In perhaps the most tortured decision in modern history, the Supreme Court upheld the constitutionality of the Affordable Care Act’s (ACA) individual mandate. In doing so, the court granted Congress virtually limitless regulatory power under the taxing clause. While Congress cited the Commerce Clause as its constitutional authority for passing the law, Chief Justice John Roberts held that construing “the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to Congressional authority.” It would “justify a mandatory purchase to solve almost any problem.”
Instead, the court upheld the individual mandate as a proper use of congressional taxing power. The court accepted the government’s position that the mandate can be regarded as establishing a condition - not owning health insurance - which triggers a tax to be paid to the IRS. Under this theory, the mandate is not a legal command to buy insurance enforced by a penalty, but “just another thing the government taxes, like buying gasoline or earning money.” According to the court, the former would be an unconstitutional expansion of regulatory power under the Commerce Clause, while the latter is a constitutional use of the taxing power.
Remarkably, Roberts conceded that the “most straightforward reading of the mandate is that it commands individuals to purchase insurance. After all, it states that individuals ‘shall’ maintain health insurance.” The word “penalty” is used eighteen times throughout the legislation to describe the fee assessed for non-compliance with the mandate, and minimum health coverage is repeatedly referenced as a “requirement.” The Statute reads in part “[i]f. . . an applicable individual. . . fails to meet the requirement of [minimum coverage] . . . there is hereby imposed. . . a penalty.”
Despite the clear statutory language, together with the obvious legislative intent, Justice Roberts strains to reason that the failure to purchase health insurance is not made unlawful by the Act. Rather, the government is simply inducing or nudging people to purchase insurance. The “shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance.” The court further reasoned that the fee imposed is of a trivial nature, inconsistent with a penalty. Of course, Roberts neglected to point out failure to pay the tax could result in criminal penalties and even imprisonment.
The court reasoned that taxes which seek to influence behavior are nothing new. Examples cited included tariffs on imported goods and taxes on cigarettes. “Every tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed.” Remarkably, in each of the examples cited by the Court, there was an activity which subjected the individual to taxation.
Justice Roberts was clearly concerned with the potential for abuse in upholding congressional regulation of inactivity under the Commerce Clause, finding that Congress would be permitted to “reach beyond the natural extent of its authority, ‘everywhere extending the sphere of its activity and drawing all power into its impetuous vortex.’” The obvious question then becomes, why is it the court has no similar concerns when it comes to granting virtually the same regulatory power under the taxing clause? Roberts even asks the question himself: “If it is troubling to interpret the Commerce Clause as authorizing Congress to regulate those who abstain from commerce, perhaps it should be similarly troubling to permit Congress to impose a tax for not doing something.”
His response to this question is woefully lacking. First, Roberts noted that the Constitution expressly provides for the power to tax inactivity, referring to a capitation tax, which is a tax that everyone must pay simply for existing. However, capitation taxes must be apportioned among the states consistent with the census. As such, the mandate penalty cannot be characterized as a capitation tax.
Second, Roberts noted that “tax incentives already promote for example, purchasing homes and professional education.” True, but we don’t mandate that everyone buy a house or pay a fine to the IRS.
Finally, Roberts argued that Congressional power to tax has been limited by the Supreme Court. The Court cites U.S. v. Butler and Bailey v. Drexel Furniture for the proposition that these limits have been policed aggressively, “invalidating punitive exactions (fees) obviously designed to regulate behavior.” Roberts went on to note that “[t]here comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty with the characteristics of regulation and punishment.”
In dissent, Justice Scalia countered that “there is simply no way, ‘without doing violence to the fair meaning of the words used’ to escape what Congress enacted: a mandate that individuals maintain minimum essential coverage, enforced by a penalty.” He went on to note the clear distinction between what has been found to be a tax versus a penalty. “A tax is an enforced contribution to provide for the support of government; a penalty. . . is an exaction imposed by statute as punishment for an unlawful act.” If the mandate penalty fully achieved its goal of getting everyone insured, the tax revenue would be zero. As such, it is clear that the purpose of the tax was not to raise revenue, but to penalize those who fail to act as the government sees fit.
Scalia further noted that the Supreme Court has never in its history found that a penalty imposed for violation of the law to be so trivial as to be in effect a tax. “We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing powers- even when the statute itself calls it a tax, much less when (as here) the statute repeatedly calls it a penalty. When an act adopts the criteria of wrongdoing and then imposes a monetary penalty as the principal consequence on those who transgress its standard it creates a regulatory penalty, not a tax.”
In the end, it is clear Justice Roberts wanted to split the baby. He wanted to restrain ever expanding Congressional power under the Commerce Clause, while preserving the ACA. Why did he jump through such hoops to find some basis to uphold the law? Perhaps we’ll never know the answer. But we do know this: Any gain in restraining Congress’ power under the Commerce Clause was offset by the expansion of powers under the taxing clause. Congress may now compel us to do virtually anything they deem in the national interest under the taxing power.
There is no clearly defined limiting principle articulated in the decision. Justice Roberts evaded this determination in noting that “we need not here decide the precise point at which an exaction (fee) becomes so punitive that the taxing power does not authorize it.” You can bet future Congresses will be testing those limits, and our liberty will be the exaction.