It Was Always a Tax

Yesterday I posted the rather pathetic video of White House Chief of Staff Jack Lew on Fox News Sunday, where Lew struggled to deny that the Obamacare mandate is a tax, and that the Supreme Court upheld it only as such. When confronted with footage of the administration’s lawyer telling the Court that the mandate is a tax, Lew acted as though he had never heard such a thing before.

In fact, the Democrats have always argued that the Obamacare mandate is a tax, and as such is constitutional. During the debates in Congress, they emphasized this point when the law’s constitutionality came under attack. Max Baucus, Chairman of the Senate Finance Committee, said:

Mr. President, our committee and the HELP Committee have given a lot of thought to the provisions in this legislation. We also gave a lot of thought to the constitutionality of the provisions—how they work and the interrelationship between the power of Congress and the States and what States will be doing, particularly under the commerce clause and the tax-and-spending powers of the Constitution.

It is very strongly our considered judgment, and that of many constitutional scholars who have looked at these provisions—and many articles have been put in the Record—that clearly these provisions are constitutional. The commerce clause is constitutional, the tax-and-spending clause, and the provisions clearly are constitutional.

Mr. President, the bill before us is clearly an appropriate exercise of the commerce clause. We further believe Congress has power to enact this legislation pursuant to the taxing and spending powers.

These were always the Democrats’ two arguments. It is worth noting that they were not arguing in the alternative; there is no inconsistency between the two theories. They always claimed that Obamacare was constitutionally justified by both the Commerce Clause and the Tax and Spend clause.

Baucus inserted into the Congressional Record an op-ed by Professor Erwin Chemerinsky, which said in part:

Congress also could justify this as an exercise of its taxing and spending power. Congress can require the purchase of health insurance and then tax those who do not do so in order to pay their costs to the system. This is similar to Social Security taxes, which everyone pays to cover the costs of the Social Security system. Since the 1930s, the Supreme Court has accorded Congress broad powers to tax and spend for the general welfare and has left it to Congress to determine this.

On December 22, 2009, Pat Leahy, the appalling Chairman of the Senate Judiciary Committee, also emphasized that Obamacare is a tax:

The authority and responsibility for taking actions to further this purpose is vested in Congress by article I of the Constitution. In particular article I, section 8, sets forth several of the core powers of Congress, including the “general welfare clause,” [i.e., tax and spend] the “commerce clause” and the “necessary and proper clause.” …

Any serious questions about congressional power to take comprehensive action to build and secure the social safety net have been settled over the past century. According to article I, section 8, “The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States.” This clause has been the basis for actions by Congress to provide for Americans’ social and economic security by passing Social Security, Medicare and Medicaid. Those landmark laws provide the well-established foundation on which Congress builds today by seeking to provide all Americans with access to quality, affordable health care.

These Supreme Court decisions and the principles underlying them are not in question. As dean Erwin Chemerinsky of the University of California Irvine School of Law wrote in a recent op-ed in The Los Angeles Times: “Congress has broad power to tax and spend for the general welfare. In the last 70 years, no federal taxing or spending program has been declared to exceed the scope of Congress’ power. The ability in particular of Congress to tax people to spend money for health coverage has been long established with programs such as Medicare and Medicaid.”

House Democrats likewise argued that Obamacare is constitutionally justified as an exercise of Congress’s power to levy taxes and spend money. Thus, Rep. George Miller of California said:

The bill contains an individual mandate to either obtain health insurance or pay a penalty. This provision is grounded in Congress’s taxing power but is also necessary and proper–indeed, a critical linchpin–to the overall effort to reform the health care market and bring associated costs under control throughout interstate commerce.

So the Democrats have been telling us for years that the Obamacare mandate is a tax. This was also the position that the administration’s lawyers have taken in the courts, going back to when the first cases were filed shortly after the legislation was signed into law. In the Supreme Court, the Obama administration asserted two arguments on behalf of the law’s constitutionality: its lead argument was the Commerce Clause, but it also gave considerable emphasis to the claim that the mandate is a tax. Again, these arguments were in no way inconsistent.

