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.

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Jack M. Balkin is the Knight Professor of Constitutional Law and the First Amendment at Yale Law School, and the founder and director of Yale's Information Society Project.

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