Paul L. Caron

Wednesday, August 18, 2010

Kleinbard: The Tax Penalty in ObamaCare Is Constitutional

Tax AnalystsEdward D. Kleinbard (USC) has published Constitutional Kreplach, 128 Tax Notes 755 (Aug. 16, 2010). Here is the abstract:

Recent federal healthcare legislation mandated that every ‘‘applicable individual’’ maintain healthcare insurance and it imposed (in new  § 5000A(b)) a penalty to enforce that mandate. In a recent report (Constitutional Decapitation and Healthcare, 128 Tax Notes 169 (July 12, 2010), Steven J. Willis and Nakku Chung argued that § 5000A(b) is unconstitutional.

This article responds to Willis and Chung by demonstrating that the § 5000A(b) penalty constitutes a valid exercise by Congress of its legislative powers under both the commerce clause and its taxing authority and that the penalty need only be defensible under one of those two lines to survive a constitutional challenge.

Fundamentally, and contrary to Willis and Chung’s argument, the § 5000A(b) penalty is not a tax on ‘‘not-doing.’’ Section 5000A(b) is a penalty (or tax) on the provision of healthcare self-insurance. This is not the same as a tax on simply existing, because healthcare self-insurance is an economic decision with real and immediate consequences. The federal government can properly tax (or regulate) self-insurance because healthcare self-insurers are not required to demonstrate financial capacity to absorb the possible costs of their insurance decision, and if that decision proves to be feckless or wise, the federal government will ultimately absorb a substantial portion of the costs.

The remainder of the article develops that argument then applies relevant case law to demonstrate that Congress’s interest in regulating healthcare selfinsurance falls squarely within the legislative powers granted by the commerce clause. Alternatively, the penalty is a tax that is not a direct tax in the constitutional sense and therefore can be assessed without apportionment among the states.

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Sounds like spin to me but, then, I believe that those who can't pay for their medical costs, either through insurance or out of their pockets, shouldn't get the medical care in the first place unless they are truly unable to pay.

Posted by: Shotgun | Aug 18, 2010 5:32:47 AM

I keep hearing what an easy case this is, but the one court to hear it apparently didn't think so. If the case is easy, why is so much heavy artillery being brought forth to argue it?

Posted by: mike livingston | Aug 18, 2010 6:45:47 AM

By Kleinbard's reasoning the government can tax people who refuse to eat vegetables, or refuse to get off the sofa and exercise, on the theory their health care costs later in life may be higher and the government will have to pick up the tab. Framing the issue as "self-insurance" is cute, but self-insurance means no more than assuming the risk of one's own conduct -- in this case, the risk arising from one's failure to act as the government would decree. Rather than choosing the unconstitutional path of taxing people who through inaction choose to assume a higher risk of future health care costs, the government could simply deny any health care subsidy to such persons when the bill eventually comes due.

That solution, however, is far less politically palatable than peddling health care cake-and-parades to gullible voters, the approach taken by ObamaCare advocates.

Posted by: Jake | Aug 18, 2010 12:11:18 PM

Whose idea was the individual mandate in the first place?!


lacking in frankness, candor, or sincerity; falsely or hypocritically ingenuous; insincere: Her excuse was rather disingenuous.

Posted by: Scott | Aug 18, 2010 12:34:26 PM