·
· OPINION
<http://online.wsj.com/public/search?article-doc-type=%7BCommentary+%28U.S.%29%7D&HEADER_TEXT=commentary+%28u.s.>
· APRIL 29, 2010
The Insurance Mandate in Peril
/First Congress said it was a regulation of commerce. Now it's
supposed to be a tax. Neither claim will survive Supreme Court
scrutiny./
http://online.wsj.com/article/SB10001424052748704446704575206502199257916.html
By RANDY E. BARNETT
<http://online.wsj.com/search/term.html?KEYWORDS=RANDY+E.+BARNETT&bylinesearch=true>
A"tell" in poker is a subtle but detectable change in a player's
behavior or demeanor that reveals clues about the player's assessment of
his hand. Something similar has happened with regard to the insurance
mandate at the core of last month's health reform legislation. Congress
justified its authority to enact the mandate on the grounds that it is a
regulation of commerce. But as this justification came under heavy
constitutional fire, the mandate's defenders changed the argument---now
claiming constitutional authority under Congress's power to tax.
This switch in constitutional theories is a tell: Defenders of the bill
lack confidence in their commerce power theory. The switch also comes
too late. When the mandate's constitutionality comes up for review as
part of the state attorneys general lawsuit, the Supreme Court will not
consider the penalty enforcing the mandate to be a tax because, in the
provision that actually defines and imposes the mandate and penalty,
Congress did not call it a tax and did not treat it as a tax.
The Patient Protection and Affordable Care Act (aka ObamaCare) includes
what it calls an "individual responsibility requirement" that all
persons buy health insurance from a private company. Congress justified
this mandate under its power to regulate commerce among the several
states: "The individual responsibility requirement provided for in this
section," the law says, ". . . is commercial and economic in nature, and
substantially affects interstate commerce, as a result of the effects
described in paragraph (2)." Paragraph (2) then begins: "The requirement
regulates activity that is commercial and economic in nature: economic
and financial decisions about how and when health care is paid for, and
when health insurance is purchased."
In this way, the statute speciously tries to convert inactivity into the
"activity" of making a "decision." By this reasoning, your "decision"
not to take a job, not to sell your house, or not to buy a Chevrolet is
an "activity that is commercial and economic in nature" that can be
mandated by Congress.
It is true that the Supreme Court has interpreted the Commerce Clause
broadly enough to reach wholly intrastate economic "activity" that
substantially affects interstate commerce. But the Court has never
upheld a requirement that individuals who are doing
nothing /must// /engage in economic activity by entering into a
contractual relationship with a private company. Such a claim of power
is literally unprecedented.
Since this Commerce Clause language was first proposed in the Senate
last December, Democratic legislators and law professors alike breezily
dismissed any constitutional objections as preposterous. After the bill
was enacted, critics branded lawsuits by state attorneys general
challenging the insurance mandate as frivolous. Yet, unable to produce a
single example of Congress using its commerce power this way, the
defenders of the personal mandate began to shift grounds.
On March 21, the same day the House approved the Senate version of the
legislation, the staff of the Joint Committee on Taxation released a
157-page "technical explanation" of the bill. The word "commerce"
appeared nowhere. Instead, the personal mandate is dubbed an "Excise Tax
on Individuals Without Essential Health Benefits Coverage." But while
the enacted bill does impose excise taxes on "high cost,"
employer-sponsored insurance plans and "indoor tanning services," the
statute never describes the regulatory "penalty" it imposes for
violating the mandate as an "excise tax." It is expressly called a
"penalty."
This shift won't work. The Supreme Court will not allow staffers and
lawyers to change the statutory cards that Congress already dealt when
it adopted the Senate language.
In the 1920s, when Congress wanted to prohibit activity that was then
deemed to be solely within the police power of states, it tried to
penalize the activity using its tax power. In /Bailey v. Drexel
Furniture/ (1922) the Supreme Court struck down such a penalty saying,
"there 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."
Although the Court has never repudiated this principle, the Court now
interprets the commerce power far more broadly. Thus Congress may
regulate or prohibit intrastate economic activity directly without
invoking its taxation power. Yet precisely because a mandate to engage
in economic activity has never been upheld by the Court, the tax power
is once again being used to escape constitutional limits on Congress's
regulatory power.
Supporters of the mandate cite /U.S. v. Kahriger// /(1953), where the
Court upheld a punitive tax on gambling by saying that "[u]nless there
are provisions extraneous to any tax need, courts are without authority
to limit the exercise of the taxing power." Yet the Court
in /Kahriger// /also cited/Bailey/ with approval. The key to
understanding /Kahriger// /is the proposition the Court there rejected:
"it is said that Congress, under the /pretense// /of exercising its
power to tax has attempted to penalize illegal intrastate gambling
through the regulatory features of the Act" (emphasis added).
