice Breyer: The President of the United States and the 800 judges had to accept this Social Security.
No one else did.
Mr. Wolfson: Members of Congress and legislative employees--
Justice Breyer: They had to go into the Federal--
Mr. Wolfson: --They had to accept one or the other.
Justice Breyer: --So... all right.
So, but as to this particular tax at issue, the only ones that had to accept it were the judges and the President.
Mr. Wolfson: Well, they're the only ones who had to--
Justice Breyer: Is that right?
I just want to know if that's right.
Mr. Wolfson: --They're the only ones who had to accept it then, yes, but of course 90 percent of the civilian labor force had to accept it.
Justice Breyer: No, no--
Mr. Wolfson: Right.
No, I understand, but that's right.
Justice Breyer: --Isn't that, what you just said, totally irrelevant, in that isn't the issue whether or not a person who was already employed at that time had to accept it?
I'm trying to just get the facts right.
Mr. Wolfson: I understand.
Justice Breyer: I'm not making an argument, yet.
I want to get the facts right.
Mr. Wolfson: They were the only people who were newly required, as incumbent employees.
Justice Breyer: Now, this is my question, if those facts are right.
Suppose Congress said, I want a general tax, everyone in the United States will pay it, the tax is equal to 100,000 dollars a person.
It's a big tax, but everybody pays it.
No problem with that for judges, right?
I'm... the answer is right, no problem.
Now, what they do is say--
Mr. Wolfson: I'm thinking about the end of the question.
Justice Breyer: --No... everybody in the United States happens to get a rebate, exactly of 100,000 dollars, or to make it... and, by the way, our reason for this is not to discriminate against judges.
It's that everybody else in the United States doesn't have this marvelous, guaranteed, nonpayable in retirement system, so we're only leaving out those who have this... who happen to be judges, of course.
Now, a) is that okay, in your view, under the Constitution?
Mr. Wolfson: I doubt that would be okay.
Justice Breyer: If that's not okay, and I don't think it is either, what's the difference?
Mr. Wolfson: --Well, the question is... well, first of all, it seems to me that even though Congress is calling that a tax, it really is not a tax.
It's not raising revenue.
It is what is, in effect, a reduction in judges' salaries.
That is to say, if... what it is, is basically is if Congress had done the same thing that it did in Will, but had just called it a tax.
That is, I don't think it would have mattered to the decision in Will if, instead of passing a law that said, this tax... this salary increase is rescinded, if Congress had said, there shall be imposed a tax on Federal judges in the amount equal to the salary increase that they received on October 1, 1979, so I mean, I think the first question is, is that really a bona fide tax of any kind, and so I think that's one question.
Then the second question, even if one gets that point, the second question is, is there a legitimate reason for Congress to treat Federal judges differently from everybody else?
Justice Breyer: Well, there is.
The reason is that they have, guaranteed by the Constitution, a retirement system, and no one else does.
Now, is that a legitimate reason, or not?
Mr. Wolfson: I don't think it would be in the situation that you present, because it doesn't... I mean--
Justice Breyer: No, no, no.
I mean, it's easy to manipulate the hypothetical.
We don't call it 100,000, call it 50,000, have it come out of the retirement committees of Congress, have it viewed as some kind of effort to help people who don't have guaranteed retirement.
I mean, you know, we could fix that up.
Mr. Wolfson: --Justice Breyer, I agree that when Congress treats judges for tax purposes differently than other people who are similarly situated, it has to have a significant reason for doing so, but I would say two things.
First of all, I think that tax equalization, bringing judges into line with the vast majority of other people and also extending, of course, the benefits of the... the attendant benefits of the coverage that I discussed earlier to them as well as everybody else, as well as 90 percent of the civilian labor force, I believe that that is a significant reason for tax equal... for treating judges for tax purposes equally, as all other citizens.
Now, the hypothetical that you gave me is not tax equalization.
I mean, it's... it is imposing a special tax on judges.
So that, I think is... I think that is almost always, perhaps always, a legitimate objective of Congress, which is to treat judges equally with all other citizens for tax purposes, because the Constitution does not require Congress to grant judges a perpetual exemption from taxes.
What it does require Congress to do is to recognize that when judges take office with a particular salary, that they cannot reduce that level of salary.
Justice Ginsburg: Mr. Wolfson, do I understand your argument to be essentially, this is no different than if Congress had initially given Federal judges an exemption from income tax, and they enjoy that exemption... say, a judge when he took office got that exemption.
10 years later, the Congress decides that judges shouldn't be exempt from the Federal income tax, so puts it on.
Now, we decided a case that deals with the prospective aspect of it and said that's okay if someone was coming on the bench, once the tax is in.
We didn't decide the part that says, what about people who are already there.
Mr. Wolfson: Right.
