Thursday, August 12, 2010

The minimum coverage provision and the taxing power (part 1)

The one substantive issue in the litigation that we have yet to address here is the question whether the minimum coverage requirement of ACA §1501 fits within Congress’s taxing power (which is grounded in the General Welfare Clause of Article I, §8, clause 1). To recap, to prevail on their claim that §1501 exceeds Congress’s enumerated powers, the states must show both (a) that it exceeds Congress’s power to regulate interstate commerce, and (b) that it is invalid as a taxing measure, either because it exceeds Congress’s authority to tax or because, although it is within that power, it constitutes a “direct” tax that has not been apportioned according to each state’s population.

As I have written earlier, I think there is a decent argument—though not one I necessarily agree with—that §1501 exceeds Congress’s commerce power. More specifically, I think it would be relatively easy to write a judicial opinion, using current doctrine, to reach that result. Holding that §1501 exceeds Congress’s taxing power, though, would seem to be more challenging. Let me explain why.

Governing Supreme Court precedent rather firmly establishes the following four principles:

1. Congress can use its power to tax to reach activities (or non-activities) that it could not otherwise regulate with any of its other enumerated powers. Thus, assume arguendo that §1501 exceeds Congress’s commerce power, the taxing power inquiry is unaffected. The only textual limitation on Congress’s power to impose a tax is that it be in pursuit of the general welfare. And whether a tax actually furthers the general welfare is essentially a political (and not a judicial) question. Thus, so long as the provision is genuinely a tax, the fact that it could not be justified under a separate enumerated power is irrelevant.

2. The fact that a tax clearly has regulatory effects, and effectively penalizes certain conduct, does not disqualify it from being a tax. All taxes, in a sense, penalize certain conduct or choices. Thus, a tax will still qualify as a tax (for constitutional purposes) even though it effectively regulates or penalizes behavior.

3. The fact that Congress subjectively intended the tax to regulate behavior—and that the revenue-raising aspects of the provision were only secondary—likewise does not disqualify the measure from constituting a legitimate tax. In two significant cases decided by the Court, legislative history indicating that taxes on wagering and on marijuana trafficking were really intended to penalize the taxed activities did not render them “regulations” rather than “taxes.” Thus, they fell within Congress’s taxing powers, even though clearly intended as “penalties” for certain conduct.

4. The fact that the provision raises only “negligible” revenue also does undermine its status as a legitimate tax. Several taxes imposed by Congress have raised only tiny amounts of revenue (as they were principally intended as regulatory measures). Yet, the Supreme Court upheld those measures as legitimate uses of Congress’s taxing power.

Together, these principles go a long way towards foreclosing any viable claim by the states that §1501 exceeds Congress’s taxing power. The minimum coverage requirement will clearly raise some revenue, and perhaps quite a bit. Penalizing those who choose to opt out of the health insurance market plainly promotes the general welfare—or at least it was reasonable for Congress to think so. And Congress placed §1501 in the Internal Revenue Code and made it enforceable only through the civil mechanism of tax collection. Congress’s intent to “penalize” the act of failing to purchase insurance (when a taxpayer can afford it) would seem to be immaterial. In short, governing constitutional law points decidedly in favor of the government.

Still, I think there remains a ray of hope for the states to prevail on this claim. And I will attempt to explain why in my next post.