In other words, the Court in /Kahriger// /declined to look behind
Congress's assertion that it was exercising its tax power to see whether
a measure was really a regulatory penalty. As the Court said
in /Sonzinsky v. U.S./ (1937), "[i]nquiry into the hidden motives which
may move Congress to exercise a power constitutionally conferred upon it
is beyond the competency of courts." But this principle cuts both ways.
Neither will the Court look behind Congress's inadequate assertion of
its commerce power to speculate as to whether a measure was "really" a
tax. The Court will read the cards as Congress dealt them.
Congress simply did not enact the personal insurance mandate pursuant to
its tax powers. To the contrary, the statute expressly says the mandate
"regulates activity that is commercial and economic in nature." It never
mentions the tax power and none of its eight findings mention raising
any revenue with the penalty.
Moreover, while inserting the mandate into the Internal Revenue Code,
Congress then expressly severed the penalty from the normal enforcement
mechanisms of the tax code. The failure to pay the penalty "shall not be
subject to any criminal prosecution or penalty with respect to such
failure." Nor shall the IRS "file notice of lien with respect to any
property of a taxpayer by reason of any failure to pay the penalty
imposed by this section," or "levy on any such property with respect to
such failure."
In short, the "penalty" is explicitly justified as a penalty to enforce
a regulation of economic activity and not as a tax. There is no
authority for the Court to recharacterize a regulation as a tax when
doing so is contrary to the express and actual regulatory purpose of
Congress.
So defenders of the mandate are making yet another unprecedented claim.
Never before has the Court looked behind Congress's unconstitutional
assertion of its commerce power to see if a measure could have been
justified as a tax. For that matter, never before has a "tax" penalty
been used to mandate, rather than discourage or prohibit, economic activity.
Are there now five justices willing to expand the commerce and tax
powers of Congress where they have never gone before? Will the Court
empower Congress to mandate any activity on the theory that a "decision"
not to act somehow affects interstate commerce? Will the Court accept
that Congress has the power to mandate any activity so long as it is
included in the Internal Revenue Code and the IRS does the enforcing?
Yes, the smart money is always on the Court upholding an act of
Congress. But given the hand Congress is now holding, I would not bet
the farm.
/Mr. Barnett is a professor of constitutional law at Georgetown and the
author of "Restoring the Lost Constitution: The Presumption of Liberty"
(Princeton, 2005)./
http://volokh.com/2010/07/18/so-much-for-frivolous-commerce-clause-challenge-to-individual-mandate/
So Much For the Commerce Clause Challenge to Individual Mandate
Being "Frivolous"
<http://volokh.com/2010/07/18/so-much-for-frivolous-commerce-clause-challenge-to-individual-mandate/>
Randy Barnett <http://volokh.com/author/randy/> . July 18, 2010 11:45 am
Remember when the Commerce Clause challenge to the individual insurance
mandate was dismissed by all serious and knowledgeable constitutional
law professors and Nancy Pelosi as "frivolous"? Well, as Jonathan notes
below, the administration is now apparently telling the New York Times
that the individual insurance "requirement" and "penalty" is really an
exercise of the Tax Power of Congress.
Administration officials say the tax argument is a linchpin of their
legal case in defense of the health care overhaul and its individual
mandate, now being challenged in court by more than 20 states and
several private organizations.
Let that sink in for a moment. If the Commerce Clause claim of power
were a slam dunk, as previously alleged, would there be any need now to
change or supplement that theory? Maybe the administration lawyers
confronted the inconvenient fact that the Commerce Clause has never in
history been used to mandate that all Americans enter into a commercial
relationship with a private company on pain of a "penalty" enforced by
the IRS. So there is no Supreme Court ruling that such a claim of power
is constitutional. In short, this claim of power is both factually and
judicially unprecedented.
Remarkably, and to its credit, the NYT informs its readers about 2 key
facts that pose a problem with the tax theory--and without even
attributing these to the measure's opponents.
Congress anticipated a constitutional challenge to the individual
mandate. Accordingly, the law includes 10 detailed findings meant to
show that the mandate regulates commercial activity important to the
nation's economy. Nowhere does Congress cite its taxing power as a
source of authority.
And
The law describes the levy on the uninsured as a "penalty" rather than
a tax.
This is a sign that NYT's reporter Robert Pear is on the ball. But wait!
