The Health-Care Mandate Is Clearly a Tax—and Therefore Constitutional

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The mandate fits the textbook definition of a tax: it raises revenue, serves the general welfare, and it is not a criminal penalty in disguise. So why won't Obama call it that?

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Editor's note: Jack Balkin published this post in May. On June 28, the Supreme Court upheld the Affordable Care Act, finding that the mandate is in fact a tax.

Throughout the constitutional debate over the Affordable Care Act, most observers have assumed that the key question would be whether the individual mandate is a proper exercise of Congress's powers to regulate interstate commerce. But there has always been a second argument, largely neglected -- Congress has the power to pass the individual mandate as a tax. And that argument offers an easy way to uphold the Affordable Care Act without delving into the metaphysics of broccoli.

In fact, the individual mandate is a tax. The mandate is an amendment to the Internal Revenue Code, and it is calculated based on a percentage of adjusted gross income or a fixed amount, whichever is larger. Starting in 2014, it will be collected on your form 1040 just like your other taxes.

Opponents of the ACA have tried to argue that Congress's declaration of responsibility to purchase health insurance is somehow separate from the tax that enforces it. But "the idea that the mandate is something separate," Chief Justice John Roberts remarked on the first day of oral arguments, "from whether you want to call it a penalty or tax just doesn't seem to make much sense. . . . what happens if you don't file the mandate on your tax return? And the answer is nothing."

From the very beginning of the litigation over the ACA, the Justice Department has made the tax power argument. It is the argument favored by many legal academics, including yours truly. (I joined an amicus brief devoted solely to the tax issues). But it has gotten no love from the federal courts. Only one judge on the Fourth Circuit Court of Appeals spoke in favor of the argument, and even that court actually dismissed the case on a different ground based on the Tax Anti-Injunction Act (about which more later).

And yet the tax argument is remarkably simple. Start with the Constitution's text. Congress's enumerated powers in Article I, section 8 begin with the General Welfare Clause, which gives the federal government the power "[t]o lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defence and general welfare of the United States."

Note that Congress doesn't have to call something a tax for it to fall within this power. The Constitution itself uses no less than five different words for taxes: taxes, duties, imposts, excises, and -- in Article I, section 7 -- "revenue."

Revenue, it turns out, is the key idea. To fall within the tax power, a law must raise revenue. And the mandate certainly does. The Congressional Budget Office estimated that the mandate will have raised $17 billion by 2019, and that starting in 2017 it will raise approximately $4 billion a year. In fact, it doesn't take very much revenue to make a tax constitutional. In 1937 the Supreme Court upheld a tax designed to regulate firearms dealers that raised $5,400 in 1934, only about $88,000 in today's dollars. That's a lot less than 4 billion a year.

At oral argument Justice Ruth Bader Ginsburg worried that eventually the mandate wouldn't raise any revenue if everybody bought health insurance. But the mandate isn't actually designed to achieve 100 percent compliance. The amount of the tax is set at roughly the average annual premium for health insurance in the United States, meaning that a fair number of people will decide it is cheaper just to pay the tax.

It also doesn't matter that the real purpose of the tax is to regulate behavior. Lots of taxes are designed to do just that -- think about taxes on polluters as an example -- and federal taxes on drugs are designed to keep people from buying or selling them. In 1950, the Court upheld a tax on marijuana, explaining that "a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. The principle applies even though the revenue obtained is obviously negligible . . . or the revenue purpose of the tax may be secondary." "Nor does a tax statute necessarily fall," the Court added, "because it touches on activities which Congress might not otherwise regulate" under its other enumerated powers. So even if the mandate is beyond the commerce power, it can still be a constitutional exercise of the power to tax and spend for the general welfare.

The second big idea in the Constitution's text is that a tax must "provide for the common defence and general welfare" of the nation. The doctrinal question is whether Congress could reasonably conclude that the tax promotes the general welfare. The answer to that question is easy. Better health coverage for more Americans promotes the general welfare. Congress wanted to prevent insurers from denying coverage to people with preexisting conditions and from imposing lifetime caps on coverage. Congress decided that the best way to fund these new requirements was to increase the national risk pool by bringing in new participants. And those who don't buy insurance but pay the tax instead will help pay for new federal health insurance subsidies in the Act.