Justice Ginsburg: Is it your view that these two cases are the same?
Mr. Wolfson: --Yes, they are, and that case that you mentioned is basically the case that was decided by the Fourth Circuit in Baker v. Commissioner, after this Court decided O'Malley, and in that case, a panel in which Chief Justice Stone sat, it raised the situation that after this Court's decision in Miles against Graham, Congress exempted judges from the income tax and then, after O'Malley, it brought them back within the income tax--
Justice Scalia: And that's okay, you say.
Mr. Wolfson: --Yes, I think that is okay.
Justice Ginsburg: That's okay.
Mr. Wolfson: Yes, and--
Justice Scalia: You know, there's some science fiction book I read once that had a devilishly clever plot in which one of the protagonists is poisoned, but he has a poison scanner that detects all sorts of poison, so you couldn't get to him that way, and the way they get to him is that they give him something that isn't poison, but that is very addictive, and then withhold it from him, and if he doesn't get it, he will die.
You're saying that you can do the same thing with Federal judges.
Unknown Speaker: [Laughter]
Justice Scalia: You cannot put a new tax just on judges, but when they come in, you can say, hey, guys, we're going to give all of you a special tax exemption, and if you behave yourselves, you can keep that tax exemption, but you get us mad, and you're not going to have that special exemption any more.
You really think that that's okay?
Mr. Wolfson: --Justice Scalia, I think the problem with analyzing it that way is that there's no question that Congress could have raised everybody's income taxes in the exact same amount that it raised judges, that it was equal to the Medicare and Social Security taxes in these cases.
So judges did not have any expectation... if they came into office at the salary of 100,000 dollars and the income tax rate was 30 percent, there's no question, or it isn't disputed in this case, I don't think, that Congress could have raised the general income tax on everybody 5, 10 percent.
It might have required... it might have been required to by economic distress, by wartime.
Not only that, Congress could have imposed what it has called from time to time a surtax, which is, you know, a special kind of tax that is found necessary to impose from time to time.
Now, that has the exact same economic effect as a... as the elimination of the 5.4... the exemption for the 5.4 percent for Social Security taxes and the Medicare tax, so I think it's just wrong to say that the judges had an enforceable entitlement that required Congress to freeze this in place, because their economic situation could have been changed in exactly the same way.
Justice Scalia: Isn't the reason that judges were distinguished from some other categories in this general revision of the Federal retirement system, isn't one of the reasons that they had a guaranteed retirement income, and that was the basis for narrowing the focus to judges?
Do you think that's a fair basis for saying, well, since you have this retirement income, which the Constitution guarantees you, we're going to use that guaranteed income as the basis for treating you differently from other people?
Mr. Wolfson: I think it would be accurate to say that Congress realized that if it was... if it extended the Social Security taxes... and we're only talking about the old age tax here.
I mean, the Medicare tax applies to everybody across the board, so that's completely nondiscriminatory, but as for the OASDI tax, if Congress had required incumbent Federal employees to pay that, they would have been subject to double deductions, and Congress realized that that in itself was unfair.
That is, it would be required to treat alike things that were not, in fact, alike, so the fact that judges had the guaranteed retirement annuity was a difference for treating them differently.
I'd like to reserve my time for rebuttal.
Argument of Steven S. Rosenthal
Chief Justice Rehnquist: Very well, Mr. Wolfson.
Mr. Rosenthal, we'll hear from you.
Mr. Rosenthal: Mr. Chief Justice, and may it please the Court:
We believe that the Court determined the liability issues in 1996 and need not reach them now, but if this Court does reach the liability issues, we believe this case presents the question whether a tax can ever be a diminution in judicial compensation.
We contend that it can in at least two circumstances.
Circumstance number 1 is where Congress or the political branches change the economic tradeoff that a judge makes when assuming the bench, and secondly, where Congress discriminates against Federal judges.
Chief Justice Rehnquist: What authority in our cases is there for either of those, Mr. Rosenthal?
Mr. Rosenthal: Well, with respect to the discrimination, the latter, virtually every one of these cases, especially the Woodrow case, refers to a nondiscriminatory tax.
With respect to the issue of the tradeoff, the tradeoff is derived from both Will and Evans, which refer to the fact that one of the primary purposes, an equal purpose of the clause, was to bring judges... bring qualified judges into the judiciary.
To quote Alexander Hamilton, one of the purposes of the clause was to get people with the requisite knowledge, combined with the requisite integrity.
That was a primary purpose, as he indicated in Federalist 78.
Therefore, the purpose was so that... and I'm again quoting Hamilton.
It was so that a man knew what ground he stood on, and the ground that these judges stood on was, they didn't get... they got a lot of disadvantages, Your Honors, from when they became Federal judges, but one of the small advantages they did get was, all of the plaintiffs were free from OASDI and HI, and that was retroactively changed.
