Taxes: Where Political and Constitutional Expediency Collide

I’ve been out of pocket from the political realm for a week and a half, but President Obama’s claim that a health insurance mandate is not a tax strikes me as marginally good politics and absolutely terrible lawyering.  I think Jason Kuznicki (also here) and by extension Will, are absolutely, 100% correct that an individual mandate is necessarily characterized as a tax, and a regressive one at that.  But that’s not the interesting thing to me here. 

Accepting for the moment that it is only debatable – rather than certain – whether an individual mandate is a tax, Obama’s attempts to characterize the mandate as something else are hardly a make-or-break argument for passage of health care reform.  Health care reform is not going to pass or fail to pass because people think the mandate should be characterized as a “tax” or merely as an attempt to get the uninsured to “take responsibility to get health insurance.”  The people affected, whether you characterize it as a tax or as something else, are going to be the same people; the people worried about being affected are going to be the same people; the costs that the mandate will impose on them will be the same.  People for the most part get this.  Sure, it may be mildly politically embarassing for Obama to sign a tax increase on a subset of the American middle class in contradiction of his campaign pledge, but if the resulting bill is as good as Obama wants voters to think, it’s tough to see him paying much of a price at the polls for it. 

But by claiming that the mandate is not a tax, Obama undermines the single strongest argument that the mandate is constitutional.  Despite my opposition to most of the pending health care proposals, in September I criticized arguments that the mandate would be unconstitutional, writing:

There is also an even more fundamental flaw here – the interstate commerce clause doesn’t even apply to the extent that the mandate is accurately characterized as a “tax.”  Article I, Section 8 of the Constitution provides Congress with the authority to “lay and collect taxes…. and provide for the common defense and general welfare of the United States.” 

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[Proponents of the unconstitutionality argument] offer no authority whatsoever for the proposition that a “‘tax’ that falls exclusively on anyone who is uninsured is a penalty beyond Congress’s authority.”  It appears that their basis for this claim is from Bailey v. Drexel Furniture Co. (The Child Labor Tax Case), a 1922 case that prohibited Congress from imposing a tax of 10 percent on all profits earned by any company that employed child labor during the course of a year.  The problem is that subsequent precedent severely restricted the value of this case, holding that taxes that although Congress may not use the taxation power purely to penalize activities that it otherwise could not regulate, “unless there are provisions extraneous to any tax need, courts are without authority to limit the exercise of the taxing power.” US v. Kahriger (1953).

It is difficult to see how an individual health insurance mandate in the form of a tax would be “extraneous to any tax need.” Indeed, it is justified at least in part due to a need to require the uninsured to pay for the services they actually use.  It is also neither intended nor expected that the tax will eliminate the existence of the uninsured – we are not, for instance, talking about a tax of tens of thousands of dollars per year of being uninsured.  To be sure, the goal is universal coverage, but no one expects that an individual mandate enforced by a tax of a thousand or so dollars a year will remotely achieve that goal.

In other words, if the mandate is accurately characterized as a tax, then the mandate is constitutional under Congress’ taxation powers.  End of story.  Sure, you may get Justice Thomas and Justice Scalia arguing that this “tax” is merely an impermissible attempt to circumvent states’ rights under the guise of a tax, but in light of the mandate’s role in the overarching scheme of health care reform (which, broadly speaking, is clearly within the federal government’s purview under post-New Deal constitutional interpretations) this would not be a view that would have any chance of garnering five votes.

But Obama’s very public statements that the mandate is not a tax directly undermine this very strong legal argument.  This is doubly true when you consider that Obama is not only President, but a very public advocate of pretty much anything that has a chance of passing Congress in the health care reform arena.  Although Justice Scalia isn’t much a fan of discerning legislative intent (an area where I find him quite persuasive, by the way), much of the rest of the Court is, and given Obama’s role in health care reform, it’s difficult to conceive of Justice Kennedy ignoring President Obama’s vociferous denials that the mandate is not a tax.  In short, the President’s strongly worded denials make it far more difficult for a Supreme Court justice to conclude that the mandate is merely a tax, and thus virtually a per se proper exercise of Congressional authority.

My opposition notwithstanding, I suspect that even if the mandate is not a “tax” within the meaning of the Constitution, it would still withstand Constitutional muster under post-New Deal case law.  But it would be a much closer issue, particularly in light of the apparent death of the public option (for real this time!).  Such an argument would necessarily hinge on Congressional authority to regulate economic activity under the interstate commerce clause, but there is a counterargument to be made that a decision not to purchase something cannot be an “inherently economic activity” since it involves no activity whatsoever.  Moreover, it is possible to distinguish a health insurance mandate from Social Security or Medicare Part A because the mandates in those two programs require participation in government-run programs, whereas with the death of the public option, the health insurance mandate will require participation in privately-run insurance programs.  I don’t think this distinction is enough to make the mandate unconstitutional, but it is at least arguable that it is. 

