On the matter of the mandate (not) being a tax

That fact that the minimum coverage provision (MCO) was upheld via the taxing power will lead to a couple of things – 1) Spin outside of the context of reality. As in, “Supreme Court rules Obamacare is a giant tax hike” and “Democrats said it wasn’t a tax but now it is!” This is inevitable. 2) More importantly, there will be widespread confusion as to how the mandate could be a tax but not a tax.

Via SCOTUSblog (my emphasis):

Today, the Court held that the AIA does not bar the challenge to the individual mandate because the mandate is not a “tax” within the meaning of the AIA. But if the individual mandate is only constitutional as an exercise of Congress’s taxing power, then how can that be?

The short answer is that – at least after today’s opinion – courts apply a different test to determine whether a law constitutes a tax for constitutional purposes (i.e., the taxing power) than they do to determine whether the same law constitutes a tax for statutory jurisdiction purposes (i.e., the AIA).  The constitutional test looks not to the label on the law, but instead to the way that the law functions.

What Chief Justice Roberts is saying, essentially, is that if it the MCO functions as a tax (in the same way as a credit or deduction) then the constitutionality of the mandate can be judged on the ability of Congress to levy taxes. Even some smart people I follow on Twitter don’t seem to understand the nuance – the mandate is not a tax in the traditional sense as it relates to the Anti-Injunction Act, and thus is not applicable.

More clarity:

[…] the Constitution imposes limits upon the Congress, and it would undermine those limits if Congress could circumvent them merely by altering the label on a piece of legislation. That is why for purposes of determining the scope of the taxing power, the label does not matter. However, the AIA is Congressional policy, and so the key question in that context is whether Congress intended for that policy to apply in a particular case. If Congress wants the AIA to apply, it knows to use language echoing that statute. Similarly, if Congress does not want the AIA to apply, it will use different language, and courts should respect that judgment. In this case, because Congress deliberately avoided using the word “tax,” opting instead to describe the shared responsibility payment (the consequence of not purchasing insurance, and thus the sole incentive to comply with the mandate) as a “penalty,” the Court held that Congress did not intend for the AIA to preclude judicial consideration of the mandate.

Update: My feeling is that as we move towards the November elections I’ll have more to say on this matter of the MCO being a “tax” versus a “penalty,” given that it’s currently (and will probably still be) spun as a tax hike. For now, though, I want to borrow some words from Derek Thompson on yesterday’s ruling (my emphasis in bold):

Because the small fee “looks like a tax,” he[C.J. Roberts] wrote, the individual mandate could stand on the basis of Congress’ broad power to tax.

But does that make any sense? How can a penalty also be a tax?

It can’t. That was the simple, stark conclusion from the dissenting Justices: Scalia, Kennedy, Alito, and Thomas. “We have never held–never–that a penalty imposed for violation of the law was so trivial as to be in effect a tax,” they wrote. “We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power–even when the statute calls it a tax.” The two are mutually exclusive, they said.

Roberts disagreed — and his distinction swung the case. Roberts argued that the penalty resembled a tax in a few ways.

It resembles a tax to a degree that Roberts found  constitutionally salient. Yet Thompson is correct to make the distinction that that the MCO is much more a penalty whose purpose is to discourage a particular type of behavior – in the same way that credits and deductions work – than a traditional tax meant to raise revenue.

What is perhaps more interesting is that by arguing that the mandate represents a tax increase, those opposed to the law are implicitly at odds with the dissenting opinion – in effect, assenting that the MCO is constitutional. Anyone Those who wish to continue the argument of the mandate being unconstitutional must contend that the tax itself is unconstitutional (see comments), or by default join Kennedy and the rest by admitting that it isn’t a tax after all.

*Updated 06/30/2012 for clarity in the final paragraph.


6 responses to “On the matter of the mandate (not) being a tax

  1. re: “What is perhaps more interesting is that by arguing that the mandate represents a tax increase, those opposed to the law are implicitly at odds with the dissenters – in effect, assenting that the MCO is constitutional. Anyone who wishes to continue the argument of the mandate being unconstitutional by default has to admit that it isn’t a tax after all.”

    No. I’m sorry, but that’s just incorrect. Many dissenters had considered the idea of the mandate being a tax prior to the decision and decided that even if the mandate were considered as such, then it *still* is unconstitutional because it must necessarily be a direct tax and therefore runs afoul of the apportionment provision.