Justice Ginsburg: So would you say on that reasoning that when the Social Security tax came in and everybody in the general population was exposed to it, and the judges were not, that the judges' compensation went up, they had an increase... they had an increase in compensation, therefore, that couldn't be decreased later on.
Mr. Rosenthal: Well--
Justice Ginsburg: You would have to say that, that exempting them from the tax increased their compensation.
Mr. Rosenthal: --Well, I would prefer to say it the other way.
Our view is that compensation refers, Justice Ginsburg, to what's available for the support and sustenance of a judge.
When our clients, when these plaintiffs took office they had available to them the stated salary, but the stated salary without a deduction for OASDI and HI, and--
Justice Ginsburg: But if they couldn't diminish the compensation, and this is a diminution, you argue--
Mr. Rosenthal: --Yes.
Justice Ginsburg: --then equally, it had to be an augmentation when the Social Security first came in and the judges were exempt from it.
If it didn't increase their salary, how did it decrease their salary?
Mr. Rosenthal: Well, I... I'm not sure how I answer the question about whether it was... the exemption constituted an increase.
It may have, but it's quite clear to me that the imposition of the tax definitely constituted a decrease, and this was a policy decision, Justice Ginsburg, that was made by Congress in 1935.
Chief Justice Rehnquist: What about a judge who has served... this is perhaps a rather... a very old judge, who was serving in '37.
When they came in, they're exempted, so unlike the rest of the population the judge gets a benefit that the rest of the population doesn't get.
Then he continues to serve until 1982.
Then the exemption is taken away.
Now, he's in no worse shape now than he was when he went on the bench in 1936.
Mr. Rosenthal: Your Honor, that is admittedly not this particular case.
What that is is actually the evidence case itself.
That was a case in which the judge took office before the tax was imposed on the general public.
Our position is that the... that a general rate increase which is uniform for the entire population does not... and applies to everybody, does not change judicial compensation, and although we believe that the principle of evidence is correct, we believe there is a possibility, Mr. Chief Justice, that the particular facts of evidence might have been different, depending on whether Evans was appointed in 1912 or 1915.
Chief Justice Rehnquist: What about a change in the tax rate?
Mr. Rosenthal: No.
Your Honor, if it's a uniform change in the tax rate, that doesn't go to the purpose of the clause.
What we're looking for are changes in taxation which will induce justices who are in office to leave office, or lead potential candidates not to join the bench.
Chief Justice Rehnquist: It seems to me that's really stretching Article III.
I mean, it's a perfectly good policy reason, but I don't think our cases have... at least in their holdings haven't extended Article III to that length.
Mr. Rosenthal: Well, I think, with respect, I think that a fair reading of Hamilton... Hamilton's--
Chief Justice Rehnquist: Well, Hamilton's not a case.
Mr. Rosenthal: --No, I understand, it's not a case.
But in reality, the only case that is here, the only case which has dealt with this issue is Evans v. Gore, and Evans v. Gore might have used broader language, but it didn't deal with this particular case.
Chief Justice Rehnquist: Well, O'Malley casts some doubt on Evans against Gore, didn't it?
Mr. Rosenthal: On the broad reasoning of Evans v. Gore, but O'Malley does... because the Court overturned Miles but didn't overturn Evans, I think a fair reading of this Court's case law, reading the three cases together, is that the principle we're advocating, a change for a sitting judge in... that changes the economic tradeoff, is prohibited by the Compensation Clause.
That's the principle we derive from reading those three clauses together, and I--
Justice Ginsburg: All that was involved in O'Malley is it was somebody who came on board--
Mr. Rosenthal: --After--
Justice Ginsburg: --after the tax, so the Court didn't have to deal with somebody who was already a judge when the tax came on, but is your--
Mr. Rosenthal: --That's correct, Your Honor.
Justice Ginsburg: --I think I grasp your argument correctly that you would say, if the... there is no income tax, and there are sitting judges, and then Congress puts an income tax on the general population, everybody, you can't put it on the judges who were appointed to the bench before the tax came in.
Mr. Rosenthal: No, that isn't... our position is, this Court doesn't have to reach that question.
Our position is that if Congress were to adopt a new tax today, and were to impose it uniformly on both judges and nonjudges, there would be no incentive for a judge to want to leave the bench.
There would have been no disincentive for him going on to the bench.
Justice Souter: But it changes the tradeoff.
You were making a tradeoff argument before, and it seems to me that Justice Ginsburg's question goes right to the tradeoff, and if your tradeoff argument is right, it seems to me you've got to say, no, it can't... that tax can't be imposed--
Mr. Rosenthal: Well, I may have misunderstood Justice Ginsburg's question.
Justice Ginsburg: --I'm deciding whether to take a judgeship.
Mr. Rosenthal: Yes.