The brief that administration lawyers filed on behalf of President Obama argued at length that the mandate is a tax. At risk of boring our readers, I am going to reproduce that entire section of the brief. You shouldn’t feel obliged to read it all, but it is actually quite interesting:


A. The Minimum Coverage Provision Operates As A Tax Law

Congress’s power “[t]o lay and collect Taxes, Duties, Imposts and Excises,” Art. I, § 8, Cl. 1, provides an independent basis to uphold the constitutionality of the minimum coverage provision. The taxing power is “comprehensive.” Steward Mach. Co. v. Davis, 301 U.S. 548, 581-582 (1937). In “passing on the constitutionality of a tax law,” a court is “concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it.” Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 363 (1941) (citation omitted). The practical operation of the minimum coverage provision is as a tax law. It is fully integrated into the tax system, will raise substantial revenue, and triggers only tax consequences for non-compliance. See Liberty University, Inc. v. Geithner, No. 10-2347, 2011 WL 3962915, at *16-*22 (4th Cir. Sept. 8, 2011) (Wynn, J., concurring), petition for cert. pending, No. 11-438 (filed Oct. 7, 2011). The Court has never held that a revenue-raising provision bearing so many indicia of taxation was beyond Congress’s taxing power, and it should not do so here.

1. The minimum coverage provision amends the Internal Revenue Code to provide that a non-exempted individual who must file a federal income tax return will owe a monetary penalty, in addition to the income tax itself, for any months in which the taxpayer or dependents lack minimum coverage. 26 U.S.C.A. 5000A. The amount of the penalty will be calculated as a percentage of household income for income tax purposes, subject to a floor and a cap. 26 U.S.C.A. 5000A(c). Individuals who are not required to file income tax returns for the taxable year are not subject to the penalty. 26 U.S.C.A. 5000A(e)(2). A taxpayer’s responsibility for family members depends on their status as dependents under the Internal Revenue Code, 26 U.S.C.A. 5000A(a) and (b)(3), and taxpayers filing a joint tax return are jointly liable for the penalty, 26 U.S.C.A. 5000A(b)(3)(B).

The IRS will assess and collect the penalty in the same manner as assessable penalties under the Internal Revenue Code. 26 U.S.C.A. 5000A(b)(2) and (g). Under the federal income tax system, taxpayers self-declare their income and deductions on their returns and then calculate the income tax due on their taxable income. The penalty imposed under the minimum coverage provision will be self-declared on the taxpayer’s income tax return in the same way. 26 U.S.C.A. 5000A(b)(2). In addition, the Act imposes reporting requirements on health insurance providers that will assist the IRS in identifying non-compliant taxpayers. 26 U.S.C.A. 6055.

Although the Act provides that the IRS may not use criminal prosecutions, notices of federal tax liens, or levies on property to collect an unpaid penalty, 26 U.S.C.A. 5000A(g)(2), the IRS may employ offsets against federal tax refunds, 26 U.S.C. 6402(a). The IRS also may seek payment through correspondence or phone calls from IRS employees. Offsets, correspondence, and phone calls are consistently some of the most productive tools in the federal tax collection process as measured by total dollars collected. See Payroll Tax Abuse: Hearing Before the Permanent Subcomm. on Investigations of the S. Comm. on Homeland Sec. & Gov’t Affairs, 110th Cong., 2d Sess. 137 (2008) (testimony of Linda Stiff, Deputy Comm’r, IRS). In addition, the Attorney General has general authority to file civil suits for unpaid tax liabilities. See 26 U.S.C. 6502, 7401 et seq.; United States v. Chamberlin, 219 U.S. 250, 261-262 (1911).

The court of appeals questioned the efficacy of those collection tools, see Pet. App. 151a-152a, but it did not take issue with the CBO’s projection that the minimum coverage provision will raise billions of dollars in revenues for the general treasury each year. Id. at 167a; see Letter from Douglas Elmendorf, Director, CBO, to Nancy Pelosi, Speaker, House of Representatives, Tbl. 4 (Mar. 20, 2010) (provision will raise at least $4 billion each year once the penalty is fully implemented). In short, the minimum coverage provision will plainly be “productive of some revenue” and thus satisfies a key attribute of taxation. Sonzinsky v. United States, 300 U.S. 506, 514 (1937).

2. The court of appeals perceived the goal of the minimum coverage provision as reducing the number of uninsured people, not raising revenue. Pet. App. 164a. A tax, however, “does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed.” United States v. Sanchez, 340 U.S. 42, 44 (1950); Seven-Sky, 661 F.3d at 48 n.37 (Kavanaugh, J., dissenting).

