06/29/2012 04:29 pm ET Updated Aug 29, 2012

The Taxing Power and the ACA: Cravenness Is Not Unconstitutional

As every reader knows, the Supreme Court held that the individual mandate at the heart of the Affordable Care Act was a constitutionally valid exercise by Congress of its taxing power, even though the mandate was not within the powers granted by the Commerce Clause of the Constitution. This rationale surprised many observers: after all, no lower court had relied on it to uphold the legislation (although one court implicitly came close to doing so in holding that the litigation was premature, by virtue of a separate statute prohibiting taxpayers from suing to enjoin the collection of a tax).  Moreover, the Justice Department stacked this argument last in its briefs, and clearly viewed it as an improbable grounds for deciding the case.

But Chief Justice Roberts and the majority plainly got this right. The "mandate" does not function as a requirement that you do anything. As the Chief Justice wrote, "Those subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they may not lawfully do is not buy health insurance and not pay the resulting tax."

The reason this case was difficult for many observers to parse is that Congress (that is, Democratic leadership) wanted to eat its cake and have it too. The legislation could have been, and in an earlier draft essentially was, presented more clearly and cogently as a new income tax on all of us (subject to various exemptions and limitations, just like any income tax), with a twist: you could claim a tax credit (a dollar-for-dollar offset against your tentative tax bill) if you purchased qualifying private insurance. Since the tax itself could be seen as funding some of government's costs of providing medical care for the uninsured, the tax-and-credit mechanism makes good logical sense: it prevents what otherwise would be effective double taxation -- once when you pay the tax, and once when you buy private insurance that duplicates to some extent the minimal coverage of the government emergency care safety net.

This is all that the individual mandate does. Stripped of labels, the only "mandate" is to pay your tax bill. That really is the base case. Most of us will be exempted from any new tax charge, because we will claim our notional tax credit for the value of our private insurance, but the fact that cash tax collections will come only from a minority of us does not make this any less a tax. (For those who want to read more on this, I previously covered the topic in an earlier Huffington Post piece and in a short article (Kleinbard, Constitutional Kreplach, 128 Tax Notes 755 (Aug. 16, 2010).)

This also explains why the dissent has the weaker of the arguments here. The dissent keeps looking for some forcible proscription, the failure to comply with which gives rise to punishment, in the form of the individual mandate's "penalty." But there is no penalty here, no consequence of any kind, beyond the obligation to pay your tax bill, net of the credit for securing private insurance, which relieves government of any costs for your healthcare.

Really, how is this different from Arizona Christian School Tuition Organization v. Winn, a case that the Supreme Court decided a year ago? In that case, Arizona taxpayers were given a choice: pay your full State income tax bill, or pay a lower bill by claiming a tax credit for any contributions you make to fund private school scholarships, which the legislature allegedly believed would reduce the burdens of state and local governments' funding of public education. There, today's dissenters were in the majority. They saw the law as just a means for taxpayers to lower their tax bills by spending their own money in ways that the legislature encouraged. The real issue was whether this scheme was just an indirect way for the State to finance private religious schools, in violation of the Establishment Clause, but the majority there (the dissent here) construed the law for Constitutional purposes as just another tax.

Here, too, there is a tax and a way out of the tax by spending your own money, but suddenly yesterday's refusal to deconstruct a tax law into its constituent parts becomes today's vigilant effort to turn the statute on its conceptual head, by construing it as an impermissible punishment for not spending money - even though here (as in Arizona Christian) the choice is simply to forgo one kind of private spending, and pay more tax, or engage in that spending, and pay less tax.

What really galls today's minority, I believe, is that the crafters of the legislation tried (ineptly) to obfuscate their tax as something else, to avoid public opprobrium as the tax and spend political party. And so the minority tries to hoist the Democratic drafters by their own petard, by insisting that the mandate can't possibly be characterized as a tax if the statute sidesteps the word. But as Chief Justice Roberts reminds us, that is not how the Constitution works: what matters is how the law actually operates, not the opportunistic labels attached to it.  

What also frightens the minority here is the case's implicit reminder of how very broad Congress's taxing power is. Basically, Congress can spend money any way it sees fit to advance our collective "general welfare," so long as in doing so it does not violate some fundamental individual right or express prohibition contained elsewhere in the Constitution (for example, by funding a national church). And Congress in turn has the plenary power to raise taxes to pay for that spending, subject only to really trivial limitations (like not taxing exports). For example, Congress would not need to rely on the Commerce Clause to create a genuine national healthcare program -- it need only determine that spending money on healthcare advances the general welfare, and then Congress is free to raise the taxes required to fund that program. That after all is the constitutional basis for Medicare.

As Chief Justice Roberts' opinion reminds us, "This grant [of the power to tax and to spend] gives the Federal Government considerable influence even in areas where it cannot directly regulate." The real substantive limitation on the taxing power rests not in some list of Constitutional dos and don'ts, but with the people, in the form of our ability to throw the rascals out at the next election.

Let us be frank here. This Constitutional tempest in a teapot had at its core a decision by Congress (in this case, Democratic leadership) to avoid the use of the word "tax" in the first place. That was craven, and had consequences completely unforeseen by the Congressional strategists. The ambiguity and opacity of the statute's phrasing emboldened strained readings of its real operation, and enabled jurists and commentators bitterly opposed to the politics of the law to challenge it on grounds that would not have existed had the legislation been drafted in a manner more consonant with its economic consequences. What makes Chief Justice Roberts' opinion both correct and courageous is that he separated the cravenness of the politics from the ultimate Constitutional analysis of the law's operation.