ObamaCare and the Constitution: Taxation Clause

Stephen Kershnar

The Supreme Court Labels ObamaCare a “Tax”

Dunkirk-Fredonia Observer

July 9, 2012

In National Federation of Independent Business v. Sebelius, 567 U.S. _____ (2012), the Supreme Court found by a 5-4 decision that the individual mandate at the center of ObamaCare (Patient Protection and Affordable Care Act) is constitutional. The mandate requires most Americans to maintain a minimum health-insurance coverage. People who do not receive health insurance coverage through an employer or government program or who were not exempt will have to pay money to the Internal Revenue Service (IRS). The Court faced the issue of whether it was permitted by the relevant parts of the Constitution, specifically, Article I Section 8’s Commerce Clause, Necessary and Proper Clause, and Taxation Clause and the Direct Tax provision in Article I Section 9.

Chief Justice Roberts found that were the mandate a penalty, it would be unconstitutional because the Commerce Clause does not allow the federal government to penalize inaction as a way of regulating commerce. However, were the mandate a tax, he argued, the Taxation Clause would allow it. The issue, then, was whether the mandate was a tax or penalty.

Roberts began by arguing that when a statute is ambiguous and one interpretation violates the Constitution the other not, the courts should adopt the latter. Furthermore, he claimed, the test is not whether the most natural reading of the statute is constitutional. Rather, on his account, the test is whether any plausible interpretation (“fairly possible”) is constitutional.

Roberts then argued that the mandate is a constitutionally permissible tax rather than a constitutionally impermissible penalty. He gave three reasons for his conclusion. First, the price of the payment is not so high that Americans have no choice but to buy health insurance. Second, the payment is not limited to intentional rule-breaking as is characteristic of criminal penalties. Third, the payment is collected by the IRS as a normal means of taxation.

Roberts reasoning is weak. First, as New York University law professor Richard Epstein points out, there is no clear boundary at which required payment changes from a tax to a penalty. In fact, as University of Chicago law professor Richard Posner further points, some criminal fines are quite small. Consider, for example, parking tickets.  

Second, the criminal law is littered with strict-liability offenses. It is simply not true that the criminal law is limited to intentional acts. Environmental crimes are an example.

Third, Epstein notes, Congress should not be allowed to insulate otherwise unconstitutional legislation merely by having the IRS rather than some other department process the fine. Congress shouldn’t be able to eliminate unwanted speech (for example, flying a confederate flag) or handguns by requiring people who do or own these things to pay money to the IRS. In addition, as the dissenters (Justices Scalia, Kennedy, Thomas, and Alito) point out, the IRS alone does not handle the mandate. The Departments of Health and Human Services and Veterans Affairs also have a role. Their involvement would be bizarre were the mandate a tax.

Roberts bolstered his argument by noting that the mandate has a number of tax-like features. It is paid to the treasury when taxpayers pay their taxes, it exempts low income individuals, the amount is affected by standard features (for example, taxable income and number of dependents), the requirement to pay is found in the IRS code, and it provides the government with revenue. However, Epstein and the dissenters point out that several of these features are also found in the criminal law. For example, under federal law federal courts are instructed to consider a party’s ability to pay when imposing a fine. And, obviously, all fines provide revenue for the government.

The conservative dissenters tore into Roberts’ reasoning. They began by pointing out that both precedent and a proper understanding of the concepts make it clear that penalties and taxes are mutually exclusive. That is, a penalty is not a tax and vice versa. In deciding what the requirement is, they argued that while the Court should look at the “fair meaning” of the statute, it may not rewrite it. The dissenters then argued that the fair meaning leads to the conclusion that the mandate is a penalty. This is true whether you look at conceptual arguments, statutory language, or precedent.  

Consider the conceptual argument. A penalty is a punishment (a fine in this context) for an unlawful act. It is clear that the minimum-coverage rule is a legal requirement and the failure to satisfy it is an unlawful omission. The statute is littered with the word “requirement.” In addition, the statute exempts some people from the payment, but not the mandate. This makes sense only if the failure to pay were an unlawful act. The nail in the coffin is that Congress considered and rejected a version of the Act that imposed a tax rather than a requirement-with-penalty.

In a feature of the decision that will make Roberts’ argument live in infamy, he argued that the same features of the statute’s text that make it a tax for the purpose of the Taxation Clause show that it is not a tax for the purpose of whether the Court had the power to hear the case (Anti-Injunction Act). The dissent spit out its disapproval and said that this reasoning “carries verbal wizardry too far, deep into the forbidden land of the sophists.”

Consider statutory language. The dissenters point out that the Act repeatedly labels the required payment a “penalty.” It does so eighteen times and never – absolutely never – labels it a “tax.” Neither the mandate nor the required payment are even located in the revenue section of the statute.  

Consider precedent. The dissenters note that in the past, the Court always treated money payments for violating the law as a penalty and never as a tax. Until Robert’s decision, no federal court – absolutely none – had accepted the notion that the mandate in question was a tax.

This decision in effect killed much of what was left of the limits on federal power. The courts will now allow Congress to coerce Americans on almost any decision that does not directly infringe on rights narrowly laid out in the Bill of Rights. It could force citizens to buy new cars or purchase broccoli by “taxing” those who fail to do so. In essence, Roberts and the liberal justices have determined that the federal government may now do things indirectly, using taxation, which it may not do directly. In contrast, consider the view of the father of the Constitution, James Madison. In the Federalist Papers he said, “The powers delegated by the proposed Constitution to the federal government, are few and defined.” This view and the accompanying Constitutional language are tossed out like soiled newspapers.  

This is the same Obama administration that claimed that without a warrant, the Constitution permitted the federal government to track any and all Americans’ cars via GPS technology. The administration recently decided to ignore the law regarding illegal aliens and to hide from Congress documents on a gun-running program gone awry. The Obama administration went to war against Libya without Congress declaring, authorizing, or even funding the war. To paraphrase T.S. Elliot, this is how a Constitution ends: not with a bang but a whimper.