“Every tax is in some measure regulatory” in that “it interposes an economic impediment to the activity taxed as compared with others not taxed.” Sonzinsky, 300 U.S. at 513; see United States v. Kahriger, 345 U.S. 22, 24 (1953). So long as the statute is “productive of some revenue,” Congress may exercise its taxing powers irrespective of any “collateral inquiry as to the measure of the regulatory effect of a tax.” Sonzinsky, 300 U.S. at 514. Accordingly, “[f]rom the beginning of our government, the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which, considered apart, were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment.” Sanchez, 340 U.S. at 45 (citation omitted). The Court has long “abandoned the view that bright-line distinctions exist between regulatory and revenue-raising taxes.” Bob Jones University v. Simon, 416 U.S. 725, 743 n.17 (1974).

Congress, in fact, has long used taxing measures to expand health insurance coverage. See pp. 4-5, supra. The Affordable Care Act builds on those efforts and employs familiar tools of tax incentives and tax penalties to expand the availability of insurance as a means of payment for health care services. The Act provides tax credits to eligible small businesses that provide insurance to their employees, 26 U.S.C.A. 45R, and imposes a tax liability under certain circumstances on large employers that do not offer adequate coverage to full-time employees, 26 U.S.C.A. 4980H. In parallel fashion, it provides tax credits for many individuals who purchase health insurance through an exchange, see 26 U.S.C.A. 36B, and, as a mirror image of those credits, it imposes tax penalties on non-exempted individuals who fail to maintain minimum coverage, 26 U.S.C.A. 5000A.

Each of these measures is a proper exercise of Congress’s taxing power, and each reflects Congress’s broad discretion to determine how much tax is owed. In particular, just as deductions, exemptions, and credits operate to reduce an individual taxpayer’s federal income tax liability based on the personal circumstances of the taxpayer, the minimum coverage penalty operates to increase the taxpayer’s total tax liability based on his individual circumstances. In that sense, the minimum coverage provision is valid not only as a tax in its own right,10 but also as an adjunct to the income tax, as it merely provides an additional input in calculating the total amount owed on the taxpayer’s income tax return.

B. The Validity Of An Assessment Under The Taxing Power Does Not Depend On Whether It Is Denominated A Tax

The court of appeals concluded that the minimum coverage provision cannot be upheld under Congress’s taxing power because it refers to the increased tax liability as a “penalty” rather than as a “tax.” Pet. App. 157a-172a; see Thomas More, 651 F.3d at 551. It is well established, however, that “an exaction’s label” is not “germane to the constitutional inquiry.” Liberty University, 2011 WL 3962915, at *17 (Wynn, J., concurring); accord Seven-Sky, 661 F.3d at 48 n.37 (Kavanaugh, J., dissenting). In “passing on the constitutionality of a tax law” under the taxing power, a court is “concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it.” Nelson, 312 U.S. at 363 (quoting Lawrence v. State Tax Comm’n, 286 U.S. 276, 280 (1932)).

Thus, in the License Tax Cases, 72 U.S. (5 Wall.) 462 (1867), this Court upheld under Congress’s taxing power a statute that required persons pursuing intrastate gambling and liquor operations to pay for a “license” from federal tax authorities. That Congress had used the term “license” was irrelevant; the Court declared that the “granting of a license * * * must be regarded as nothing more than a mere form of imposing a tax, and of implying nothing except that the licensee shall be subject to no penalties under national law, if he pays it.” Id. at 471. Similarly, in New York v. United States, 505 U.S. 144 (1992), the Court upheld as a “federal tax on interstate commerce” an assessment that was described in the statute as a percentage of “surcharge fees” on low-level radioactive waste. Id. at 171 (discussing 42 U.S.C. 2021e(d)(2)(A)).

The court of appeals nonetheless concluded that Congress had disavowed any reliance on its taxing power through its “deliberate choice of the term ‘penalty.’” Pet. App. 169a. The suggestion that Congress disavowed its taxing power is insupportable. Congress placed the minimum coverage provision in the Internal Revenue Code (in Subtitle D, covering “Miscellaneous Excise Taxes”), gave the IRS enforcement power over it, and used the federal income tax return as the reporting mechanism. In addition, Congress’s taxing power was expressly invoked to defeat constitutional points of order against the minimum coverage provision in the Senate. See 155 Cong. Rec. S13,830, S13,832 (daily ed. Dec. 23, 2009); see also 2010 House Report Pt. 1, at 265 (describing minimum coverage provision as a “tax on individuals who opt not to purchase health insurance”). And during the debates, congressional leaders defended the provision as an exercise of the taxing power. E.g., 156 Cong. Rec. H1882 (daily ed. Mar. 21, 2010) (Rep. Miller); id. at H1826 (daily ed. Mar. 21, 2010) (Rep. Slaughter); 155 Cong. Rec. S13,751, S13,753 (daily ed. Dec. 22, 2009) (Sen. Leahy); id. at S13,581-13,582 (daily ed. Dec. 20, 2009) (statement of Sen. Baucus); see also Staff of Joint Comm. on Taxation, Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” As Amended, in Combination with the “Patient Protection and Affordable Care Act,” 31 (Mar. 21, 2010).