Justice Ginsburg: And there's no tax on my income.
Mr. Rosenthal: In the private sector or on the bench.
Justice Ginsburg: Right, and then I take the bench, and they... but I know what my salary is.
Mr. Rosenthal: That's right.
Justice Ginsburg: And then there is a tax.
Mr. Rosenthal: Imposed on--
Justice Ginsburg: Imposed on everybody, so my take-home pay is less, because of this tax.
Mr. Rosenthal: --I would submit, Justice Ginsburg, that on that fact pattern there is no incentive to leave the bench because the tax is the same on both sides of the equals sign.
Justice Souter: Sure, but the income isn't.
When I... the theory of the tradeoff is that I go on the bench, I take less money, but I know where I stand, and it seems to me that argument is just as strong when the tax goes on everybody.
It's quite true, I can go out and start earning a living under different conditions, but I... the deal is being changed.
Mr. Rosenthal: Our position is that, although that additional category might be covered, we don't need to reach that question in this case.
At least in our view of the tradeoff, Justice Souter, we don't need to deal with a case where there is a uniform change in rates or a uniform change in--
Chief Justice Rehnquist: But I think it does cut against your tradeoff argument.
A judge can go on the bench, no income tax anywhere, saying, I'm getting 100,000 a year for this job, I've got so many kids to educate, I can just make it the way it is, and I'm willing to sacrifice whatever I would have... more I would have made in the profession.
But then the tax comes along and the tradeoff, what he had bargained for is no longer there.
Mr. Rosenthal: --Well, Your Honor, I understand that position.
Justice Scalia: I really don't think Hamilton would have bought your argument there.
I think... you know, the judge knows where he stands--
Mr. Rosenthal: Well, I think the imposition of... this Court held in Evans v. Gore and that the imposition of a new tax does violate the Compensation Clause.
We don't reach that issue because we have a more limited circumstance.
We have a case where judges take office during a 50-year period in which Congress had a policy in effect that a tax would not be applied.
This is not a transitory issue, I might add.
Justice Kennedy: --Well, under that same reasoning, if the judges take office and there's no tax for Social Security, and there's a Social Security tax on everybody else, under that reasoning, if Congress decides to repeal the Social Security tax on everybody else, the tradeoff has now been changed as well.
Mr. Rosenthal: And if it did... if it did repeal the tax on everybody else and left it in effect--
Justice Kennedy: No, so... even if the judges still don't pay it, they're still in a less advantageous position vis-a-vis everybody else under your tradeoff argument.
Congress can't repeal the tax on anybody else, either--
Mr. Rosenthal: --Well--
Justice Kennedy: --without violating your tradeoff theory.
Mr. Rosenthal: --Well, you would have to be adversely affected by the tradeoff, not advantageously.
Justice Kennedy: Well, you're still disadvantaged vis-a-vis the public where you... compared to what it was when you took the bench.
Justice Scalia: This is my poison example, it's the same thing.
Mr. Rosenthal: Look--
Chief Justice Rehnquist: The poison example depends on the idea that judges are addicted to money.
Unknown Speaker: [Laughter]
Chief Justice Rehnquist: Given the present state of judicial salaries you really can't say that, I think.
Unknown Speaker: [Laughter]
Justice Breyer: I take it your basic point, I mean, whether you're right or you're wrong, I thought it's well-established law that a uniform tax applied to everybody is constitutional, and you agree with that, I take it.
Mr. Rosenthal: --We agree with--
Justice Breyer: Whether it fits your reasoning or whether it doesn't, that's still the law.
Mr. Rosenthal: --We agree that a uniform imposition of a tax, a uniform change of tax--
Justice Breyer: All right.
Now, we have two things here in addition.
One is, it's not a uniform tax.
It's only applying to some people and not others, in your view.
Mr. Rosenthal: --That's correct.
Justice Breyer: And the second thing is, the third thing is, it's not only not uniform, it is also discriminatory.
Mr. Rosenthal: And if I could... because I don't want to lose the discriminatory point, let me provide you the facts, because I've been involved in this case for 12 years.
First of all, of the Federal employees--
Justice Breyer: Are there any plaintiffs still left?
Unknown Speaker: [Laughter]
Mr. Rosenthal: --Thank God, there are.
We have... we had 2-1/2 million, approximately, Federal employees to whom this tax was not applied.
Those were incumbent Federal employees who were not required to join OASDI.
That represented 99-1/2 percent--
Chief Justice Rehnquist: But they were required to join that or something else.
Mr. Rosenthal: --No, actually, they were already in CSRS, and they were allowed to simply stay where they were, but they were not required to join OASDI.
Justice Ginsburg: But they were already having a bigger bite taken out for the CR... the Civil Service retirement was a larger percentage of their salary than the Social Security would be.
