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Thursday, June 28, 2012

The Affordable Care Act and the Taxing Power

Michael Graetz (Columbia):

The Supreme Court upheld the individual mandate of the health care statute today in a 5-4 ruling stating that it is a valid exercise of the taxing power under the Constitution.  There were only four votes to uphold the requirement as valid under the Commerce Clause.  The majority opinion by Justice Roberts emphasized that folks who don’t want to purchase health insurance can avoid doing so simply by paying the fee imposed by section 5000A of the tax code, whose collection is enforced by the IRS.  Chief Justice Roberts pointed out that the fee may cost considerably less than purchasing a health insurance policy and that the fee is not applicable to people whose income is so low that they are not required to file income tax returns. Interestingly, the four dissenters did not claim that imposing such a tax on the failure to purchase health insurance would be unconstitutional.  Instead they relied on the constitutional significance of Congress calling the fee a penalty, not a tax.  Justice Roberts insisted that this Congressional label was not relevant in assessing the provision’s constitutionality.  In a twist, however, Justice Roberts held that the congressional label was determinative in deciding whether the Anti-Injunction Act—a statute which bars lawsuits challenging taxes before the time for their collection—applied, a holding with which the four dissenters agreed.  So, the Court decided that even though the provision is a tax for interpreting the Constitution, it is not a tax for interpreting the Anti-Injunction statute.  Around Congress, it has often been said about taxes that “if it walks like a duck and quacks like a duck, it is a duck.” Today, poultry just became far easier to identify than a “tax.”

Dan Shaviro (NYU):

Bottom line, evidently Chief Justice Roberts didn't want the Court that bears his name to go out as far and as visibly on a hyper-partisan limb as striking down the Act would have necessitated.  I find this cause for relief, although he may continue to act more aggressively, in full cahoots with the other four, when the level of public scrutiny is lower.

Jack Bogdanski (Lewis & Clark):

For the tax geeks among us, a majority of the Court in the health care case did make some law about the scope of a "direct tax," which Congress is not allowed to impose without apportionment among the states:

A tax on going without health insurance does not fall within any recognized category of direct tax. It is not a capitation. Capitations are taxes paid by every person, "without regard to property, profession, or any other circumstance." Hylton at 175. ... The whole point of the shared responsibility payment is that it is triggered by specific circumstances -- earning a certain amount of income but not obtaining health insurance. The payment is also plainly not a tax on the ownership of land or personal property. The shared responsibility payment is thus not a direct tax that must be apportioned among the several States.

Bradley W. Joondeph (Santa Clara):

[T]here was a real danger to the Court that it might stain itself with the appearance of partisanship—especially in light of other recent decisions (i.e. Citizens United) and those headed its way (such as those involving affirmative action and the Voting Rights Act). The Chief Justice’s opinion rightly claims the mantle of bipartisanship and judicial modesty for the Court, and in this highest of high-profile cases. This will be, I think, enormously valuable to the Court’s long-term institutional standing. At the same time, the Chief Justice established some important (conservative) doctrinal beachheads — namely, reaffirming or establishing important limits on Congress’s powers to regulate interstate commerce and to spend for general welfare.

Joe Kristan (Roth & Co.):

Maybe the most depressing aspect of the decision is the way it seems to endorse using the tax law as the Swiss Army Knife of public policy. Things that Congress can't enact any other way are now possible if they can somehow be crammed into the tax law. The tax code is already groaning under its load of responsibilities for industrial policy, health policy, welfare policy and housing policy, for starters. The IRS Commissioner is now sort of a super cabinet member with a portfolio that dwarfs most of the "real" cabinet departments. Of course, the IRS is ill-suited to this role, resulting in poor policy administration and poor tax administration. Thanks, Justice Roberts!

