This article originally was published at The Empowerment Alliance and is re-published here with permission.
A somewhat under-the-radar decision by the U.S. Court of Appeals for the Fifth Circuit earlier this month is, on its surface, focused on the issue of home alcohol distilling. But the appeals court’s reasoning could have a big impact on other businesses and various walks of life, including the energy industry.
In short, McNutt vs. U.S. Department of Justice focused on a federal law that banned – through the government’s taxation power – the private home distillation of alcohol. But the Fifth Circuit ruled that using the power to tax as a reason to ban something is an improper abuse of power. This line of constitutional thinking could have much larger implications.
Why? Because the ruling would erect new guardrails on how the government can use its authority to impose a tax in such a way that does not raise revenue but instead bans otherwise legal activity. When we consider all the ways the government has done this over the years, it’s clear that the energy industry has been a prime target for just such an abuse of power — especially in cases where the government used its taxing authority and “necessary and proper” constitutional reasoning to regulate activities.
As a Liskow law blog summarized it, “The case originated when a group of hobby distillers challenged an 1868 federal law that effectively criminalized the distillation of spirits in or near a private residence, even for personal use. The plaintiffs, including members of the Hobby Distillers Association, argued that the prohibition exceeded Congress’s constitutional powers, particularly where the activity was noncommercial and confined to the home.”
The analysis added, “The case underscores that the federal government’s broad federal taxing authority does have limits, particularly when it intersects with private, noncommercial conduct. As challenges to federal regulatory regimes continue, McNutt may serve as an important reference point in defining the boundary between taxation and regulation.”
For energy development, the McNutt decision provides a new avenue to challenge federal prohibition of development when such prohibition has been primarily based on the government’s taxing authority. In other words, is the ban really about taxation (raising revenue), or is it about using the power of taxation to achieve regulation? The Fifth Circuit determined that the latter avenue as a sole motivator is improper.
Ilya Somin, a law professor at George Mason University writing for Reason.com, called the decision “an important win for constitutional federalism” that affirms that the government’s taxing authority is designed to raise revenue, not to be abused as a backdoor excuse to exert control. Somin points to Fifth Circuit Judge Edith Jones’s reasoning in her opinion for the majority: “The provisions (of the law) operate to reduce revenue instead of raising it. This violates the Supreme Court’s explanation of how the federal power of taxation works…”
Somin tempers his optimism by noting that the law “could pass muster under Congress’ power to regulate interstate commerce, which the Fifth Circuit did not consider, because the government chose not to argue this issue on appeal.” That means “the federal government…could potentially try to continue to enforce this law and — if challenged again — defend it under the Commerce Clause.”
Over time, the hope is that the Supreme Court will expand the decision to rein in the Commerce Clause aspect of such regulations. Either way, the Fifth Circuit’s ruling is a welcome nod to the fact that the federal government cannot take tax laws intended to increase revenue and twist them merely to regulate business activities.
For the energy industry, the good news is that the ruling opens the door to new challenges of regulations that have been tied to taxation, whether in regard to EPA rules, land use restrictions, or mining and drilling bans. From carbon taxes to Environmental, Social and Governance (ESG) regulations to the questionable use of the Endangered Species Act to stop construction and development, this decision provides reason for optimism for energy entrepreneurs.
What’s also noteworthy is that the Fifth Circuit’s decision, as noted by Professor Somin in his Reason article, saw judges from different ideological backgrounds come together in unanimous agreement, with the conservative Judge Jones Judge Edith Jones and liberal Obama appointee Judge James Graves reaching the same conclusions.
That a pro-federalism legal view is shared in this case by the right and left is encouraging for all who cherish individual freedom over government overreach. The McNutt decision will by necessity give the federal government pause the next time it considers abusing its taxing powers to control behavior it doesn’t like – and that alone is a big win for all freedom-loving people.
Gary Abernathy is a longtime newspaper editor, reporter and columnist. He was a contributing columnist for the Washington Post from 2017-2023 and a frequent guest analyst across numerous media platforms. He is a contributing opinion columnist for The Empowerment Alliance, which advocates for realistic approaches to energy consumption and environmental conservation.
This article was originally published by RealClearEnergy and made available via RealClearWire.
“The provisions (of the law) operate to reduce revenue instead of raising it. This violates the Supreme Court’s explanation of how the federal power of taxation works…”
So the Fifth Circuit believes that all money is the property of the Federal Government, even the portion the Government allows us to keep. So the Big Beautiful Bill, that reduced the Federal Income Tax for most of us, is unconstitutional because it offends the Federal power of taxation by reducing revenue? If this decision really does hinge on the quote above, it makes no sense.
Nonsense. Banning behavior through taxation is the issue here, not the rate of taxation, which is not contained in the ruling.
Congress has the power to tax which always includes the rate of taxation.