Mr. Rosenthal: I believe--
Justice Ginsburg: So if you were socking them with Social Security on top of the 7 percent for Civil Service, and then putting 5.7... I think those employees would say, we've been discriminatorily impacted.
Mr. Rosenthal: --All of that, I... we view as being form over substance, because... well, because the Government sets the salaries and then takes 6, 7, 8 percent out.
They could have just as easily have set the salary at the lower level and said, we give you this benefit, which is what they did with judges.
Instead of saying, you get paid X dollars and we take out 10 percent for your retirement annuity, they simply set the salary and say you get the retirement annuity.
We view that as essentially artificial.
It's just... the fact that it's taken out is just a matter of the semantics of the way the statute was enacted.
Justice Breyer: But you were just giving the numbers that I was quite interested in.
Mr. Rosenthal: Let me give you the numbers--
Justice Breyer: --the right numbers.
That is to say--
Mr. Rosenthal: --Your Honor. 2-1/2, 90--
Justice Breyer: --before you tell me the numbers--
Mr. Rosenthal: --I'm sorry.
Justice Breyer: --is it right to this?
I'm trying to think of people in the Federal Government who get a paycheck once a month.
Now, most of these people don't have as good a retirement program as judges, so it's already... that paycheck is right there.
It's already reflecting a great thing for judges, okay.
Now, we look at that paycheck.
Now, I want to know... I'm just thinking, some people will get a smaller one because of Social Security.
Other people won't get a smaller one at all than they had been getting.
Okay, I want to know who's getting a smaller one than they had been getting, and who is getting the same one they had been getting?
Mr. Rosenthal: I'm happy to answer that question.
The Article III judges and the President of the United States are in that category.
The... in the reply brief, the Government for the first time in this litigation suggested that there might be a small component of congressional employees that might also be in that category.
Justice Breyer: Let me be clear.
Mr. Rosenthal: Yes.
Justice Breyer: There are 2-1/2 million.
800 of those, namely the Federal judges, plus the President, are getting a smaller paycheck.
Nobody else is.
Mr. Rosenthal: That is correct.
Justice Breyer: That is contrary to what the SG just said, because the SG just said there are also some people in Congress.
Now, who are those people?
Mr. Rosenthal: Well, there was a theoretical possibility that you had not been in CSRS before, and the Government for the first time in the reply brief raised this issue.
I've done some inquiries, and I am informed that that set of people who did not elect CSRS is either very few or none at all, and the reason for that is, it was almost irrational not to elect CSRS because it's refundable, so if you were a youngster who was just out of school and went to work for Congress in 199... 1983, you elect CSRS because 2 years later you can get the money back.
Justice Breyer: You're saying, as of the date that this took effect, there might have been some people in Congress who were not already having a deduction from their paycheck, but you believe that number is zero.
Mr. Rosenthal: Zero or--
Justice Breyer: But if it is more than zero, it's very small.
Mr. Rosenthal: --It's very small, Your Honor.
But of the 2-1/2... of the 2-1/2 million, we're talking about, a number in the three digits or the low four digits.
The fact is... and that is the basis of our discrimination argument, and I would point out that the election that was given was not just given once, it was given three times, so if you were fool enough to miss it the first time, you were given a number of opportunities to opt out of the deduction from your salary, and that is the basis for our discrimination argument.
The Government says, oh, we have a rationale for discrimination, and that is equalization.
I would answer that, number 1, this Court's decision in the Will case said, equalization can't justify a diminution, because the Government made the same argument in Will.
They said, oh, we lowered Federal judges' salaries, but we were lowering all Federal employees' salaries at the same time, and this Court said, equalization can't be a rationale.
But secondly, the fact is that it doesn't take a very creative legislature to come up with some reasonably sounding rationale to justify a diminution in a particular case, and equalization, which is an argument concocted... excuse me, an argument presented by the Solicitor General's office, nowhere appears in the legislative history of any of these statutes.
There's nothing... this equalization doctrine, as we point out in our brief, is nothing that appears in the statute or in its legislative history.
They didn't say, we need to tax Federal judges because we need equalization.
We think, at a bare minimum, for this argument to be honored by this Court, at least Congress ought to say, we wanted to equalize Federal judges.
We still don't think it's constitutional, but--
Justice Souter: Is there any evidence in the legislative history, or any evidence that might have been admissible in this case, that there was a discriminatory intent?
Mr. Rosenthal: --No, and this Court has never required discriminatory intent.
In Will, recall, Justice Souter, there was an increase for a mere 12 hours, and then the salaries dropped back down again.
There was no fleeing from the Federal judiciary.
Justice Souter: No, that's quite true, but I mean, that was a case in which it was... in effect, it was easy, because it was stated salary, and you could say, however you literally read the Compensation Clause, this had to be within it.
Now we're not in such a situation.