Prior TaxProf Blog coverage:

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Comments

This Constitution as written is an intensely nationalistic, viciously anti-state document. It was adopted to give the new national government the power to raise taxes to pay the Revolutionary War debts without ever going back to the states. The drafting committees had a mandate to dress for the public the Resolutions from the floor of the Convention. The purportedly binding Resolution provided that Congress would have the power to legislate in any case whatsover for the general interests of the Union. The tax power allowing Congress to tax for the common defense and general welfare is loyal to that mandate.
It is too bad that Roberts had to ruin a perfectly fine holding with all that ideological gobbledegook, as if the states had rights, or were even rights bearing entities.

Posted by: Calvin H. Johnson | Jun 28, 2012 5:30:38 PM

"A tax on going without health insurance does not fall within any recognized category of direct tax." True enough, but Congress has never before attempted to tax the mere failure to buy something. So why should the categories of direct taxes recognized in the past be the only ones? Roberts' failure to fully analyze the direct tax issue in a case of first impression is exceedingly regrettable.

Posted by: guy helvering | Jun 28, 2012 5:49:59 PM

So now we are to believe (i) there is a realm of federal taxation that falls within the venerable Anti-Injunction Act; but (ii) there is a somewhat larger realm of federal taxation that is permitted under the Constitution; and (iii) certain taxes, or penalties, or exactions fall into that grey area in between. Today the Supreme Court populated the grey area with one tax/exaction/penalty enacted by ObamaCare. What confusion this will bring. It's like a full employment act for tax profs.

Posted by: Jake | Jun 28, 2012 8:27:39 PM

How is the health penalty tax not a "direct tax"? It certainly is not an income tax, and hence is not permitted by the 16th amendment. And I don't see any way it is indirect: if I don't do a particular activity, I get personally, directly, taxed.

Question: Could a new challenge be brought on this basis?

"Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons."

Posted by: Eric Rasmusen | Jun 28, 2012 10:46:06 PM

An interesting analysis, although I deeply disagree that Roberts' opinion will limit, rather than encourage, future mandates/taxes.

What’s behind Roberts’s surprising decision?

The key move in Roberts’s opinion is his conclusion that the individual mandate is actually a sort of tax, and therefore constitutional by virtue of Congress’s unquestioned power to tax. That allows the mandate to stand, yes — but effectively makes the mandate sui generis, and thereby denies the government a new source of regulatory power.

This is why: Roberts does not say that the government may now regulate anything it likes by calling the regulation a tax. He says this mandate can be read as a tax in these circumstances — that is, in light of the fact that it would be unconstitutional on any other ground and the court is supposed to avoid finding statutes unconstitutional if it can — and on these grounds: because it is administered by the IRS through the tax code and operates in many respects like a normal tax. Only if future regulatory schemes can meet all these criteria would they be valid under the taxing power. Yet Roberts does not give a single example of any such scheme — and we know for a fact, because they have told us repeatedly, that members of Congress would never have voted for this regulation if they had believed it was a tax.

Making the mandate a tax has at least one other effect. It makes repeal easier. Now that the mandate has been deemed taxation, it can likely be jettisoned through use of the reconciliation process — meaning the Senate will need to muster only a bare majority for repeal, not 60 votes.

By converting the mandate to a tax, then, Roberts limits the ability of the government to do the same sort of thing in the future and underlines the political unpopularity of the law, all while allowing the law to stand. And because it does stand, the court is spared a nasty turn at center stage in the November elections.

Whether the chief justice’s stratagem actually works is a different question.

Posted by: Woody | Jun 28, 2012 10:57:59 PM

One more take on Justice Roberts' "ulterior motive":

The Chief Justice's Gambit

One of the interesting features of Marbury is that the Court didn't have to decide that Marbury was entitled to his commission. Indeed, it probably should have decided the jurisdictional issue first, then left the remaining issues for the Courts to decide upon refiling. But Marshall wanted to get the most favorable for Federalists that he could, while still maintaining the Court's credibility.

Similarly, Roberts actually didn't have to reach the commerce clause/necessary and proper issues. Having decided the tax issue, he actually probably could have stopped there. That he didn't suggests that he wanted to make sure that, even in defeat, there were five clear votes for the conservatives' view of the commerce clause and necessary and proper clause.

