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July 5, 2012

Judicial Tax Writing

Frank R. Goldstein

Why was everyone caught so flat- footed when the Supreme Court of The United States ruled on the constitutionality of the Affordable Care Act? No one saw it coming: the mandate to purchase insurance was held to be constitutional as a legitimate exercise of Congress’s power to tax.


There are three reasons why everyone was surprised. First, supporters of the insurance mandate assured the American people that the mandate was not a tax. Second, the administration’s principal justification for the mandate in argument before the court was that the mandate was a legitimate penalty enacted pursuant to the commerce clause of the Constitution. And, third, the mandate did not fit the requirements for being a tax utilized previously by the court.


When the act was enacted, President Barack Obama, then-Speaker of the House Nancy Pelosi, and everyone else associated with selling it told the American people that the requirement to purchase insurance was not a tax. When the case was heard before the Supreme Court, the argument that the mandate was part of Congress’s power to tax was made almost in desperation, a throwing against the wall in hopes that it would stick.


The mandate in the act that requires insurance to be purchased or a payment be made to the government has to be one of two things: either it is a “penalty” or a “tax.” What difference does it make? The difference is that the Supreme Court held that the mandate is unconstitutional as a penalty.


The government offered two theories to justify the mandate as a penalty: the commerce clause and the necessary and proper clause. The thrust of the government’s case was that the mandate was justified under the commerce clause. The necessary and proper clause was a fall-back argument. If all else failed, the power to tax was the last resort argument, which the government had to have been reluctant to make in view of the president’s prior assurances that the mandate was not a tax.


But the government lost the commerce clause argument. Chief Justice John Roberts’ opinion states: “That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it.” As for the necessary and proper clause, the court held that even if the mandate were “necessary,” it was not a “proper” means for achieving its goal.


Concerning the tax argument, there were more serious problems than the administration’s prior statements. First, the court had never before designated a provision as a “tax” when it is to be paid only in response to a violation of law. That type of exaction was always considered a “penalty.”


A “tax,” on the other hand, is a contribution that is required to be paid to support the government. Indeed, there had been instances when the court found that an item that called itself a tax was so burdensome that it was a penalty. But the reverse was never true. Never had the court found that a payment required for violating a law was – in fact – a tax and not a penalty.


The act requires minimum insurance coverage and commands that it “shall” be purchased. The act states that failure to meet that “requirement” results in the imposition of a “penalty.” Nevertheless, the court’s majority opinion says that it is a tax!


This brings us to the next major issue. The court had never declared a provision to be a tax when it called itself a penalty. Therefore, the court’s majority opinion in upholding the mandate disregarded precedent. A provision may now be deemed a tax, not a penalty, even though it is paid only when a law is violated. And the provision may be called a tax even though it calls itself a penalty. In other words, up is down and down is up!


And what is the limit of this taxing power? During oral argument, much was made of the hypothetical question as to whether, since broccoli is good for you and makes you healthy, someone could be made to purchase broccoli under the commerce clause. Now, the question is, can you be taxed if you do not purchase broccoli? The Affordable Care Act opinion provides no guidance. No limit is suggested. One is left with the question, if this provision is a legitimate tax, what is not?


Was this a good opinion or a bad one? Charles Lane, writing in The Washington Post on July 1 considers the opinion a brilliant statesman-like “compromise,” which averted a divisive crisis in the country along partisan lines. He also thinks the decision has given the Chief Justice “street cred” (my term). It will enable Justice Roberts to side with the conservative wing of the court in important cases next term, including one on affirmative action.


Others agree that taking the position he did, Justice Roberts did much to enhance the reputation of the court, which allegedly had been tarnished in recent years by cases like Bush v. Gore and Citizens United, and by President Obama’s verbal attacks on the court.


The opinion may be politically correct and legally questionable. Perhaps credit should be given to the Chief Justice for summing it up best of all. “It is not our job,” he said in the court’s opinion, “to protect the people from the consequences of their political choices.”


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