We're saying, well, this isn't so clearly literally within the core of the Compensation Clause, and maybe one of our... maybe our principle criterion ought to be to determine whether this is also prohibited, since it gets away from the core, is a discrimination criterion, was it used to discriminate for purposes of cowing the judges and so on, so the fact that in the core case we didn't look to it doesn't mean that we shouldn't look to it here.
Mr. Rosenthal: If I could suggest a case which I think is quite analogous, and that's Davis v. Michigan Department of Revenue.
As the Court may recall, that was a case in which State employees were exempted... State retirees were exempted from a tax on their retirement benefits.
Federal employees and the rest of the Michigan public had to pay income taxes on retirement benefits.
This Court held, under the intragovernmental immunity doctrine, that that was discriminatory.
There was no intent to discriminate against Federal employees.
Justice Souter: But isn't that because that's what the intragovernmental immunity doctrine means?
In other words, it was discriminatory as a matter of law, rather than discriminatory as a matter of intent.
So I guess you would have to say, on that analogy, anything which is unequal to the extent of a penny is, on the discrimination criterion, going to be discriminatory as a matter of law, and I guess that's what you are saying.
Mr. Rosenthal: I think that is what we're saying, and obviously the penny... I mean, if there were a penny drop in stated salary, that obviously would be unconstitutional, but we infer the intent from the facts.
Chief Justice Rehnquist: Well, if we get outside the Compensation Clause, several recent congressional pay raises in 1989 gave district judges a higher percentage pay raise than court of appeals judges, court of appeals judges a higher percentage pay raise than Supreme Court justices.
Now, would that be grounds for saying that maybe Congress had it in for the Supreme Court?
Mr. Rosenthal: No, Your Honor.
Chief Justice Rehnquist: Well, why not, under your theory?
Mr. Rosenthal: --Well, because first of all we're dealing... all of those cases are by common consent increases, and this Court's holding in various cases give Congress very broad power when one is dealing with an increase.
The discretion with Congress is how much to increase.
There is no dispute... there is a factual finding by a rather unsympathetic trial court that there was a reduction in our salary in this case.
There was a reduction in take-home pay, so we're dealing here with a reduction in take-home pay, and the question in this case is, was it an unconstitutional reduction?
So we distinguish it from cases where there are different levels of increase, where, frankly, political factors do play a role, but that was a decision made by the Framers, that when you deal with increase Congress has a much greater role than with a decrease, where a prophylactic rule has to be--
Justice Breyer: Is the word discrimination applicable here or not?
My check is 200 dollars smaller this month.
No one else's is but for judges and four other people, and the reason is not that they don't like my opinion.
The reason is because I have a constitutionally guaranteed pension, something that judges only have.
Now, those are the facts.
Is that discrimination?
Mr. Rosenthal: --Well--
Justice Breyer: In a sense, it's not, because they're not doing it because they don't like my opinion.
In a sense it is, because they're picking on a characteristic that belongs only to judges.
Mr. Rosenthal: --Well, I agree--
Justice Breyer: What is it?
Mr. Rosenthal: --Well, I think the word discrimination is used to cover a number of things.
It doesn't necessarily, Justice Breyer, just include an intent by Congress.
It includes exactly the circumstance you're describing, in which a distinction is made between Federal judges.
Suppose the distinction weren't merely based on the pension, but the fact that we think you should get less because you've got a lifetime job and everyone else holds their job at the pleasure of the President of the United States.
Any factor that inheres peculiarly within the judiciary, and is a basis for a distinction, I think could also be a basis for finding discrimination.
In other words it covers a broad mix of factors.
Justice Scalia: Mr. Rosenthal, does this targeting of judges almost exclusively apply to both programs, or just to one of them?
Mr. Rosenthal: No.
This would only apply to the OASDI.
Justice Scalia: Okay.
Mr. Rosenthal: We agree with that.
The HI was more universal.
Our first argument about the tradeoff would have to apply to the--
Justice Ginsburg: But you're saying the second tax is no good, either, then... as I understand it... or are you just saying the OASDI?
Mr. Rosenthal: --The discrimination argument, Justice Ginsburg, only applies to the OASDI, because it doesn't apply to the HI.
Justice Ginsburg: So then to that extent you're saying, Congress has a choice.
Either it taxes... it gives no exemption, ever, to judges, because if it gives them an exemption, it can never take it away, so it's got to treat judges... it can't give them preferential treatment, in other words, if it gives them preferential treatment, that it's stuck with that, but you--
Mr. Rosenthal: Well, that's correct, Your Honor.
If I could just give you an analogy, suppose Congress next year, instead of providing an increase in stated salaries, said, all judges can take 10,000 dollars tax-free, 10,000 dollars of their income is tax-free.
I point out this is not so unusual.