But the issue is not taxation itself nor the rate of taxation. It is the banning of a specific kind of behavior (home distilling) which in other circumstances (a distilling business) is normally taxed. Would the problem be fixed in the eyes of the Fifth Circuit if home distillers were required to keep production records and taxed on the product? The relationship between taxation and the behavior (distilling or not) seems immaterial to me. Perhaps there is much more info in the full decision than is presented in the article.
“Would the problem be fixed in the eyes of the Fifth Circuit if home distillers were required to keep production records and taxed on the product?”
So if I grow tomatoes in my backyard for my own use the government could require me to keep production records and to be taxed on the product? That doesn’t sound right.
Personal use and business use are two totally different things.
Under the current interpretation of the Commerce Clause, the government has the right to require anyone who grows food to fully document and pay taxes on that produced food.
By the courts logic, if you grow your own food, you aren’t buying food.
Some of the food you didn’t buy, could have crossed a state border.
Therefor, by growing food instead of buying food you have impacted intra-state trade and therefore the government has a right to regulate every aspect of your attempts to grow your own food.
Under this interpretation, the rest of the constitution is rendered moot, since every action, up to and including breathing, potentially impacts intra-state trade and can therefore be controlled and regulated by the federal government. There is no limit to government power.
I should add that this was a liberal court that made this ruling, which renders silly the left’s frequent claim that it is the right who wants to control everything.
I recall a story that a gas station in the South grew cotton plants on its front lawn so that Yankee tourists could see how cotton grew. They were fined and ordered to remove the plants by the Dept. of Agricuture which claimed jurisdiction.
Personal use and business use are two totally different things.
The courts have ruled that the federal government can REGULATE crops grown for personal use since it might affect interstate commerce. In other words, the feds can regulate how, where, when, etc. crops are grown. The feds can not use their ability to tax in order to force a certain behavior, as this ruling says.
That’s the biggest stretch of imagination I’ve seen this morning. Back up and lay out your logic in steps if you want to have any credibility on the matter.
Nonsense.
The court is saying that the purpose of taxes is to raise revenue.
Unless you believe that taxation implies the government owns everything.
All too many taxes are pretextual, seeking to affect behavior rather than raise funds.
Carbon taxes are an example, along with “sin taxes”.
Perhaps this ruling will be the beginning of the end of directly using taxes to affect behavior.
(A guy can dream.)
“The power to tax involves the power to destroy” is a famous dictum from Chief Justice John Marshall in the 1819 Supreme Court case McCulloch v. Maryland.
I read the McNutt opinion when it came out. I do not think it has the broad potential consequences suggested by this post.
“The provisions (of the law) operate to reduce revenue instead of raising it. This violates the Supreme Court’s explanation of how the federal power of taxation works,”
One of my grandfathers made this exact point in the 1970s. And yes, he was a lifelong “distiller” of corn, wheat, rye, sugar cane and grape based beverages.
The same author has a report on the Sixth Circuit reaching the opposite conclusion.
https://reason.com/volokh/2026/04/22/sixth-circuit-upholds-federal-law-banning-home-alcohol-distilleries-creating-a-circuit-split/
The circuit split means this is likely headed to SCOTUS. I think the 5th will prevail over the 6th, based on the unanimous careful 5th opinion.
I certainly hope so, but I am pessimistic, based on the courts’ historical record of backing their fellow government employees when push comes to shove.
Since the article mentioned the word ‘energy’ (about 6 times by my count), it would have been illustrative had we been provided with some specific examples where the Feds are currently using taxes to modify behavior in this area.
Hmmmm. Remember when Roberts declared the ACA “penalty” for not buying government-approved health insurance to be a tax, which was the only way he could avoid invalidating the whole law? And that the Democrats deliberately left out the usual severability clause as a bluff for this exact situation, in which Roberts folded?
If this interpretation of the 5th Circuit holds up, a future attempt to reinstate it (it was technically kept but reduced to zero dollars) could be attacked under the disallowed forcing-behavior logic, which the original penalty clearly was.
It’s also worth keeping in mind that the Dems rammed the ACA through in lame-duck session before Scott Brown, elected in true-blue MA when he campaigned to be the 41st vote to block it (the MA voters knew Romneycare didn’t work), could be seated. So much for catering to the “will of the people”.
Well, from across the pond, this looks very much like “home of the brave and land of the free” to be bollocks!
The court has been consistent for a while – it’s congress’s job to pass these laws, not the court’s.
If ‘the people’ want their will represented they need to start paying attention to who they’re voting for.
“Congressional stagnation is an American political theory that attempts to explain the high rate of incumbency re-election to the United States House of Representatives. In recent years this rate has been well over 90 per cent, with rarely more than 5–10 incumbents losing their House seats every election cycle.”
Who lost their seat for advocating ACA?
Who will lose their seat for throwing gold bars off the titanic?
