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Thursday, June 28, 2012

The Healthcare Decision and the Revival of the Taxing Power: The Costs and Benefits of Formalism in Federalism

There are two species of "federalism decisions" that emanate from the Court nowadays -- formalistic deference and formalistic lack of deference. By "formalistic," I follow Don Regan's definition (in his classic 1995 article on Lopez): “The essence of formalism in legal interpretation is paying no attention to the purpose embodied in the text one is interpreting." Whether the court is deferential to Congress or not, the Court says nothing much about what the Article I doctrine of enumerated powers is supposed to accomplish. Instead, the Court focuses on some factor that is supposed to define a judicially manageable standard -- some gun crossing state lines, some "substantial effect" on commerce, some more or less phoney jurisdictional element, that will make the Court's life easy in terms of producing five votes or supervising lower courts. Rarely, however, does the Court actually ask the fundamental question: "Why should the feds be regulating this issue as opposed to the states? In what sense are the states' incentives inadequate to the task that the feds have undertaken?"

Today, the SCOTUS has continued this tradition by upholding the ACA individual mandate as a legitimate tax. Putting aside the result, the basis for the argument shows that the Court refuses to get serious about explaining why Congress should regulate some topics but not others.

I am no friend of the Commerce Clause argument against the individual mandate's constitutionality: The idea that Congress cannot compel commercial acts because of some ersatz gerry-rigged distinction between mandating and forbidding acts strikes me as just one more formalistic limit unmoored from any consideration of the purposes of enumerating powers. The analogy to Printz was always forced. The lower courts that struck down the mandate always seemed to be confusing a Due Process protection for individual liberty with a Federalism objection based on the right level of government to impose a limit on private liberty. It seemed to me that a federal law regulating the provision of a properly national good like health insurance -- a good that is redistributive in character and, therefore, cannot be properly delivered by subnational governments -- ought to be upheld by the Court.

But, in relying on the Taxing power, the Court has failed to offer a coherent purpose-driven reason for the result. It cannot be the case that the feds always can "encourage" people to undertake actions by taxing their inaction: Such a taxing power would render nonsense the basic idea that the enumeration presupposes something not enumerated.

So... what is the limit on the taxing power? Since Kahriger, the usual doctrine has been that the tax must generate revenue. But this test is patently unsatisfactory, because all taxes generate revenue if they are set just below the level at which they would completely prohibit a taxed activity. A tax on same-sex marriages of, say, $1,000 per marriage would presumably generate some revenue -- but would it be a constitutional exercise of Congress' enumerated powers? If so, then the idea of the enumeration is exploded, except as a formalistic obeisance to the text of Article I. Put another way, no sane framer would bother to enumerate powers if the only limit on the federal government's taxing power is that the tax generate some revenue and that people who wish to avoid the tax can do so through either action or inaction.

So far as I can tell from an initial reading of the 5-vote majority, the Court offers no functional reason whatsoever for its analysis of the taxing power. Indeed, the Court insults our intelligence by describing the conventional analysis of taxation under its prior precedents as somehow "a functional approach" (page 35). Of course, there is nothing "functional" about its definition of the taxing power, if the only relevant factors are the power of a taxed individual to avoid action or inaction that is taxed. If the test is, as Chief Roberts describes it, paying the tax "may often be a reasonable financial decision," then Congress will have fairly unlimited power to regulate any activity simply by imposing an exaction just short of what it would take to eliminate the activity altogether. If the only other limit is that Congress (or the IRS) cannot "penalize" persons who choose to pay the tax, by stigmatizing them as "outlaws" (page 38), then such a limit is worse than formalistic: It is not even consistent with the precedent (Doremus) upholding the Harrison Narcotics tax.

How is such a taxing power consistent with any sensible notion of enumerating powers? Why would any sane framer, whether Hamilton or Luther Martin, Federalist or Anti-Federalist, ever agree to such an arrangement? The Court does not say.

Perhaps it is just too much to ask that the Court follow Chief Justice Marshall's advice that the Constitution’s “great outlines should be marked, its important objects designated, and the minor ingredients which compose those objects be deduced from the nature of the objects themselves.” Maybe, when the political heat is on and one needs to round up five votes, it is impossible to mark the "great objects" of the taxing power.

But I tend to think that more candor on what exactly the enumeration is supposed to accomplish would actually increase respect for the Court. There are costs to formalism that can outweigh its apparent administrative benefits -- for instance, the frustrating sense that one's constitutional system is a pointless machine of arbitrary rules. I suspect that today's decision will exacerbate those costs.

Moreover, this decision has confirmed my worst fears about the anti-mandate: using individual rights rhetoric to constrain the commerce power has led the Court to unleash a much more dangerous power that had lain dormant for more than a half-century (since Kahriger). Having bought the limit on the commerce clause, the Court has stripped this limit of any functional meaningfulness by re-affirming an essentially unlimited taxing power.

That's what happens when one ignores constitutional purpose -- one gets senseless federalism and senseless nationalism.

Posted by Rick Hills on June 28, 2012 at 11:03 AM | Permalink


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I can understand how a tax to promote "general welfare" would apply to national health insurance (see also Medicare).