Congress for a number of years gave the President 50,000 dollars for expenses tax-free.
I would submit that becomes part of a judge's compensation, and Congress... the Congress can't, 10 years later, decide to take it away.
Justice Ginsburg: --Explain how that... you've answered my question, did the judge's compensation go up when everybody else was exposed to this tax and the judges weren't, and you resisted saying that yes, they got an increase in compensation, even though their salary remained the same.
Mr. Rosenthal: I resist it because exemption from a tax... I think now that I've used my hypothetical, I think if there were at least one directed to judges, if there were an exemption, that might be interpreted to be an increase in--
Justice Scalia: You wouldn't say, as I understand your argument... I don't understand why you wouldn't... that if everybody in the country had a 10,000 dollar exemption, your first 10,000 dollars is for free, okay, and then they took it away for the whole country, is it your contention that judges alone would have to be--
Mr. Rosenthal: --If it were uniform throughout the United States, we're not contending that that would constitute a diminution--
Justice Scalia: --I understand that's your position, and it's a reasonable outcome, but I don't see why the logic of your argument supports that.
Mr. Rosenthal: --Because, at least on the discriminatory point, it wouldn't be discriminatory.
Justice Scalia: No, on the discriminatory point I understand--
Mr. Rosenthal: But I--
Justice Scalia: --but you're using this argument for the aspect of your case in which there is no discrimination.
Mr. Rosenthal: --I admit that these represent close cases, but our position... first of all, it's not this particular case, but moreover, I think changes in taxing, if they were uniform and taken away from judges, my inclination is not to be arguing here that that's part of compensation.
Justice Souter: In other words, you're saying for the 10,000 exemption just what you were saying for the original tax, which is nondiscriminatory.
Mr. Rosenthal: Yes.
Justice Souter: Yes.
Mr. Rosenthal: Let me briefly touch on the last point, the claim of the Government that this increase was terminated by subsequent increases.
Our position is very simple.
A congressional action doesn't remedy or terminate an unconstitutional diminution if the judge's compensation is the same, unless it is the same as it would have been but for the unconstitutional diminution.
We are subscribing to a but-for test.
It's quite clear that the increases that took place after OASDI and HI were imposed were general cost-of-living increases that applied not just to judges but to broad categories of Federal employees.
We would have gotten those anyway, and in that circumstance it can hardly be said that those terminated or remedied our particular diminution in this particular case.
We do contend, however, that if Congress were to provide us with the amount of our diminution plus interest, that would compensate us for past periods.
We urge this Court to affirm the Federal Circuit and hold that in order to vindicate both the text, which we believe is clearly applicable in this particular case, and the purposes of the Compensation Clause, that the plaintiffs are entitled to the relief that's ordered.
Rebuttal of Paul R. Q. Wolfson
Chief Justice Rehnquist: Thank you, Mr. Rosenthal.
Mr. Wolfson, you have 5 minutes remaining.
Mr. Wolfson: Thank you, Mr. Chief Justice.
When Congress extended Social Security taxes to Federal judges and to other Federal employees in 1984 it had several objectives that had to be balanced.
One objective was to bring as many people as possible within the Social Security system, people who had been exempted from it in order to sustain the fiscal soundness of the system.
Another objective was to treat Federal... people in Federal service similarly in that each should be subjected to one, but only one, contribution for retirement income security, and a third was, Congress understood that Federal employees in the Civil Service retirement system had a large vested interest in that system, which had been in place since 1920, and that it would be extremely disruptive just to terminate it and start as if it had never existed, especially because many Federal employees would not have been able to accrue enough service in Social Security after that point to become eligible in Social Security, especially if they were older.
The Federal... the Civil Service retirement system allows retirement at age 55.
It also is more expensive on the cost side for Federal employees than Social Security in some sense, because the contribution rate is higher, and there was no earnings cap on Social Security... on CSRS, as there was under the old age tax system, so all of those factors had to be balanced.
The point is, at the end of the day, Federal judges joined virtually everybody else in our society in being subject to a 5, 6 percent mandatory contribution for a retirement income security system, and that's what I mean when I say that the overall objective of Congress was equalization, and that Congress treated them no differently at the end of the day than it treated everybody else.
Now, it is true, there are issues that come up in a transition, as there are any time when Congress extended Social Security, or where a State might adjust... a State might adjust an exemption, for example, the intragovernmental tax immunity system doctrine was alluded to.
Well, there was a time when States exempted all Federal employees and Federal contractors from their taxes because they thought they were required to under this Court's decisions in Collector v. Day.
Then along came Graves, and the Court said that States could tax Federal employees and Federal contractors on an equal rate.
The States were required to adjust their systems, or had the opportunity to adjust their systems, and they were able to do so in many different ways.
