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Wednesday, March 31, 2010

Health Care Reform and the Taxing Power

When last we met, I argued that the newly-minted "individual responsibility" requirement ("IRR") that individuals purchase health insurance or be subjected to a penalty tax is within Congress' power under a combination of the Commerce Clause + the Necessary & Proper Clause.  But maybe you don't think so.  What about the taxing power?  The Constitution gives Congress (in Art. I sec. 8) the power to "lay and collect taxes...for...the general welfare."  The IRR (when fully phased in, which is not until 2016...start saving) is designed as an income tax with a floor; folks who don't buy insurance pay 2% of household income or $695, whichever is greater.  Lots of modern taxes have conditions attached to them; you can pay a lower tax by buying a wastewater treatment plant or investing in "closed-loop" biomass (i.e., fuel made out of chicken poop).  No one thinks those are unconstitutional, so why not the IRR?

There are two big questions, actually.  One was raised by Randy Barnett and his co-authors in a Heritage white-paper back in December.  Another was raised by the Supreme Court in 1922.  Both, though, are now out of date.

Barnett et al. argue that the IRR can't work because it's not "apportioned."  See, as part of the three-fifths compromise, the constitutional conventioneers agreed that "direct" taxes could only be imposed on state citizens if the total liability of all the state's residents bears the same proportion of national liability as the state has of the national population.  Huh?  Ok, say California has 1/10th the U.S. population.  That means a "direct" tax has to impose 1/10th of all its nationwide burden on folks in California -- no more, no less.  Basically, apportionment is impossible for most kinds of taxes.  So, um, what's a direct tax?  Well, no one really knows.  But we do know that income taxes aren't subject to apportionment, whether they're direct or not, because of the 16th Amendment.   

So, fortunately, you don't really have to understand any of the last paragraph, because the IRR is an income tax.  Perhaps this was not the case when Barnett et al. wrote their white paper?  In any event, as I mentioned, the IRR now is clearly a tax based on the household income of the payer, and so clearly not subject to apportionment.

What about the Supreme Court?  Well, in 1922 they said that Congress couldn't impose a tax on busineses that used child labor (in the aptly named "Child Labor Tax Case"). The court had just held (in Hammer v. Dagenhart, as you would remember if you hadn't slept through that day in con law) that Congress couldn't use the Commerce power to bar child labor, and they said in the Child Labor Tax Case that it was obvious Congress couldn't just use the taxing power instead.  Then in 1953 they said, "geez, sorry about all those little kids whose childhood was cruelly ripped from them because of our boneheaded decisions," and, without quite overruling the Child Labor Tax Case, they held that any tax that raises money is constitutionally within the taxing power.  Really, "any."  Including a $3,000 tax on "adulterated butter," which I couldn't find a picture of on google images, but which--trust me-- is gross.    

So, long story slightly shorter, looks like the IRR is constitutional.  Obviously, one can critique on normative grounds the current state of the law.  I have a very short essay on that question coming soon in the Yale Law Journal On-line; I'll post a link here when it's ready for public eyes. 

Posted by BDG on March 31, 2010 at 07:33 PM | Permalink


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Anon: good question, but there's lots of reasons why not. For one, whether you pay $695 or some other number is still determined by your income. For another, there are lots of exceptions to the IRR, and the most important is financial hardship -- which, again, depends largely on income. Third, if you look at the back of your 1040 instructions, you'll see the federal income tax is calculated in much the same way: it says if your income is $100,000, you pay $x, plus, say, 25% of every dollar above x. That's just a mathematical feature of a graduated income tax: it can be represented as a series of flat taxes with a percentage-based tax on top.

Posted by: BDG | Apr 1, 2010 6:54:17 PM

Why doesn't the $695 floor make it a captation tax -- at least as applied to those who make less than $34,750?

Posted by: Anon | Apr 1, 2010 1:42:40 PM

No, I don't think the taxing power supersedes specific limits on national authority, such as the First or Fifth Amendments. With that said, my (limited) understanding of first amendment doctrine is that intent often matters -- government endorsement or disapproval is a factor. So, for example, a general sales tax that also affects churches is not necessarily a violation of the free exercise clause. But that is getting pretty far afield from what I'm writing about here.

Posted by: BDG | Apr 1, 2010 11:13:37 AM

Would a $10,000 tax on abortions be authorized? What about a $1 "internet tax stamp" for each page view of a "journal, publication or other broadcast touching upon the public interest"? Could the taxing power be used to "raise revenue" from corporations Congress may not otherwise be able to bar from political activity as a condition of bidding on government contracts?

I teach insurance, not con law or tax. I share your non-understanding of direct taxation, and then some. However, whenever I read these short analyses, I'm left with the feeling that no one actually believes that the Court literally meant what it said, and that the writer doesn't actually believe the reach of the taxing power is sufficient to grab something he personally cares about.

What I can't understand is the suggestion that the taxing power instills a wide-ranging (indeed, "infinite") power beyond the sources of authority we're accustomed to arguing about. I agree that your tax break examples are non-objectionable - but that is because we can identify some independent (substantive?) basis for congressional authority. To my mind, the taxing power is merely a "procedural" device for instantiating that power. Isn't that the way to read the 1953 case - by then, SCOTUS no longer believed in a Commerce Clause limitation on child labor legislation, and therefore the tax question was trivial (and thus rather lightly treated)?

Posted by: Adam Scales | Apr 1, 2010 11:01:06 AM

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