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Friday, April 20, 2012

Please Save me Five Bucks and Explain Why Obamacare Might Be Unconstitutional.

At fivrr, one can purchase a number of products and services, some useful, others absurd, for five dollars.  You can also ask for things you are willing to pay five dollars for.  I am hoping Prawfs readers will answer for free a question that I have been unable to resolve  in my own mind (but I will pay five bucks at fivrr if I have to).

I understand why a mandate to buy insurance might be unconstitutional.  There are limits on what the government can force us to do.   I happen to agree with my colleagues Vik Amar and Alan Brownstein who explained in an LA Times op-ed that the slippery slope argument doesn't work here.  But let's say that the individual mandate is unconstitutional.

I don't understand why Congress, nevertheless, cannot impose a tax on those who do not have or buy insurance.  The Internal Revenue Code is full of incentives (and penalties) for things that Congress could not mandate (or prohibit) directly.  

Congress can't (or shouldn't) make you get married, but they can lower your taxes if you do.  Same with eating broccoli, buying a home,  and tithing to your church, temple, mosque, etc.  Similarly, they can't prohibit you from getting married, but they can raise your taxes if you do. 

In addition, as a  short paper featured recently on Taxprof explains,  there is no intrinsic economic difference between a tax incentive and a tax penalty.  So why shouldn't the Court say (if it is so inclined) that the mandate is invalid, but the tax effects of not buying insurance remain in force?  Again, changing people's tax rates because they do (or don't) do something that Congress wants is absolutely routine. 

One reason might be the famous distinction between a penalty and a tax.   If the financial consequence were in fact a penalty, if, for example, it were public and stigmatizing, or carried with it collateral consequences affecting other domains of life, then it might be the equivalent of a mandate, and therefore valid only if they could directly require it.  But the beginning and the end of this penalty is a limited, private  financial consequence on the calculation of one's income tax.

And perhaps in some cases there is a substantial difference between "raising your taxes if you don't" and "lowering your taxes if you do." For example, I would find it more objectionable to raise taxes on people who do not contribute to their faith institution than it is to offer a deduction to people who do, even if the economic effect were identical.  But there is no arguably inappropriate social message from Congress saying "everyone should have health insurance"; not even Obamacare critics object to the government merely encouraging people to eat Broccoli. 

Justice Scalia's dissent for himself and Justices O'Connor and Breyer in the line item veto case is an eloquent explaination of why language technicalities like this should not be used to frustrate the powers of Congress. In Clinton v. New York, the majority struck down the statute.  In Scalia's view, this was wrong:

The short of the matter is this: Had the Line Item Veto Act authorized the President to “decline to spend” any item  of spending contained in the Balanced Budget Act of 1997, there is not the slightest doubt that authorization would have been constitutional. What the Line Item Veto Act does instead-authorizing the President to “cancel” an item of spending-is technically different. But the technical difference does not relate to the technicalities of the Presentment Clause, which have been fully complied with; and the doctrine of unconstitutional delegation, which is at issue here, is preeminently not a doctrine of technicalities. The title of the Line Item Veto Act, which was perhaps designed to simplify for public comprehension, or perhaps merely to comply with the terms of a campaign pledge, has succeeded in faking out the Supreme Court. The President's action it authorizes in fact is not a line-item veto and thus does not offend Art. I, § 7; and insofar as the substance of that action is concerned, it is no different from what Congress has permitted the President to do since the formation of the Union.

The financial consequence is a tax, not a penalty in the sense of attainder or conviction.  The technicality that Congress wrote "penalty" when it should, in retrospect, have said "tax" should not invalidate an otherwise valid measure.

Posted by Jack Chin on April 20, 2012 at 04:18 AM | Permalink


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Thanks for continuing the conversation. The tithing or "reduction with certain expenditures" are tax credits. But credits are only relief of the requirement. Everyone who earns money is required to pay income tax, regardless of amount, first. THEN the government gives you a credit if you do not earn enough. Some mistake this for a "negative tax" or "not being required to pay" but that is inaccurate. You are required to pay first, then if you meet certain requirements, you are given relief second. But ALL of it is predicated on you receiving income. You can avoid the income tax by not receiving income.

In the case of Heathcare Act, again, there is no way out. Joe, I read your argument, but Prof. Galle is wrong and so are his assumptions. All tax is generated from those that participate in some "act". Again, make income, get taxed on income -- not broccoli. You have to buy broccoli to get taxed on them. This is not true from healthcare. What is the action that initiates the tax if not "being alive"? And the argument that you get a "credit" if you don't make enough income is only secondary. Receiving the credit presumes that you already participated in the action that initiated the tax. I cannot get an income tax credit for children if I haven't first made income to be taxed. I am not interested in participating in the healthcare act. What action must I not do to be taxed?

