TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Saturday, December 18, 2010

Kleinbard: The Health Care Law Is Constitutional (Still)

L.A. Daily Journal, The Health Care Law Is Constitutional (Still), by Edward D. Kleinbard (USC):

Little attention was paid when two federal District Courts recently concluded that the new federal health care law was constitutional, but Monday’s ruling by a federal District Court Judge, Henry Hudson, in Commonwealth of Virginia v. Sebelius, was front page news because he held the insurance mandate at the center of the new law to be unconstitutional. The provision struck down by Judge Hudson imposes a tax penalty on individuals, other than those exempted by reason of religious beliefs or lack of suffi cient income, who fail to maintain a minimum level of health insurance coverage starting in 2014. There is good reason, though, to believe that, when the Supreme Court ultimately addresses the issues, its analysis may not follow Judge Hudson’s opinion. ...

Congress also can impose taxes on Americans, with almost no practical constraints. The Framers basically saw the remedy for Congress imposing foolish or overreaching taxes as our collective right to throw the rascals out at the next election, not for courts to decide which taxes are most appropriate. Here, the only penalty for not maintaining health care insurance is the imposition of a tax. The penalty tax will be collected on your Form 1040, like your other taxes, and it will be determined as a percentage of your income (with exemptions for low-income Americans and a cap for high-income ones). What is more, the nonpartisan budget staffs of Congress have estimated that individuals will pay some $4 billion per year in these penalty taxes. So why isn’t the penalty imposed for failure to comply with the individual mandate simply another tax?

Judge Hudson’s answer is dumbfounding: In his view, this tax is really a disguised form of regulation of commerce, citing a case (the Child Labor Tax Case) decided some 90 years ago, and one which the Supreme Court itself has said represents a line of reasoning that the Court has long since abandoned. The Internal Revenue Code is fi lled with tax provisions whose overriding purpose probably is to change behavior rather than collect revenues (for example, the disallowance of a deduction for bribing foreign offi cials, or tax penalties imposed on taxexempt foundations for self-dealing). Moreover, in this case there are substantial revenues that will be collected, yet Judge Hudson simply brushes aside as “incidental” the $4 billion in revenue that this tax will raise every year — an amount far greater than the taxes that are raised through other penalty provisions that unquestionably are taxes.

Judge Hudson makes much of the new tax’s label as a penalty, but it is clear that such labels carry little weight in constitutional analysis. The new law could just as easily have been described as a new universal tax measured by your income, with a proviso that you receive a dollar for dollar credit against the tax for the cost of private health insurance that you might obtain directly or through your employer.

The health care legislation has set American politics on edge. The law may be wise or foolish, but the remedy for those who believe the latter should lie squarely in the realm of the political process, not in resurrecting doctrines of constitutional interpretation wisely abandoned many decades ago.

http://taxprof.typepad.com/taxprof_blog/2010/12/kleinbard-.html

News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef0147e0ce9ded970b

Listed below are links to weblogs that reference Kleinbard: The Health Care Law Is Constitutional (Still):

Comments

In a similar vein, it seems clear that if congress changed the medicare age limit to 20 and increased FICA to finance it, the new regime would be constitutional. In other words, Hudson's ruling suggests that it would be unconstitutional for the federal government to mandate universal coverage through the private market, but if the government provided this service directly, and used payroll taxes to finance it, it would be constitutional.

I think the idea that congress can force you to purchase private insurance strikes people as problematic. But many of these same people think it's fine for the federal government to force you to pay into public social insurance. This tension I think is underexplored in the constitutional coverage of the issue. Unless you think social security is unconstitutional, I don't see how you can find the mandate unconstitutional.

Posted by: vijay | Dec 18, 2010 2:12:30 PM

An interesting line of analysis. What do we make of the President's repeated statements that the mandate is not a tax? Or CBO's refusal to score the revenue?

Posted by: Walter Sobchak | Dec 18, 2010 4:21:46 PM

OK, but it's going to be the Supreme Court that counts here, and they're . . . not tax lawyers.

Posted by: mike livingston | Dec 19, 2010 5:41:53 PM

Kleinbard states: "The Internal Revenue Code is filled with tax provisions whose overriding purpose probably is to change behavior rather than collect revenues (for example, the disallowance of a deduction for bribing foreign officials, or tax penalties imposed on tax-exempt foundations for self-dealing)." Is there any limit on using the Code to regulate behavior? How about a tax on those convicted of breaking state criminal laws? A tax on smokers? A tax on owning more than two cars? In each case, "The penalty tax will be collected on your Form 1040, like your other taxes, and it will be determined as a percentage of your income (with exemptions for low-income Americans and a cap for high-income ones)." And these could be substantial revenue raisers that should not be "simply brushe[d] aside as 'incidental'." Our mistake was a judiciary that didn't think the increasing heat would result in the frog being boiled . . .

Posted by: Daniel | Dec 19, 2010 6:26:22 PM

The problem with the "penalty" as presently constituted is that if one were to consider it under the taxing power, it is quite clearly (or, at least clear to me) a tax based on the *status* of the individual and would be a direct tax. It is not based on a transaction, transfer, event, or receipt of any sort. In that case, it is impossible to consider it as an excise, duty, or impost under the relevant Supreme Court cases defining what is, or is not, a direct tax. It is just a tax on the person merely because he has no insurance - it is based on his status of having no insurance. It would be essentially a capitation tax.

The FICA/Medicare taxes are income taxes, and are justified as excises on the engagement in employment and the receipt of income. Nothing like that in this "penalty."

My $0.02.

Posted by: Brian Rookard | Dec 19, 2010 7:39:41 PM

“...Judge Hudson simply brushes aside as ‘incidental’ the $4 billion in revenue that this tax will raise...”

The intent of the penalty is not to raise revenue but to induce people to buy health insurance. That’s the judge’s point. One doesn’t refute it by predicting how much revenue will be raised despite the intent.

While we’re on the topic of simply brushing aside what’s relevant, I notice Professor Kleinbard ignored that the mandate was enacted under claimed Commerce Clause authority, and the penalty he refers to as a tax is imposed only in the event of noncompliance. Therefore, if the Court rules that the mandate is unconstitutional, there’s no basis for imposing the penalty, because at that point, it would be a penalty for failure to comply with a requirement that’s no longer on the books. In other words, the penalty can’t exist on its own, because of how the bill is structured. That’s the answer to Professor Kleinbard’s question: “So why isn’t the penalty imposed for failure to comply with the individual mandate simply another tax?”

Maybe the professor can somehow defeat that logic. If so, I wonder why he made no such effort in his op-ed.

Posted by: Jeff Norman | Dec 19, 2010 9:42:48 PM

Kleinbard does have a point in that the commerce clause, once violated many moons ago, is now either unlimited in scope or Social Security, since inception, is a violation. I'll take the latter.

Posted by: Fletch | Dec 20, 2010 10:08:30 AM