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Friday, December 04, 2009

Supreme Court May Provide Greatest Economic Stimulus Yet

Believe it or not, the Supreme Court could have the greatest effect on generating jobs and economic activity without spending a dime. As the WSJ explains, the Supreme Court is set to hear arguments about whether the biggest corporate regulatory act in recent history, Sarbanes-Oxley, is constitutional.

At issue is whether the Public Company Accounting Oversight Board, or PCAOB, which supervises compliance with the law, violates the Constitution's separation of powers. Under the Appointments Clause, all "officers" of the United States must be appointed by the President and accountable to him—a condition PCAOB members do not meet.

The board's five members are instead hired by the commissioners of the Securities and Exchange Commission, who are appointed by the President. This arrangement passed muster in a 2-1 decision by the D.C. Circuit Court of Appeals, on the dubious grounds that the members were "inferior officers" and accountable to the President through the SEC. Never mind that they are not "directed and supervised" by the SEC, the traditional requirement for inferior officers.

The dissenter on the D.C. Circuit panel, Judge Brett Kavanaugh, called the case the most important separation of powers case in 20 years and said the appeals court had created a constitutional hash. Though the PCAOB "performs numerous regulatory and law enforcement functions at the core of the executive power," he wrote, for the first time in U.S. history we have "an independent agency whose heads are appointed by and removable only for cause by another independent agency."

If the Supreme Court were to overturn the act based on its unconstitutionality, this would dramatically reduce the regulatory burden on small public companies, thereby allowing resources to be redeployed in a more productive way. And without costing taxpayers a single dime, they could do more to create jobs in this country that the Democrats' trillion dollar stimulus bill.