Joe, I think if you read Jack's article above, he makes the assumption that this is a tax for the purpose of discussion -- otherwise it is a mandate. But Jack already addressed my comments to that, so I am trying to stay on point. However if you believe that our President (or any for that matter) hasn't initiated a tax 'because he said so,' then I guess that Gitmo is closed, we left Iraq after 18 months, he received Congressional approval before going into Libya, and that he as worked feverishly to lower the debt racked up by his predecessor. Campaign promises are like the prelude to a one night stand. We all like hearing the flowery words, and then feel sleazy the next day.

Posted by: MarkV | Apr 26, 2012 10:11:22 AM


If the sum is due even if you do not have any income, then I see your point. If Joe is right that the tax is not due unless you have a certain level of income, then I see it as an income tax, which, like tithing, you could reduce with certain expenditures.


Posted by: jack | Apr 25, 2012 11:39:08 AM

"A major issue is whether the individual mandate is a direct tax. Someone commented above that the tax is not voluntary because it is a tax on existence."

It might be a "major issue" for a few, but the passing mention this had in the long oral argument underlines overall, it isn't really.

It is not a "direct tax" for reasons Prof. Galle and others have noted. Merely "existing" will not provide a requirement. If someone, e.g., does not make a certain amount of money, it is not required. Putting aside that it is money arising from involvement in the health industry, the usual assumption was 'direct tax' had a narrow reach.

Pollock was a controversial expansion of said reach and even that case dealt with a clearer case of rents and such, not a tax arising from various actions one does over one's life.

Another person noted Obama would not have signed the law if it was a "tax." Relying on counterfactuals based on public statements of politicians (which as a rule for courts seems ridiculous; legislative history alone is controversial) is not a good way to run a railroad, so to speak. And, it is not shocking really to assume he was spinning things somewhat, like pols usually do when taxes are involved. This underlines the value of taking an objective view of what is done, not go by what politicians say in such a fashion.

Posted by: Joe | Apr 24, 2012 12:25:15 PM

"The goverment may tax you for doing or not doing something they cannot mandate or prohibit."
Jack, I understand that. But you consistently dodge the issue. Usually we are taxed on things we participate in. How do you chose not to participate in this if it is then called a tax? At this point maybe I need to admit naiveté. What are some things that we are taxed for Not Doing?

Posted by: MarkV | Apr 24, 2012 11:36:27 AM

Jonathan --

Congress has the power to impose income taxes. As part of that power, it is necessary and proper for Congress to require individual Americans to file tax returns. Up until recently, to file tax returns required those Americans to purchase an envelope and a stamp, as electronic filing did not exist and no address is provided for filing. Thus, Congress could mandate tax-filing Americans to purchase in the private marketplace these items.

If one accepts the idea that Congress has the power to regulate the health insurance market under its commerce clause power because of the market's substantial effects on interstate commerce, then why isn't it within the necessary and proper clause's broad reach (see McCulloch, see Comstock) to require individuals to purchase health insurance?

The answer seems to keep coming back to the "unprecedented" nature of making Americans purchase a product in the private market. But, as I note above, that's not true. Moreover, it's no answer to say that purchasing an envelope and stamp is trivial. After all, as you say, the "penalty is too small," but the "size of the penalty (or a "tax") has no bearing on its constitutionality."

Posted by: Michael Teter | Apr 23, 2012 6:43:38 PM

Jack --

The distinction is not between taxes and tax rates, but between willing to impose a tax as a tax, and not being willing to do so. In any event, the reason I linked to the piece by Erik Jensen is that discusses some of the other constitutional limitations that are imposed on exercises of the taxing power. In particular, a capitation tax (or a tax on living, existence in the U.S., etc.) would be a direct tax subject to the apportionment requirement of Article I, section 2. Since the penalty for violating the mandate is not apportioned, it would be unconstitutional were it a direct tax.

The only way to use the taxing power to impose a penalty for failing to purchase insurance without creating a potential apportionment problem would be for Congress to increase income taxes on everyone and then provide tax credits for those who purchase qualifying plans. This would almost certainly be constitutional under existing precedent (and, even if not, would be immune from judicial review as no one would have standing to challenge it). This approach works because the 16th Amendment allows Congress to impose an income tax without apportionment. While the economic incentive created by this approach is the same, the political economy is different (as demonstrated by the utter refusal of the mandate's proponents to call the penalty a tax). That's the political economy point.