The Constitution doesn't say a tax has to generate revenue -- in fact, it provides three purposes, paying debts (revenue), general welfare and the common defense. You can promote the last two by taxation w/o generating revenue -- a tariff can promote domestic commerce, for instance even if it is a net loser in revenue.

The power is limited since you can only "tax" not do other things, such as require people to volunteer at hospitals to promote health needs. I guess we can set up some limit on "general welfare" but the law would probably meet it -- it is general in scope etc.

Posted by: Joe | Jun 28, 2012 11:23:34 AM

The question is whether one should look to the general purposes of the enumeration when one defines the word "tax" in Article I. A formalist will do what you are doing, Joe: Look to, say, 18th century dictionaries -- Samule Johnson's will do -- to define the term in isolation from the reasons for why it was included in the enumeration. A purposivist like me would look to those reasons and ask whether the ACA "tax" is genuinely an effort to generate revenue that would replace the money that the feds will lose as a result of private persons' failure to buy insurance.

Absent such a specific nexus between revenue forgone and the tax, the taxing power swallows the rest of the enumeration whole. And that defeats the enumeration's "general object," which is just as much part of the text (according to Chief Justice Marshall and myself) as the words "general welfare," etc.

Posted by: Rick Hills | Jun 28, 2012 11:30:59 AM

Thanks for the response.

I don't think a formalist has to use 18th Century dictionaries here. I'm surely not. I'm not going to choose one specific interpretative move here, but text is often a good way to go. The text allows taxes for general welfare and the common defense, not just to pay debts. If it was for "revenue" alone, not just money extracted via the tax system, I'd think it would say so. (see, e.g., Sec. 10 limiting certain type of tax).

Even if it was only for revenue, why would it have to be only for the reason you said? If it turns out that not buying insurance would mean the money is spent on something else that would promote excise taxes that would bring in more net revenue, would a tax on not buying insurance be unconstitutional even if it promotes the general welfare to tax in a certain way over others (e.g., sin taxes might be bad for society since it promotes sin, though it might promote more revenue)?

I don't understand the last paragraph. A mandate that required you to purchase insurance to promote interstate commerce is not a "tax." A tax is not the only way to enforce that. Needing to serve in the militia is not a tax. Building post offices or regulating coin and weights/measures is not a tax. So, how does one thing (taxation) swallow up everything?

Finally, "general welfare" has some content. I think the idea is to let Congress mostly decide what it is, but it has some content. A tax that doesn't collect revenue (though this tax does anyways) just to help some private interest might be unconstitutional. Maybe, we can have some "it must be for some truly national" purpose rule. Promoting interstate commerce in insurance would be one, even if the CC doesn't allow it since that clause only lets the Congress regulate active commerce. But, taxation for the 'general welfare' is more open-ended.

Posted by: Joe | Jun 28, 2012 11:53:36 AM

I believe you may have overnegated, as well as missing an article: "I am not [a] friend of the argument against the individual mandate's unconstitutionality." This means that you are an enemy of the argument against unconstitutionality or (cancelling out the "against" and "un") an enemy of constitutionality. What I think you meant (going by context) was "I am a friend of the argument against the individual mandate's unconstitutionality." Meaning you oppose those who say it is unconstitutional. Though perhaps a simpler locution would be preferable.

Posted by: Dmitri | Jun 28, 2012 12:04:45 PM

Except under the Constitution, "All bills for raising Revenue shall originate in the House of Representatives", and this bill clearly originated in the Senate. At the time nobody cared because "it isn't a tax". Roberts did not care because that question was not before the court. This decision may actually doom the health care bill because it is a relatively easy argument to say that its passage was unconstitutional. That will happen next year after the election. Supporters of the mandate may be premature if they pop any champagne corks.

Posted by: Howard Gilbert | Jun 28, 2012 12:30:39 PM

I read this opinion as furthering th critical reflective function in democracy. Both the characterization of the ACA as a tax and the comments about commandeering and local politics indicates to me the notion that the Feds have almost plenary authority to pass law, so long as they bear the democratic consequences by being up front about what they do, when they do it.

Posted by: AndyK | Jun 28, 2012 1:13:38 PM

The law clearly has some "taxes" in them -- is Mr. Gilbert saying that the various taxes besides this one didn't matter to anyone at the time? The judges below that offered the tax alternative also didn't raise any red flag about this issue, which probably was handed by taking the House bill (that passed), gutting it, and offering this as a substitute, so it didn't "originate" in the Senate. Since, again, there WERE taxes in there (on tanning etc.).

Posted by: Joe | Jun 28, 2012 4:11:42 PM

I continue to not understand how this law, which regulates interstate commerce in a conservative way, raises "the notion that the Feds have almost plenary power" while apparently the ability to retroactively give FISA immunity or any number of things get attention from only small segments of the population.