Certainly, on a Constitutional level, a health insurance mandate would not at all be analagous to car insurance mandates as President Obama argues.  Car insurance mandates are a function of state governments and thus have very little to do with the interstate commerce clause.  But even if car insurance mandates were a function of federal law, the analogy quite obviously fails when you consider that purchasing a car is clearly an “inherently economic activity” that would likely make it regulable by the federal government.  One need not purchase car insurance if one does not purchase a car, but under a health insurance mandate, one would be required to purchase health insurance whether or not one actually used health services. 

Again, I think ultimately an individual health insurance mandate would likely pass Constitutional muster under post-New Deal precedent whether or not it is characterized as a tax.  The decision not to purchase health insurance clearly has an aggregate effect on interstate commerce in a way that even cases like Raich, where the Court upheld a federal law’s applicability to medical marijuana dispensaries even though the convoluted alleged effect on interstate commerce was merely a post-hoc rationalization for the law, rather than the law’s actual purpose, as would be the case with an individual health insurance mandate.  But it would be a much closer issue than if the mandate were deemed a tax, and there would be enough of a distinction with existing precedent that it would at least be possible for a Justice Kennedy to divine a rule under which the mandate is unconstitutional in a way that the legislation in Raich was not.

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17 thoughts on “Taxes: Where Political and Constitutional Expediency Collide

  1. Maybe Obama is being clever… and is hoping the individual mandate, which the insurance companies like (and which the left, generally, does not), gets thrown out by the courts. (Does the bill contain any provisions wherein if the idividual mandate is held to be unconstitutional, all of health care reform is likewise discarded?)
    The Kossacks are screaming bloody murder about the whole thing, but I think the Pres, for all his faults, is shrewder than the whole lot of ’em. :)

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    • ” (Does the bill contain any provisions wherein if the idividual mandate is held to be unconstitutional, all of health care reform is likewise discarded?)”

      I don’t know – as I said, I’ve been out of pocket for the last week and half. But without some sort of mechanism to strongly incentivize the purchase of insurance, whatever minimal good the proposed reforms would actually do goes out the window. The mandates are that mechanism.

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      • One thing they could have done, I suppose, is structure it AS a tax–a poll tax (or even a income surtax) which insurance premiums are 100% deductible from.

        I was under the impression that the purpose of the mandate is to manipulate the risk pool–to make sure that “choice” buyers (the ones who don’t think they need insurance) get it anyway, in order to subsidize the folks who aren’t healthy; not to simply encourage good behavior. Big Insurance would be most unhappy were they forced to only cover high-risk patients, without having low-risk patience to balance things out.

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        • The mandate is a risk pool adjustment that’s also supposed to make things like guaranteed issue, spread and MLR limits palatable for insurers. Otherwise they’d just jack up premiums for those people who really need and can’t get health insurance and get the government to pass subsidies for those. (And do you think there’d be a lot of crying of bloody murder there from the Kossacks if that ever happened? Oh yeah…the Administration I think was flirting around with letting something like that happen so that congress would have to revisit the issue and fix it later)

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  2. The thing is the word “tax” has become so loaded with meaning. For some it is a curse word that implies quasi tyranny. Pol’s don’t want to use the word because is has been demonized and obsessed over to the point where it is hard to have a serious discussion about taxes.

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  3. Mark-
    I wonder why you view the tax as regressive, given the subsidies? I assume you don’t believe the subsidy structure is as progressive as it ought to be. But, assuming that the subsidies are broadly progressive, I suppose there is still an argument for the folks clustered near the end point of subsidies (400% of FPL). But this wouldn’t make the entire regime regressive.
    [I actually oppose mandates without a public backstop, so I am sort of playing a bit of Devil’s Advocate here.]

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  4. Clearly Obama will say anything to get this legislation passed. Just look at his recent statements that the US will go bankrupt unless the health care legislation is passed.

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  5. Here’s a question, and not an entirely facetious one, I hope: Is a government-enforced tithe a tax?

    Such creatures hardly exist anymore, but they used to be common in Europe. In a compulsory tithe, one must pay a sum (perhaps in kind) directly to the Church. The state makes sure it happens, but it doesn’t get to manage the proceeds.

    If you answer is “yes,” that this setup is a tax, then clearly it is an unconstitutional tax, thanks to the First Amendment.

    But what about a forced transfer to one (non-religious) corporation, or a particular subset of them? And what if it’s a forced transfer that other industries, those outside the insurance sector or those uncompliant with federal regulations, don’t get to benefit from? I would suggest that these are also unconstitutional, but then, I realize that this view wouldn’t get five votes on the Supreme Court.

    My view of the “general welfare” clause is exceedingly narrow compared to the consensus view today. I would say, for example, that this clause certainly does not empower Congress to advance the particular welfare of individual corporations or favored industries. It only empowers Congress to do those things that would benefit everyone about equally. This should be a real test, not a toothless platitude, in our legal thinking.

    I am also strongly convinced that Wickard v. Filburn was wrongly decided. Given that consideration, a compulsory transfer to subsidize a single industry is obviously unconstitutional for a second reason.

    As I said, though, I realize I’m in the minority here.

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