Mr. Gelbach --

According to the CBO, the penalty will not be "rarely paid." To the contrary, the penalty is too small to provide a sufficient incentive for many younger, healthier folks to purchase insurance. In any event, the size of the penalty (or a "tax") has no bearing on its constitutionality. It either represents a constitutional exercise of federal power or it does not.


Posted by: Jonathan H. Adler | Apr 23, 2012 6:02:43 PM

A major issue is whether the individual mandate is a direct tax. Someone commented above that the tax is not voluntary because it is a tax on existence. Historically, state and local governments have imposed a head tax or a poll tax, which is essentially a tax on existence. Because it is a tax on existence, a head or poll tax has historically been considered a direct tax. The Individual Mandate appears to be a direct tax because it is a tax on existence.

Congress is authorized to impose a direct tax, i.e., a tax on existence, but only if it is apportioned. To apportion a direct tax, Congress must impose it on everyone equally. My understanding is that the Individual Mandate applies only to people who do not have insurance. That would mean that it is not apportioned. If is not apportioned and a direct tax, the imposition of it exceeds Congress's authority.

Posted by: Chance | Apr 23, 2012 1:02:56 PM


The premise of the post is an assumption, arguendo, that the mandate is unconstitutional. But that is a separate question from a price for doing or not doing something. The goverment may tax you for doing or not doing something they cannot mandate or prohibit.


Posted by: Jack | Apr 23, 2012 11:12:50 AM

Jack, of course income tax is fair for those who take in income. But we are not talking about income, Jack. You're missing (and did not respond to) the problem of being taxed on "life." I can intellectually justify a tax on cigarettes, income, housing, cars, gasoline, and yes even broccoli. But what is the basis for this tax? What are you participating in that requires it? The answer is, being alive. All the other taxes we are only subjected to through self participation. Buy cigarettes, get taxed on cigarettes. If the argument is that we participate in the health insurance because at some future date we will participate, then why not tax us all on gasoline, cigarettes, or cars with the presumption in the future that we may drive or smoke?

At its base, the requirement is to pay for health insurance as a "mandate" (meaning "official order or commission to do something"). And the basis for that mandate is not that you have done anything, but solely because you are. I think Jimbino and myself are humoring you, but (if you are the author) you acknowledge this as a mandate in your second paragraph but then immediately discuss it as a tax, without any understanding that the two are not synonymous.

Regardless... if this is a tax, what can we do to avoid it? I can avoid income tax by not taking income. I can avoid gasoline tax by not buying gasoline. If this is a tax, how do I voluntarily NOT participate?

Posted by: MarkV | Apr 23, 2012 11:06:40 AM

The case you've made proves too much -- if we follow your reasoning then there is no longer an internal limit in what T&S Clause. Basically anything that raises revenue, penalizes citizens or otherwise takes money is a valid exercise of Congress's authority, provided that the gov't coffers are better-off. And we all know that can't be right.

Posted by: James | Apr 22, 2012 11:58:04 PM


It may be news to you, but there are folks who do not subscribe to insurance to pay for Western Medicine--not only the Amish, Christian Scientists and Faith Healers, but also those who chose treatment by Chiropractic, Naturopathic, Homeopathic, Ayurvedic or Chinese Medicine, etc, and those non-Amish who have the same aversion to insurance in all its ugly forms.

Not only that, Obamacare taxes folks to pay for contraception and childbirth and other natural processes and procedures that have nothing to do with medicine. In addition, it will cover circumcision, a religious ritual that is better seen as genital mutilation of a non-consenting person.

Taxing every Amerikan to support Allopathic Amerikan Medicine is like taxing pedestrians to support highways, on the theory that it is OK to tax travel. Actually, it's more like taxing a pedestrian in the Amazon to support a highway in the USSA.

The socialist refrain used to be, "If it moves, tax it." That is now supplanted by, "If it exists anywhere in the world, tax it."

You can get a grip on Obamacare once you realize that it's just another vehicle captured by gummint to "spread the wealth around."

Posted by: Jimbino | Apr 22, 2012 8:27:26 PM

MarkV and Jimbino,

I could see your arguments if this was not a tax against income. I.e., if a person had no income at all and were subject to punishment for not paying, I see a due process problem. But the way those sorts of problems are handled is through the concept of "unconstitutional as applied." The ultra-rare cases might get a pass. But do you think it is constitutional as applied to people who through voluntary transactions have income in the United States, and voluntarily engage in interstate commerce in the United States?