Posted by: Joe | Jun 28, 2012 4:13:38 PM

Helvering v. Davis held that the Tax Power properly supported the mandatory contribution insurance part of Social Security. After that ruling, no one has ever bothered to challenge the mandatory contribution health insurance that is Medicare Part A. One of the three versions of COBRA imposes a tax on employers that fail to provide COBRA continuation coverage. There is ample precedent for using the Tax Power to pull people in to an insurance pool, or to penalize people who fail to provide insurance, and there is no reason to fret about the ACA's being unprincipled in that regard.

If the concern is that the Tax Power is being used to reach things outside the scope of Congress's enumerated powers, please take that up with the shade of the first Justice Roberts, who held that this was permissible in U.S. v. Butler (1936).

Posted by: Mark Regan | Jun 28, 2012 9:52:39 PM

Professor Hills, thank you very much for your thoughtful analysis. Amidst today's gushing and spinning by the "liberal" and "conservative" thinkers, few have even considered the possibility that the right thing was done for truly terrible reasons.

I am wondering if you can elaborate on the implications of today's ruling from an individual liberties perspective.

We already know that the standard of due process changes dramatically when confronted with the headline executive power, namely war powers. It is not a wild proposition that due process may similarly be stressed when confronted with the headline legislative power, taxing power.

Posted by: G | Jun 28, 2012 11:41:50 PM

There are two significant problems with the idea that the role of the Court in interpreting enumerated powers is to "ask the fundamental question: 'Why should the feds be regulating this issue as opposed to the states? In what sense are the states' incentives inadequate to the task that the feds have undertaken?'":
1) There is no reason to believe that nine legal experts are in any way competent to answer this question.
2) There is no indication that the Constitution delegates such a role to the Court

Posted by: Herb | Jun 29, 2012 8:07:35 AM

Herb, both of your questions raise the two best objections to purposivism in constitutional interpretation.

Answering the second question first, there are lots of reasons to believe that the underlying purpose of Article I, section 8 was to give Congress the power to legislate where the states individually were incompetent to do so. This was the express charge to the Committee on Detail of the Philadelphia Convention on July 17th, 1787 -- the Committee to draft Article I, section 8. Moreover, one does not need the sixth Virginia Resolution (which provided the Committee's marching orders) to infer the obvious -- that the list of powers in Article I, section 8 are plainly designed to provide for national legislation covering policies that states cannot provide because of spillover effects and coordination problems: that is the theme that unites the enumeration, which ought to be construed noscitur a sociis, as we lawyers say.

Of course, the text, where clear, supplants any reference to unwritten purpose: there is no place for what John Manning calls "multiclause purposivism" when the specific text announces a text-specified purpose. But the text of Article I is rarely semantically clear. Pace Kurt Lash and Lawrence Solum, it is deeply ambiguous what constitutes a "tax" and what sorts of laws are "necessary and proper" for the execution of express powers. So it is perfectly appropriate to have recourse to the spirit of the laws when the letter fails.

As for the competence of judges, if they are competent to construe the Constitution at all (an open question for every part of that document and not just Article I, section 8), then they ought to do so correctly. If the constitutional text is murky, then the correct approach is to look to the constitution's purpose -- i.e., the "great objects" of the constitution to deduce the "minor ingredients."

Posted by: Rick Hills | Jun 29, 2012 9:46:07 AM

Taxing nothing or a failure to do something is not a tax, it is a penalty.

However, CJ Roberts expressed a desire, or by a stretch a legislative philosophy, not to compete with the lawmaking powers of congress by allowing the citizen representation make its own mistakes.

Therefore, he invented reasoning outside the briefed issues to accomplish his fait accompli.

This is analagous to the courts refusing to analyze if the son of a British subject/citizen is eligible to the presidency under Article II; the courts raising the Political Questions Doctrine and leaving it to the next election, no matter how much damage a Marxist and foreign influenced unconstitutional president can do in four years.

More confusing is that if the failure is due to low income, it transforms into a 'award' of sorts, eligiblity to apply for Medicaid.

Twenty-seven taxes are essentially twenty-seven lion tamers with whips and guns forcing the citizen and employers to jump through many hoops until total submissions is accomplished.

The 'shared responsibility payment' is pure Socialism, plain and simple. It is compelled charity, while true charities are being attacked through the reproductive rights mandates for distribution of birth control and abortion services.

In fact, when a private entity came to New Mexico to purchase Lovelace (I suppose they were not eligible to be a public company for prior prosecutions of Medicare fraud), the first hospital integrated health system insurance plan they attacked was owned by Catholic Charities.

At least when the Government taxes Carbon Dioxide, they are attacking one of the single most beneficial compounds in our atmosphere, albeit a clear, odorless 'plant food' that is a fraction of a percent of the total atmosphere.

Posted by: L.A. Daneman | Jun 29, 2012 10:45:08 AM

Great post. I continue to be baffled by the Court's unwillingness (or inability?) to articulate some rationale that ties the reason behind the federal system to the division of powers between state and federal governments. Taking Federalism seriously meanings thinking of it as a right to a local sovereign. Taking that idea seriously would not only have led to the right (and different) outcome in this case--there is no reason that the right to compel commercial activity should be vested only in the local sovereign--but would also have put the Court's other federalism jurisprudence on firmer footing.

Posted by: John Greenman | Jun 30, 2012 11:52:54 PM

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