The court of appeals contrasted Congress’s use of the term “penalty” in the minimum coverage provision with its use of the term “tax” in certain other provisions of the Act, id. at 160a-163a, and inferred that the term “penalty” was “carefully selected to denote a specific meaning,” id. at 161a. That reasoning confused questions of statutory interpretation with the issue of congressional power. Congress’s use of the term “penalty” has significance for purposes of statutory interpretation—most notably for the inapplicability of the Anti-Injunction Act, 26 U.S.C. 7421(a). But that does not justify reliance on labels to disregard the taxing power as a source of Congress’s authority to enact the minimum coverage provision. To the contrary, “the constitutionality of action taken by Congress does not depend on recitals of the power which it undertakes to exercise.” Woods v. Cloyd W. Miller Co., 333 U.S. 138, 144 (1948). Rather than strain to characterize the provision as something other than a tax law, it was the court of appeals’ duty to construe the provision to uphold its constitutionality, “unless such construction is plainly contrary to the intent of Congress.” Edward J. DeBartolo Corp. v. Florida Gulf Coast Bldg. & Constr. Trades Council, 485 U.S. 568, 575 (1988) (“[E]very reasonable construction must be resorted to, in order to save a statute from unconstitutionality.”). Accordingly, if the minimum coverage provision can reasonably be interpreted as a tax law—as it surely can be for the reasons given above—then it must be upheld as constitutional.

C. The Placement Of The Predicate For Imposition Of The Tax Penalty In A Separate Subsection Does Not Take The Minimum Coverage Provision Outside Congress’s Taxing Power

It is beyond dispute that the taxing power would permit Congress to create incentives for the purchase of health insurance by “impos[ing] a lower tax rate on people with health insurance than those without it.” Thomas More, 651 F.3d at 550. Similarly, the taxing power “readily” permits Congress to impose a “[t]ax on individuals without acceptable health care coverage.” Seven-Sky, 661 F.3d at 49-50 (citation omitted) (Kavanaugh, J., dissenting). In Judge Kavanaugh’s view, “[t]he only reason the current statute may not suffice under the Taxing Clause”—a question he did not ultimately decide—“is that Section 5000A arguably does not just incentivize certain kinds of lawful behavior but also mandates such behavior.” Id. at 48 (citing 26 U.S.C.A. 5000A(a)) (footnote omitted). To the extent that the provision means that “a citizen who does not maintain health insurance might be acting illegally,” Judge Kavanaugh reasoned, it might be outside Congress’s tax power. Id. at 48-49.

Even in Judge Kavanaugh’s view, however, a “minor tweak to the current statutory language would definitively establish the law’s constitutionality under the Taxing Clause.” Seven-Sky, 661 F.3d at 48. He suggested, for example, that

Congress might retain the exactions and payment amounts as they are but eliminate the legal mandate language in Section 5000A, instead providing something to the effect of: “An applicable individual without minimum essential coverage must make a payment to the IRS on his or her tax return in the amounts listed in Section 5000A(c).”

Id. at 49.

In fact, no “minor tweak to the current statutory language” (Seven-Sky, 661 F.3d at 48 (Kavanaugh, dissenting)) is required because Section 5000A as currently drafted is materially indistinguishable from Judge Kavanaugh’s proposed revision. Statutory provisions “must be read in * * * context and with a view to their place in the overall statutory scheme.” FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (quoting Davis v. Michigan Dep’t of the Treasury, 489 U.S. 803, 809 (1989)). When understood as an exercise of Congress’s power over taxation and read in the context of Section 5000A as a whole, subsection (a) serves only as the predicate for tax consequences imposed by the rest of the section. It serves no other purpose in the statutory scheme. Section 5000A imposes no consequence other than a tax penalty for a taxpayer’s failure to maintain minimum coverage, and it thus establishes no independently enforceable legal obligation. Indeed, Congress’s understanding that subsection (a) is not separate from the tax penalties associated with it is reflected in the reference later in Section 5000A to a “penalty * * * imposed under subsection (a).” 26 U.S.C.A. 5000A(e).