There is more that is not in the article.
The Supreme Court has defined a tax as having a revenue raising
purpose--a requirement that is usually easy to satisfy. But in the
section of the act that specifically identifies all of its revenue
raising provisions for purposes of scoring its costs (which is a big
deal), the insurance mandate "penalty" goes unmentioned.
Unlike any other tax, according to the act, the failure to pay the
penalty "shall not be subject to any criminal prosecution or penalty
with respect to such failure." Nor shall the IRS "file notice of lien
with respect to any property of a taxpayer by reason of any failure to
pay the penalty imposed by this section," or "levy on any such property
with respect to such failure."
The article reports this response from the Justice Department:
The Justice Department brushes aside the distinction, saying "the
statutory label" does not matter. The constitutionality of a tax law
depends on "its practical operation," not the precise form of words used
to describe it, the department says, citing a long line of Supreme
Court cases.
Now there are cases that say (1) when Congress does not invoke a
specific power for a claim of power, the Supreme Court will look for a
basis on which to sustain the measure; (2) when Congress does invoke its
Tax power, such a claim is not defeated by showing the measure would be
outside its commerce power if enacted as a regulation (though there are
some older, never-reversed precedents pointing the other way), and (3)
the Courts will not look behind a claim by Congress that a measure is a
tax with a revenue raising purpose.
But I have so far seen no case that says (4) when a measure is expressly
justified in the statute itself as a regulation of commerce (as the NYT
accurately reports), the courts will look look behind that
characterization during litigation to ask if it /could have been/
justified as a tax, or (5) when Congress fails to include a penalty
among all the "revenue producing" measures in a bill, the Court will
nevertheless impute a revenue purpose to the measure.
Now, of course, the Supreme Court can always adopt these two additional
doctrines. It could decide that any measure passed and justified
expressly as a regulation of commerce is constitutional if it could have
been enacted as a tax. But if it upholds this act, it would also have to
say that Congress can assert any power it wills over individuals so long
as it delegates enforcement of the penalty to the IRS. Put another way
since every "fine" collects money, the Tax Power gives Congress
unlimited power to fine any activity or, as here, inactivity it wishes!
(Do you doubt this will be a major line of questioning in oral argument?)
But it gets still worse. For calling this a tax does not change the
nature of the "requirement" or mandate that is enforced by the
"penalty." ALL previous cases of taxes upheld (when they may have
exceeded the commerce power) involved "taxes" on conduct or activity.
None involved taxes on the /refusal to engage in conduct/. In short,
none of these tax cases involved using the Tax Power to impose a /mandate/.
So, like the invocation of the Commerce Clause, this invocation of the
Tax Power is factually and judicially unprecedented. It is yet another
unprecedented claim of Congressional power. Only this one is even more
sweeping and dangerous than the Commerce Clause theory.
I responded to this theory in the Wall Street Journal back in April, in
an op-ed the editors entitled The Insurance Mandate In Peril
<http://online.wsj.com/article/SB10001424052748704446704575206502199257916.html>.
Here is a key passage from my op-ed:
Supporters of the mandate cite /U.S. v. Kahriger/ (1953), where the
Court upheld a punitive tax on gambling by saying that "[u]nless there
are provisions extraneous to any tax need, courts are without authority
to limit the exercise of the taxing power." Yet the Court in /Kahriger
/also cited Bailey with approval. The key to understanding /Kahriger /is
the proposition the Court there rejected: "it is said that Congress,
under the pretense of exercising its power to tax has attempted to
penalize illegal intrastate gambling through the regulatory features of
the Act" (emphasis added).
In other words, the Court in /Kahriger /declined to look behind
Congress's assertion that it was exercising its tax power to see whether
a measure was really a regulatory penalty. As the Court said in
/Sonzinsky v. U.S/. (1937), "[i]nquiry into the hidden motives which may
move Congress to exercise a power constitutionally conferred upon it is
beyond the competency of courts." But this principle cuts both ways.
Neither will the Court look behind Congress's inadequate assertion of
its commerce power to speculate as to whether a measure was "really" a
tax. The Court will read the cards as Congress dealt them.
My piece is not behind a subscription wall so interested readers can
read (or reread) the whole thing.
Now the usual caveat. Just because the constitutional challenge to the
health insurance mandate is not frivolous does not mean it will prevail.
*The odds are always that the Supreme Court will uphold an act of
Congress.* Given the wording of the Act, however, the implications of
doing so using the Tax Power are so sweeping and dangerous that I doubt
a majority of the Court would adopt this claim of power on these facts.
But the argument is far from over.
-- Jon
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