Posted by: Jack | Apr 22, 2012 12:48:32 PM

Some of the examples you site, the individual (in a sense) agrees to be taxed as part of the purchase. Get married, get taxed (if the marriage tax is still in effect). Buy a house, get taxed. Buying broccoli, get taxed. Buy cigarettes or alcohol, get taxed. Buy gas, get taxed. Get a job, get taxed on income. If you want to avoid the tax, you have that opportunity. Only if you participate in the service are you also participating in the funding of its regulation. We are all obligated to pay a minimum amount of tax. The tax credits come as relief when individuals participate in activities that society deems valuable. Raise children, receive a tax credit. Give to organizations that contribute to the moral fabric of society, get a tax credit.

The problem with the new law (which Jimbino also alludes to) is that you are taxed not from something you voluntarily participated in, but simply because you exist!! The government's argument that you "participate" by being alive is highly offensive to most that read this bill. Even if the government would give a tax credit to individuals that voluntarily purchase their own healthcare, the underlying argument is still erroneous and a tax solely on the "right to life, liberty, and happiness." Want to participate in the life, liberty, and happiness of America? Then Obamacare says you must pay a tax on that right. Unbelievable!!

Posted by: MarkV | Apr 22, 2012 11:55:10 AM

There's a big difference between a tax and a penalty. An Amerikan dissatisfied with US taxes can get the hell out and while traveling and picking up odd jobs overseas will have neither US income tax liability (up to some $90,000 income) nor sales tax liability, obviously.

He will, however, be subject to the Obamacare penalty, regardless of the fact that he is never in the USSA, never spends a dime there, and lives off his wealth, earning not a single penny. And if he gets sick, he will pay for treatment from his own resources or throw himself on the mercies of the Brazilian or other government.

Don't you see a problem?

Posted by: Jimbino | Apr 20, 2012 7:24:08 PM

Isn't there something deeply ironic/fundamentally flawed with the notion of turning to the federal judiciary to strike down a law for not being enacted in a politically accountable fashion?

Posted by: Michael Teter | Apr 20, 2012 5:05:41 PM

If this were a tax, then President Obama would not have signed it into law (at least if you believe him). If you accept this, than there is a difference between a penalty and a tax.

Posted by: AlinVA | Apr 20, 2012 4:19:22 PM

One other point in response to JHA: opponents of the mandate have characterized it as violative of individual liberty, as a fundamental and pernicious change in our federal structure, and so on.

Surely whatever political accountability follows someone who votes for such a dastardly piece of legislation at least matches the accountability associated with support for a contingent and rarely-to-be-paid tax of $800 or whatever.

Moreover, the same cast of political characters who oppose the mandate have no problem declaring that those who voted for it are tax-and-spend fanatics, etc. So whatever bite the tax accusation has, it doesn't seem to stop people from voting for these parading horribles of Congress.

Posted by: jonah gelbach | Apr 20, 2012 3:48:32 PM

Thanks, BDG and JHA. I should have said explicitly what was evident from the post, and that is I asked my question from the position of someone who knows little about the problem. (Although I did listen to a lot of the arguments, because I was in a long car ride at the time.)

JHA, I don't see a major political accountability difference between a tax and a tax rate, for example, between a surtax on income derived from rent of real property, and differential rates for various types of income, including a higher rate for rental income from real property.


Posted by: Jack | Apr 20, 2012 3:24:36 PM

My colleague Erik Jensen has written what I think is the definitive piece on the problems of characterizing the mandate as a tax:

All that said, it would likely be constitutional for Congress to increase taxes on everyone and then provide a tax credit for the purchase of qualifying insurance plans. What's the difference? Political accountability. As the Court explained in McCulloch, there must be political accountability for uses of the taxing power, to taxes must come as taxes.


Posted by: Jonathan H. Adler | Apr 20, 2012 10:34:07 AM

Indeed, Jack, and well said. See also, e.g., http://aca-litigation.wikispaces.com/file/view/SEIU+amicus+%2811-398%29.pdf.

And, not to be tedious on this point, since I've said it about 15,000 times, but the letters "tax" may be the most frequently appearing syllable in section 5000A, with the possible exception of "and." At a minimum, as the amicus brief signed by this commenter said, it's ambiguous whether Congress intended to abandon its characterization of the provision as a "tax." http://aca-litigation.wikispaces.com/file/view/Constitutional+Law+Scholars+amicus+%2811-398%29.pdf

Posted by: BDG | Apr 20, 2012 10:33:05 AM

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