There are two other limits to the taxing power. First, a tax can't violate individual rights. In 1994 the Court struck down a Montana tax that was a thinly veiled attempt to get around the Fifth Amendment's Double Jeopardy Clause. Second, a valid tax cannot be a criminal penalty in disguise. In 1922 the Court struck down a tax that assessed 10 percent of a year's profits on any company that employed a single underage worker for a single day. The Court held that this was a criminal penalty in disguise because it was completely disproportionate. That can't be said of the mandate. The tax is pegged to the average annual insurance premium. And Congress also made sure that the mandate can't be enforced by criminal penalties or tax liens. In fact, the only way the IRS can enforce the mandate is by reducing a taxpayer's refund.

At oral argument, Paul Clement suggested that the tax might be unconstitutional under Article 1 Section 9, which states that "direct" taxes must be apportioned to state population. If a tax is a "direct tax," the total amount of revenue collected each year from each state must be proportional to each state's population. Few taxes can meet this standard, but most federal taxes are not direct. Direct taxes are limited to taxes on the ownership of real or personal property, or "head" taxes, which are taxes that are assessed on people no matter what they do. The mandate is not a tax on ownership of property. And it is not a head tax, because it is very easy to get out of paying it. All you have to do is buy health insurance or take a job in which your employer provides health benefits.

In sum, the constitutional argument for the mandate as a tax is pretty straightforward: The mandate raises revenue, it serves the general welfare, it does not violate fundamental rights, it is not a direct tax, and it is not a criminal penalty in disguise. In some ways the argument is much simpler than the commerce clause analysis. Many legal academics -- including my Yale colleagues Akhil Amar and Bruce Ackerman -- think that it is the easiest way to resolve the case. And if the Court used the tax power theory, it would not have to decide whether Congress's commerce power extends to mandates -- for cars, for broccoli, or for anything else. Even mandate opponents like Georgetown University Law Professor Randy Barnett have long conceded that whether or not Congress can make you engage in commerce, it can surely make you pay your taxes.

***

If the argument has all these advantages, why hasn't it gotten more traction? The reasons are a mixture of political calculation and legal strategy.

First, political calculation. Decades of anti-tax agitation by Republicans, as well as President Obama's campaign pledge not to raise taxes on people earning less than $250,000 a year, made Democrats gun shy about calling anything a tax during 2009 and 2010. (The debt ceiling crisis of 2011 changed all this, as Democrats finally figured out that it might be good politics to paint the Republicans as obstructionist on taxes.) Democrats therefore focused on the commerce clause theory and made elaborate findings of fact to show the mandate's connections to interstate commerce.

Fear of Republican attacks on taxes led to one of the great bonehead plays in recent American constitutional law. In an interview with George Stephanopolous, who pressed him on his campaign pledge not to raise taxes, President Obama denied that the individual mandate was a tax, and continued to do so even after Stephanopolous told him that he had read the actual text of the bill!

Statements like these have no legal effect; they do not prevent the Justice Department or the federal courts from justifying the mandate through the General Welfare Clause. Nevertheless, mandate opponents would repeatedly point to this interview as evidence that the mandate could not be a tax, because, after all, Obama himself had said it wasn't.

It's worth noting, nevertheless, that the argument is bogus. Even if Congress would have preferred a decision based on the commerce power, there is no reason to think that the mandate's supporters would rather have the Affordable Care Act struck down than have it upheld under a different power of Congress. And it would be enormously wasteful for a court to hold that the ACA would be constitutional if Congress simply repassed the exact same bill with the word "tax" substituted for the word "penalty." Federal courts are supposed to interpret federal statutes to preserve their constitutionality if possible; so the simplest solution -- and the one most respectful of representative government -- would be to hold that the new "penalty" in the Internal Revenue Code should be interpreted to be a tax if that would make it constitutional.

Nor does it matter that Congress did not specifically invoke the tax power in its findings of fact. As the Supreme Court explained in Woods v. Cloyd W. Miller Co. in 1948, "[t]he question of the constitutionality of action taken by Congress does not depend on recitals of the power which it undertakes to exercise." Federal statutes are presumed to be constitutional, and the courts are required to consider if they fall within any of Congress's powers even if the statute doesn't explain its constitutional basis. (Most statutes don't.) One might object that a special rule should apply for taxes. If the government is going to change the tax laws, it must state this clearly so that the people can express their displeasure by voting their representatives out of office. But this has never been the law. Moreover, the existence of the mandate has not snuck up on the public unawares, and anybody who has not been paying attention by now will figure out it out soon enough when they file their form 1040.