- - - - -

Also, another rumor being tossed around -- Roberts changed his position late:

Was the Dissent Originally a Majority Opinion?

The four-Justice dissent, at least on first quick perusal, reads like it was originally written as a majority opinion, [something Larry Solum also noticed] (for example, he refers to Justice Ginsburg’s opinion as “The dissent”) [update: Ginsburg did in fact technically dissent on the Commerce Clause issue, but I think it's unusual to refer to an opinion written by the winning side as "the dissent." Other reasons that the dissent reads like a majority are described here.]

Posted by: Woody | Jun 28, 2012 11:36:15 PM

Now the federal government can literally order you to anything, including summoning you to action from inaction, so long as they attach a tax to their order. Roberts draws a distinction between punitive and innocuous taxes as though it matters. And who gets to determine that a tax is too big? Why the court (government), of course. The court has now opened the door to death by a thousand taxes. There is nothing stopping Congress from limitless interference. What will our descendants do when they are confronted with the accumulated burden of G-d knows how many behavior-taxes? Can any individual truly be free? Maybe he will be able to afford to ignore one or two government behavior-edicts, but only the rich will be able to act independently of government prescription. Roberts says the government can tell you to buy a Chevy Volt and attach a tax to make you do it. And I guess, according to his test in this case, as long as the tax is less than the cost of purchasing the vehicle, it's constitutional. It seems crazy to me, but what do I know, I'm not a leftist.

Sure, Roberts put a limit on Commerce Clause exploitation (although that is poor compensation for someone like me who thinks New Deal Commerce Clause jurisprudence is tendentious bunk, e.g. Wickard). But in the process of limiting the Commerce Clause, he has opened a huge new avenue for the federal government to interfere in our lives. It is a sad week for our country and anyone who believes the framers intended a limited government of enumerated powers.

Posted by: b | Jun 29, 2012 10:48:33 AM

If this becomes a law, mandating all individuals to buy health insurance... there would be a big unfairness in the law. The mandated purchase wouldn't be possible, for example, in new York, because NY state does not have such an "Exchange" this new law provides. If the IRS wants to impose such a penalty on individuals who can't purchase the insurance, the IRS also has to "mandate" all the states, without exception, to offer "Exchange" like facilities or systems. This new law is totally unfair, only favoring affordable individuals who are living in those states that would have "Exchanges"

Posted by: Penta Gonza | Jun 29, 2012 6:24:04 PM

I dont buy this roberts master plan business, it was nothing but a craven betrayal. Precedents are meaningless unless they are actually applied to a law. If roberts really wanted his commerce clause restrictions to mean something, he would have honestly applied it to the mandate and struck it down. As it is, the only precedents he did set are all undesireable ones, like the following:

1. While there may be limits someday on the commerce power, the federal taxing power is now completely unlimited. The fed gov can tell you do do anything they want, by taxing you high enough if you dont do it.

2. And the lawmakers dont even have to call these taxes taxes, they can still call them mandates and penalties, to avoid taking the political heat for a tax hike. Then when they come before the court, Roberts will rewrite the legislation, usurping the job of congress, to magically transform your illegal penalty and mandate, into a legal tax. Then after the decision, you can ignore Roberts, having had him already do what you wanted, and still call them penalties and mandates (Pelosi just did that today, when she was asked whether the bill had a tax hike).

3. The leftist campaign to intimidate the court worked, Roberts caved, and gave them the law they wanted. Cowardly cave ins of this type do not “bolster the legidimacy of the court” they undermine it. The only way to really bolster the legidimacy of the court is to honestly apply the law, which roberts, in majically transforming an illegal mandate into a legal tax, did not do. And now the leftists know the court can be successfully bullied, and will be even worse in the future.

The only good side effect of this craven betrayal is we now know that we cannot rely on the court to protect our freedoms, only we the people can, by joining the tea party, and throwing out all the rascals that are usurping our freedoms, starting with obama and the dem senate. And if after the repubs take the presidency and senate, they still do not repeal this abomidable law, we throw them out too.

Posted by: richard40 | Jul 1, 2012 2:38:01 PM