    • Thank you for the reply, and the links – of which are always appreciated. I should not have been so broad in my declaration (by dissenters I meant the dissenting opinions, not erstwhile opponents of the ACA) and I’ll update the post to acknowledge. Thanks again.

      • You’re most welcome. 🙂
        Here’s some additional information.

        Roberts anticipated the objection in his opinion…
        “According to the plaintiffs, if the individual mandate imposes a tax, it is adirect tax, and it is unconstitutional because Congress made no effort to apportion it among the States. Even when the Direct Tax Clause was written it was unclear what else, other than a capitation (also known asa “head tax” or a “poll tax”), might be a direct tax. See Springer v. United States, 102 U. S. 586, 596–598 (1881). Soon after the framing, Congress passed a tax on ownership of carriages, over James Madison’s objection that it was an unapportioned direct tax. Id., at 597. This Court upheld the tax, in part reasoning that apportioning such a tax would make little sense, because it would have required taxing carriage owners at dramatically different rates depending on how many carriages were in their home State. See Hylton v. United States, 3 Dall. 171, 174 (1796) (opinion of Chase, J.). The Court was unanimous, and those Justices who wrote opinions either directly asserted or strongly suggested that only two forms of taxation were direct: capitations and land taxes. See id., at 175; id., at 177 (opinion of Paterson, J.); id., at 183 (opinion of Iredell, J.).
        That narrow view of what a direct tax might be persisted for a century. In 1880, for example, we explained that “direct taxes, within the meaning of the Constitution, are only capitation taxes, as expressed in that instrument, 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, supra, at 175 (opinion of Chase, J.) (emphasis altered). 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 taxthat must be apportioned among the several States.”

        Here’s what Scalia said in his dissent..
        “Finally, we must observe that rewriting §5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps it is not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression that deserves more thoughtful consideration than the lick-and a-promise accorded by the Government and its supporters. The Government’s opening brief did not even address the question—perhaps because, until today, no federal court has accepted the implausible argument that §5000A is an exercise of the tax power. And once respondents raised the issue, the Government devoted a mere 21 lines of its reply brief to the issue. Petitioners’ Minimum Coverage Reply Brief 25. At oral argument, the most prolongedstatement about the issue was just over 50 words. Tr. of Oral Arg. 79 (Mar. 27, 2012). One would expect this Court to demand more than fly-by-night briefing and argument before deciding a difficult constitutional question of first impression…The Court’s disposition, invented and atextual as it is,does not even have the merit of avoiding constitutional difficulties. It creates them. The holding that the Individual Mandate is a tax raises a difficult constitutional question (what is a direct tax?) that the Court resolves with inadequate deliberation.”

        Here are some links from very conservative/libertarian sites where opponents of ACA (actually, the PPACA+HCERA10, which is why I don’t object to the term ‘Obamacare’) contend that if the mandate is a tax, then it is a direct tax…

        >Cato Institute:
        >Independence Institute:
        [audio src="http://audio.ivoices.org/mp3/iipodcast554a.mp3" /]
        >World Net Daily:

        • Thanks again, and sorry for the delayed response. I’ve been searching for an amicus briefing that I read awhile ago that mentioned the question of whether the MCO constituted a direct tax. I finally found it here on the right hand margin under “FLORIDA v. HHS (Circuit and District Court documents)” titled “Amicus brief of Constitutional Law Professors” (pdf). That being said I don’t particularly feel comfortable enough yet to offer even an amateur opinion on this issue of direct/indirect taxation and constitutionality. It is something, however, I’ll be interested in reading more about as we move forward.

          Here is the passage from that amicus brief:

          Accordingly, the Court in the nineteenth century sustained unapportioned taxes on a variety of forms of income and property on the ground that they qualified as excises, including: taxes on insurance premiums, Pac. Ins. Co. v. Soule, 74 U.S. (7 Wall.) 433 (1869); state bank notes, Veazie Bank, 75 U.S. (8 Wall.) 533; inheritances, Scholey v. Rew, 90 U.S. (23 Wall.) 331 (1875); and income, Springer v. United States, 102 U.S. 586, 592 (1880).8
          The Direct Tax Clause continues to be interpreted very narrowly today. As one court of appeals recently put it, “[o]nly three taxes are definitely known to be direct: (1) a capitation * * *, (2) a tax upon real property, and (3) a tax upon personal property.” Murphy v. IRS, 493 F.3d 170, 181 (D.C. Cir. 2007). Plainly, the Minimum Coverage Provision is not one of these types of taxes.