It required some... it required a lot of adjustment because of the ways that different people had been treated differently, and this Court has many cases on that point, reviewing the adjustments that the States made, but the point is, the principle that emerged from those cases was, what was required at the end of the day was nondiscriminatory taxation of those who dealt with the Federal Government, and that principle we think is the same principle that should govern here.
That is, at the end of the day, Congress is required to do more than treat Federal judges on par with the vast majority of American citizens.
I do want to touch on the termination of violation point, which is, even if we're wrong about everything that I just said, it seems to me the only expectation that judges could have had when they took office was that their net pay would not have been reduced below the level at which they took office.
So the expectation... the expectation that judges had was not that they remain exempt from Social Security taxes in a kind of indefinite number that is just, they have an interest in an exemption, quia exemption, but a particular number has to be put on that, so if a violation did occur, the violation came to an end when Congress brought judges' net pay back up above the highest level that it had ever been at any earlier time.
If the Court has nothing further--
Justice Breyer: Well, yes, as long as you're at it, the part that was bothering me was not the part, treating judges the same.
It was the part of treating judges differently.
So what... I mean, they're treated differently in that everybody else is allowed to opt out but judges.
Mr. Wolfson: --Well--
Justice Breyer: --the reason is clear, I guess.
They weren't angry.
They didn't dislike our opinions.
It's just that they thought judges already have this pension plan, which is perfect.
That's why they did it.
But that only applied--
Mr. Wolfson: --It's not just that judges had the pension plan.
It's also that judges didn't have to pay anything and everybody else had to pay something.
All Federal employees also had to pay something, so they were not brought in mandatorily.
Chief Justice Rehnquist: Thank you, Mr. Wolfson.
The case is submitted.
Argument of Speaker
Mr. Speaker: The opinions of the Court in two cases will be announced by Justice Breyer.
Argument of Justice Breyer
Mr. Breyer: The first case United Sates versus Hatter.
The Federal Constitution’s Compensation Clause guarantees federal judges a compensation, which shall not be diminished during their continuance in office.
The Court of Appeals held that this clause prevents the government from collecting Medicare and Social Security taxes from a small number of judges who held office about 20 years ago before Congress extended the taxes to federal employees.
We believe that the Court of Appeals was wrong about the Medicare taxes.
The Court of Appeals struck down the Medicare tax on the authority of a case called Evans versus Gore, a 1920's case, which held that Congress could not include sitting judges within the scope of what was then a brand new federal income tax law.
Although the Court of Appeals could not overrule that case because it is a Supreme Court case, we believe that subsequent developments of undermine the case to the point where it is no longer good law, we consequently overrule Evans, and we hold that the Compensation Clause does not forbid Congress from enacting a law that imposes a nondiscriminatory tax, which includes an increase in rates or a change in conditions upon judges like everybody else whether those judges were appointed before or after the tax law, in question, was enacted or took affect.
Because the extension of the Medicare tax to the judges in this case was nondiscriminatory, we uphold its validity.
Congress' extension of the Social Security tax to the judges is a different matter.
As if the time of extension the early 1980's, all federal employees had remained outside the Social Security system for nearly 50 years.
When in the law that we are here considering, Congress extended the Social Security tax to Judges, It exempted all the federal employees who were then federal employees from the new system with an exception, and the exception was people who were then federal employees if they fell into the category of members of Congress, high-level Executive Branch employees, judges, and a handful of others.
But then looking at those people within the exemption, it made an exemption from the exemption, and except for judges it offset the new Social Security tax by reducing other pension payment obligations to the point where individual employee payroll deductions remained about the same that is they got the same sized pay check.
The result was a significant adverse financial impact not upon everybody else in the class, but upon judges and upon judges virtually alone in this respect,
That is because they were in the exception to the exception.
Upon close examination, we find that the justification the government advances for that differential in our view is not sound.
We explain why this is so in our opinion.
We conclude that the special way in which Congress applied the Social Security tax to judges compared to all other federal employees discriminated against the judges and in our view the Compensation Clause forbids that kind of discrimination.
Our holding does not apply to later appointed judges I might add such as ourselves who do have to pay the tax.
We also hold that Congress did not cure the problem when later it raised the judges’ nominal pay.
Those later nominal pay increases partly offset, partly offset, the erosion of real pay levels due to inflation.
They were not meant to help those few pre 1980 judges overcome the problem that we just described.
In sum, we hold that the Compensation Clause does not prevent Congress from imposing a nondiscriminatory tax laid generally upon judges and other citizens, but it does prohibit taxation that singles out judges for especially unfavorable treatment.
We reverse the Court of Appeals in part and affirm in part.
Justice Scalia has filed an opinion concurring in part and dissenting in part; Justice Thomas has filed an opinion concurring in the judgment in part and dissenting in part.
Justice Stevens and Justice O'Connor took no part in the consideration or decision of this case.