Legal strategies also shaped the way the tax argument was treated in the lower courts. Neither the government nor the mandate's opponents wanted to emphasize the tax power. The opponents didn't like the argument because it would make the mandate constitutional. They would rather fight about the commerce power exclusively.

The government's position was more complicated, and evolved over time. The Justice Department always included the tax power argument in its briefs, but rarely devoted much attention to it. At first the government argued that lawsuits challenging the mandate were barred by the Tax Anti-Injunction Act, which says that taxpayers cannot seek injunctions against taxes but must first pay the tax and then sue for a refund. That would mean that constitutional challenges could not begin in earnest until after 2014, when the mandate takes effect. But it also meant that if courts wanted to uphold the mandate on the merits, they would have to find a way to get around the Tax Anti-Injunction Act. This gave them reasons not to treat the mandate as a tax.

After two district courts struck down the mandate, the government's litigation strategy changed. It worried that states would begin to delay implementation and it sought a quick resolution of the constitutionality of the ACA. To that end, the government began to argue that the Tax Anti-Injunction Act did not apply because the mandate was not a "tax" for purposes of the act. This made it harder to push the tax power theory. As Justice Samuel Alito remarked in the oral argument, "General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax." Technically, the the two positions are consistent: The tax power, which includes taxes, duties, imposts, excises and other devices for raising revenue, could be and probably is far broader than the definition of a "tax" in a particular statute. Still, Alito's comment showed the government's rhetorical difficulty.

The government could have argued that the Tax Anti-Injunction Act was merely a protective device and not a complete bar to jurisdiction. The government could waive the limitation -- and had waived it in this case. But the Justice Department disliked that legal strategy. It has attorneys defending the government in tax disputes around the country. If an inexperienced lawyer accidentally waived the protections of the Tax Anti-Injunction Act, the Justice Department would be stuck.

Finally, the government probably assumed that the tax argument was superfluous: Any court that thought the mandate was constitutional probably also thought it was constitutional under the Commerce Clause. Conversely, any federal judge that didn't accept the Commerce Clause justification probably wasn't going to turn around and uphold the health care law under the taxing power.

But the arguments before the justices may have changed these assumptions. Chief Justice Roberts, and especially Justice Anthony Kennedy, seemed to worry whether there will be any limiting principle if they uphold the mandate on Commerce Clause grounds. ( As I've argued elsewhere, there are straightforward ways of stating such a limiting principle, but the government did not emphasize them at oral argument.) At the same time, both Roberts and Kennedy are no doubt aware of the political meaning of a 5-4 vote along party lines that gives Republicans what they could not get through the democratic political process. That concern, and the long history of deference to Congress on economic legislation, give the justices strong reasons to uphold the act.

The tax argument offers them a way out. Without deciding whether Congress can impose mandates under the Commerce Clause, the Court could simply interpret the mandate as a tax, and uphold it on that basis. This would require no significant change in the law. It would also signal that if Congress wants to impose mandates in the future, the Court prefers that it use the taxing power, and face the political consequences.

The justices have probably already decided the result in the case, although we don't yet know what their opinions will say. But if Roberts and Kennedy want a easy path out of their current quandary, the tax power argument, which has gotten so little attention to this point, may get a lot more attention in the future.

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Jack M. Balkin is Knight Professor of Constitutional Law and the First Amendment at Yale Law School, and the founder and director of Yale's Information Society Project, an interdisciplinary center that studies law and new information technologies. More

Professor Balkin is a member of the American Academy of Arts and Sciences, and the author of over a hundred articles in different fields including constitutional theory, Internet law, freedom of speech, reproductive rights, legal philosophy, and social theory. He writes political and legal commentary at Balkinization. His books include Living Originalism; Constitutional Redemption; The Constitution in 2020 (with Reva Siegel); The State of Play: Law Games and Virtual Worlds (with Beth Noveck); Cybercrime: Digital Cops in a Networked Environment (with James Grimmelmann et al.); Cultural Software: A Theory of Ideology; The Laws of Change: I Ching and the Philosophy of Life; What Brown v. Board of Education Should Have Said; and What Roe v. Wade Should Have Said.

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