          8 In Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (1895), the Court struck down the federal income tax as an unapportioned direct tax. Pollock did not hold that all income taxes are direct taxes, but instead was limited to taxes on income derived from real and personal property. The Nation responded by adopting the Sixteenth Amendment, providing that “Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” U.S. Const. amend. XVI. And the Court upheld a wide range of unapportioned taxes after Pollock. See Knowlton v. Moore, 178 U.S. 41 (1900) (federal estate tax); Patton v. Brady, 184 U.S. 608 (1902) (tax on manufacturing of tobacco); Thomas v. United States, 192 U.S. 363 (1904) (stamp tax on memoran-­ dum or contracts of sale of stock certificates); Spreckels Sugar Ref. Co. v. McClain, 192 U.S. 397 (1904) (tax on sugar refining); Flint v. Stone Tracy Co., 220 U.S. 107, 177 (1911) (corporate in-­ come tax).

          The Provision is in no way tied to property. Neither is it a capitation. As Justice Story explained, “capitation taxes, or, as they are more commonly called, poll taxes, [are] taxes upon the polls, heads, or persons, of the contributors.” Joseph Story, Commen-­ taries on the Constitution of the United States § 954 (Melville Bigelow ed., 5th ed. 1891). Such a tax is imposed on the person “without regard to property, profession, or any other circumstance.” Hylton, 3 U.S. at 175 (opinion of Chase, J.).

          That does not describe the Minimum Coverage Provision. Far from being imposed “without regard to property, profession, or any other circumstance,” ibid., it is instead contingent on very specific circumstances: the taxpayer’s failure to pay premiums into a qualified health care plan in a given month, and the taxpayer’s ability to pay. The Provision does not operate directly on any person or property, but only indirectly as a function of a taxpayer’s particular decisions. See Tyler v. United States, 281 U.S. 497, 502 (1930) (“A tax laid upon the happening of an event, as distinguished from its tangible fruits, is an indirect tax.”).9

          9 There are numerous examples of Congress taxing the failure to make a particular economic arrangement. See, e.g., 26 U.S.C. § 4974 (tax on failure of retirement plans to distribute assets); id. § 4980B (tax on failure of group health plan to extend coverage to beneficiary); id. § 4980E (tax on failure of employer to make comparable Archer MSA contributions). None of those provisions is subject to the Direct Tax Clause’s apportionment requirement.

          This Court has never struck down a federal tax on the ground that it is an unapportioned capitation, there is no basis for concluding that the Minimum Coverage Provision is the first such tax.

  2. PS: I’m not a lawyer (just an interested layman), but I did think that the mandate was an overreach with the Commerce Clause and I thought it was an improvement when the Administration began arguing that it was a tax (July 2010), although it *did* seem like a direct tax to me.

    In his decision Roberts said, “If it is troubling to interpret the Commerce Clause as authorizing Congress to regulate those who abstainfrom commerce, perhaps it should be similarly troubling topermit Congress to impose a tax for not doing something.”

    He answers himself by saying that, “First, and most importantly, it is abundantly clear the Constitution does not guarantee that individuals may avoid taxation throughinactivity. A capitation, after all, is a tax that everyone must pay simply for existing, and capitations are expressly contemplated by the Constitution.”

    Frankly, I was hoping that the mandate would be struck down. I do think that it’s unconstitutional, but as a matter of policy I think in the long term we’d be better off without it. I don’t think this for the typical reasons, though. I agree with what Matt Miller said when the challenges began:

    “So, conservatives, be careful what you wish for. By fighting the mandate needed to make private insurance solutions work, and doing nothing to ease the health cost burden on everyday Americans, you’ll hasten the day when the public throws up its hands and says, “Just give us single-payer and price controls.” Don’t think the anti-government wave this fall won’t reverse itself on health care if the most private sector-oriented health care system on earth keeps delivering the world’s costliest, most inefficient care.”


  3. Pingback: A (meta) note on the journey | Punditocracy·

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