“ is an improper abuse of power”
Does this imply that there are “proper abuses of power”?
My first thought on reading this is if it stands they’ll have to toss cigarette taxes.
How about the tax of NFA federal firearms? It was put in by Congress to keep people from obtaining them, even for strictly personal use, by making them prohibitively expensive. Congress has never officially declared the NFA tax to be anything else but behaviour ban.
Tim, and what I would also characterized as Prior Restraint. That is, the intent of the 1934 NFA was to reduce ownership of automatic firearms and explosives, with the tax initially being set at a level that was prohibitive for all but the wealthy in 1934. However, one could be (and were) severely penalized for not registering such weapons to prove that the tax had been paid. That is, instead of penalizing owners of NFA devices for unlawful use (e.g. robbery or murder), they were penalized for being capable of unlawful use of such devices, hence my characterization of Prior Restraint. I presume you are aware that the tax no longer has to be paid, making it obvious that the 1934 NFA, which was sold on the unquestionable legal justification of taxation of interstate commerce, is no longer even capable of raising revenue.
I haven’t handled NFA firearms since the early 80’s. I was unaware the tax was no longer assessed. — update: apparently it’s not been eliminated, it’s just been reduced to $0 for things like semi-auto and 3-round burst rifles. Fully automatic rifles like the M4A1 are still considered to be a machine gun and will be taxed.
So does this mean that the government owes everyone who paid cigarette taxes a refund?
I think that is covered by the constitutional prohibition on ex post facto laws.
How does refunding an illegal tax get covered by ex post facto?
How about an investigation of Gina McCarthy and all the other agency heads that abused power at EPA, DoE, Interior, FBI, and IRS.
Unfortunately, the government can justify almost anything under the commerce clause.
Wickard v. Filburn (1942) is a landmark U.S. Supreme Court case where the Court ruled that Congress can regulate purely local, home-consumed wheat production under the Commerce Clause. The court found that even if an activity is local, its aggregate, substantial economic effect on interstate commerce allows federal regulation.
The issue in this case was Congress had set limits on wheat production under the Commerce Clause. A farmer, Filburn, met his quota for the wheat he sent into the markets, then he grew wheat for has family’s and livestock’s consumption. He was fined for exceeding the quota. The Supreme Court unanimously found for the government.
The government could simply regulate the production of fossil fuels, ostensible to protect their prices.
Then there’s the famous “footnote 4” from US vs Carolene products in which the Court basically established that the Left can do any thing it wants to us economically, provided we retain political access to the process.
Unfortunately, the second part of that proviso has become problematic in recent elections given that the Left has also taken upon itself to decide how dead people, non-citizens and a lot of folks who never bothered to request a mail-in ballot, get to cast their votes.
This might be an overreading of the judgement because governments use taxes to limit smoking for example.
There are instances when the courts allow the government to expand a little bit into the grey areas of the constitution, but when they push too far the courts decide to cut back only the law that pushed too far but all prior violations as well.
Little wonder the opponents of freedom wish to appoint lifetime activist judges. If only the present admin will appoint judges with knowledge of the law and a spine.
Ethyl alcohol is the chemical that makes drinks alcoholic. It is a known poison – but the poison is in the dose, which is often exceeded. There are known deaths and disabilities on a huge scale yet people continue to imbibe.
A responsible government would try to eliminate or reduce consumption. A customary public would fight restrictions as history shows.
One easy solution is for the individual to cease, voluntarily. I did this in 1974 or so and have been rewarded with substantial benefits. It is a no-brainer to give it up. Also to avoid other known poisons at harmful doses.
a responsible government would try offering inducements to give it up and be rewarded with a more healthy population. Such are the insidious effects of interpretations of history and human conduct that most countries are stuck with the encouragement of this poison.
We live in weird times.
Geoff S
So, if I sew my own clothes, and perhaps even weave the cloth, I will be affecting inter-State commerce by not buying factory manufactured clothing. Therefore I can be taxed?
Hmmm…..
I see the argument as the same for removing the tax requirement on sound suppressors for firearms. This was made law in the Big Beautiful Bill on the basis of the fact that the tax on suppressors was never to raise revenue, but to make them so expensive that people wouldn’t buy them. The goal was an effective ban, since a statutory ban would violate the Second Amendment, a fact openly broadcast by the government, especially the ATF&E Bureau. There has never been any logical reason put forth for the 1934 NFA’s effective ban on suppressors – its inclusion in that Act was the result an offhand suggestion by a member of congress who offered no support for it, and probably had no idea what a suppressor was. It is fully the equivalent of outlawing mufflers on automobiles and motorcycles. The ATF&E people will fight to the bitter end to preserve their right to ban suppressors, not because it is worthwhile (quite the opposite), but because they can.
Oh, and by the way, the government has no “rights”. It has powers, delegated to it by the people. The people can revoke those powers at any time.