Even assuming there were ambiguity on the question whether subsection (a) establishes a free-standing obligation with independent consequences, any such ambiguity must be resolved in a manner that supports the constitutionality of the legislation, for two independent reasons. First, neither the Treasury Department nor the Department of Health and Human Services interprets Section 5000A as imposing a legal obligation on applicable individuals independent of its tax-penalty consequences; each instead views it as only a predicate provision for the imposition of tax consequences. Those are the two agencies to which Congress assigned authority to administer the minimum coverage provision, see, e.g., 26 U.S.C.A. 5000A(f)(1)(E) and (g)(1), and their views are thus entitled to substantial deference.

Second, to the extent the constitutionality of Section 5000A under Congress’s taxing power turns on whether subsection (a) creates an independent legal obligation, the statute must be read not to do so. The decision in New York, supra, is closely on point. There, the federal statute provided that “[e]ach State shall be responsible for providing * * * for the disposal of . . . low-level radioactive waste,” 505 U.S. at 151 (quoting 42 U.S.C. 2021c(a)(1)(A)) (emphasis added), and set forth three sets of consequences for States that failed to meet statutory deadlines, id. at 152-154. Notwithstanding the statute’s use of the term “shall,” and its imposition of “[p]enalties for failure to comply” with specified “[r]equirements,” 42 U.S.C. 2021e(e)(1) and (2), this Court “decline[d] petitioners’ invitation to construe § 2021c(a)(1)(A), alone and in isolation, as a command to the States independent of the remainder of the Act.” New York, 505 U.S. at 170. The Court observed that the statute “could plausibly be understood either as a mandate to regulate or as a series of incentives,” and that, under the petitioners’ view of the statute as a mandate, Section 2021c(a)(1)(A) “would clearly commandee[r] the legislative processes of the States by directly compelling them to enact and enforce a federal regulatory program.” Ibid. (quotation marks and citation omitted). The Court rejected that interpretation and chose to interpret the statute as an integrated set of incentives, despite the fact that the challenged provision was, on its face, a stand-alone requirement in a separate statutory subsection. Ibid. The Court should follow the same course here in the event it concludes that the constitutionality of the minimum coverage provision under the tax power turns on whether subsection (a) creates a free-standing obligation.

Hey, that’s what you get for reading a web site that is written by lawyers. But even if you didn’t follow all of that, I am sure you got the point: the Obama administration argued vigorously, and at considerable length, that the Obamacare mandate is a tax. For Obama and his surrogates to deny now that Obamacare is a tax, or to express surprise that the Supreme Court has so held, is beyond disingenuous. Of course, such dishonesty is par for the course for the president and his minions.

Waiting in the wings is a second question: was the administration’s argument that the mandate is constitutional under Congress’s power to levy taxes meritorious? Like most conservatives, I failed to pay enough attention to this part of the Democrats’ case. With hindsight, that was a mistake. The federal courts have been extraordinarily deferential to both Congress’s and the states’ use of their power to levy taxes, and to tailor them as they choose. Thus, the courts have refused to hear challenges to taxes on the ground, for example, that they are discriminatory.

Many conservatives, outraged by the Supreme Court’s decision in the Obamacare case, have denounced Justice Roberts, asserting that he made a “political” choice, that he was intimidated by the liberal press, and so on. I see no basis for any of these claims. Actually, of the nine justices who voted on Obamacare, Roberts strikes me as one justice–perhaps the only one–who did not vote on the basis of politics or ideology, but called the case exactly as he saw it, based on the Supreme Court’s long tradition of 1) deferring to Congress in matters of taxation, and 2) interpreting any law in a manner that makes it constitutional if it is “fairly possible” to do so. Roberts concluded that it is “fairly possible” to view the mandate as a valid use of Congress’s power to levy taxes and spend money. That seems like a reasonable conclusion under existing authorities, as I argued here.

Someday, I hope that the Supreme Court will roll back the powers of the federal government; or, failing that, the people will do so via constitutional amendment. But in the meantime, while the issues involved are close questions and could have gone either way, the Court’s conclusion that Obamacare is constitutional has a reasonable basis in existing precedents and traditions. Conservatives, in my view, should stop attacking the Court and get back to attacking Obamacare–a national socialist approach to health care–as horrible policy.

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