For more on corporate taxes, see Kyle's recent study "U.S. Multinationals Paid More Than $100 Billion in Foreign Income Taxes."
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- Thoughts on the Health Care Case Thus Far
Thoughts on the Health Care Case Thus Far
I've just read through the transcript of the first two days of oral argument in the health care case. Below are my impressions of each justice's questions, followed by all references to the tax power argument so far. (We submitted a brief arguing that the mandate is beyond Congress's power to tax.)
Chief Justice Roberts expressed concern about where this case will lead. He mentioned that if they uphold the individual mandate, there's no credibility to the argument that any other government action in healthcare is beyond Congress's power.
Justice Scalia criticized the definition of the "health care market" in this case as too broad, and pushed back on the notion that any previous case involved non-commerce. (Here, he's on weak ground: it was at least debatable whether the steel mill in Jones & Laughlin was engaged in commerce, and it's hard to view that the marijuana grower in Raich was either. However, this suggests that Scalia is trying to square his opposition to this law with past precedent.) He asked his questions during the Government's argument; he remained mostly silent during when the law's opponents spoke.
Justice Alito jumped in to rescue the NFIB counsel, and made other comments that can be interpreted as critical of the individual mandate's constitutionality.
Justice Kennedy asked relatively few questions, although he noted that the mandate "changes the relationship of the Federal Government to the individual in the very fundamental way."
Justice Breyer mentioned the creation of the Bank of the United States as an example of the government creating commerce out of nothing and compelling activity. (He also pointed to vaccination laws.) He seems surprised that anyone would claim that health care isn't interstate commerce. At one point he notes that it's "more commerce than marijuana," which the Court held 6-3 in 2005 that Congress can regulate under the interstate commerce clause.
Justice Ginsburg mentioned on four occasions that the existence of people getting cost-free healthcare drives up costs for everyone else. She also questioned why the individual mandate is different from Social Security (a tax, coupled with benefits).
Justice Kagan stated that anybody who could get sick is in the health care market.
Justice Sotomayor interrupted a denial that Congress could effectively limit its own commerce clause powers to state that it could, and that the Court has held that it could.
Justice Thomas asked no questions.
Mentions of Taxes:
Justice Alito: [Solicitor] General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the Court ever held that something is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?
Verrilli: No, Justice Alito, but the Court has held in the license tax cases that something can be a constitutional exercise of the taxing power whether or not it is called a tax. And that's because the nature of the inquiry that we will conduct tomorrow is different from the nature of the inquiry that we will conduct today. Tomorrow the question is whether Congress has the authority under the taxing power to enact it and the form of words doesn't have a dispositive effect on that analysis. Today we are construing statutory text where the precise choice of words does have a dispositive effect on the analysis.
Mr. Katsas: The purpose of this lawsuit is to challenge a requirement -- a Federal requirement to buy health insurance. That requirement itself is not a tax. And for that reason alone, we think the Anti-Injunction Act doesn't apply. What the amicus effectively seeks to do is extend the Anti-Injunction Act, not just to taxes which is how the statute is written, but to free-standing nontax legal duties. And it's just -
CHIEF JUSTICE ROBERTS: The whole point - the whole point of the suit is to prevent the collection of penalties.
MR. KATSAS: Of taxes, Mr. Chief Justice.
CHIEF JUSTICE ROBERTS: Well, prevent the collection of taxes. But the idea that the mandate is something separate from whether you want to call it a penalty or tax just doesn't seem to make much sense.
MR. KATSAS: It's entirely separate, and let me explain to you why.
CHIEF JUSTICE ROBERTS: It's a command. A mandate is a command. Now, if there is nothing behind the command, it's sort of, well, what happens if you don't follow the mandate? And the answer is nothing, it seems very artificial to separate the punishment from the crime.
MR. KATSAS: I'm not sure the answer is nothing, but even assuming it were nothing, it seems to me there is a difference between what the law requires and what enforcement consequences happen to you. This statute was very deliberately written to separate mandate from penalty in several different ways. They are put in separate sections. The mandate is described as a "legal requirement" no fewer than 20 times, three times in the operative text and 17 times in the findings. It's imposed through use of a mandatory verb "shall." The requirement is very well defined in the statute, so it can't be sloughed off as a general exhortation, and it's backed up by a penalty. Congress then separated out mandate exceptions from penalty exceptions.[...]
JUSTICE SCALIA: The President said it wasn't a tax, didn't he?
GENERAL VERRILLI: Well, Justice Scalia, what the -- two things about that, first, as it seems to me, what matters is what power Congress was exercising. And they were -- and I think it's clear that -- that the -- the -- they were exercising the tax power as well as -
JUSTICE SCALIA: You're making two arguments. Number one, it's a tax; and number two, even if it isn't a tax, it's within the taxing power. I'm just addressing the first.
GENERAL VERRILLI: If the President said -
JUSTICE SCALIA: Is it a tax or not a tax?
The President didn't think it was.
GENERAL VERRILLI: The President said it wasn't a tax increase because it ought to be understood as an incentive to get people to have insurance. I don't think it's fair to infer from that anything about whether that is an exercise of the tax power or not.
JUSTICE GINSBURG: A tax is to raise revenue, tax is a revenue-raising device, and the purpose of this exaction is to get people into the health care risk -- risk pool before they need medical care, and so it will be successful. If it doesn't raise any revenue, if it gets people to buy the insurance, that's -- that's what this penalty is -- this penalty is designed to affect conduct.
The conduct is buy health protection, buy health insurance before you have a need for medical care. That's what the penalty is designed to do, not to raise revenue.
GENERAL VERRILLI: That -- that is true, Justice Ginsburg. This is also true of the marijuana tax that was withheld in Sanchez. That's commonly true of penalties under the Code. They do -- if they raise revenue, they are exercises of the taxing power, but their purpose is not to raise revenue. Their purpose is to discourage behavior. I mean, the -- the mortgage deduction works that way. When the mortgage deduction is -- it's clearly an exercise of the taxing power. When it's successful it raises less revenue for the Federal Government. It's still an exercise of the taxing power. So, I don't -
JUSTICE KAGAN: I suppose, though, General, one question is whether the determined efforts of Congress not to refer to this as a tax make a difference. I mean, you're suggesting we should just look to the practical operation. We shouldn't look at labels. And that seems right, except that here we have a case in which Congress determinedly said this is not a tax, and the question is why should that be irrelevant?
GENERAL VERRILLI: I don't think that that's a fair characterization of the actions of Congress here, Justice Kagan. On the -- December 23rd, a point of constitutional order was called to, in fact, with respect to this law. The floor sponsor, Senator Baucus, defended it as an exercise of the taxing power. In his response to the point of order, the Senate voted 60 to 39 on that proposition. The legislative history is replete with members of Congress explaining that this law is constitutional as an exercise of the taxing power. It was attacked as a tax by its opponents. So I don't think this is a situation where you can say that
Congress was avoiding any mention of the tax power. It would be one thing if Congress explicitly disavowed an exercise of the tax power. But given that it hasn't done so, it seems to me that it's -- not only is it fair to read this as an exercise of the tax power, but this Court has got an obligation to construe it as an exercise of the tax power, if it can be upheld on that basis.
CHIEF JUSTICE ROBERTS: Why didn't Congress call it a tax, then?
GENERAL VERRILLI: Well -
CHIEF JUSTICE ROBERTS: You're telling me they thought of it as a tax, they defended it on the tax power. Why didn't they say it was a tax?
GENERAL VERRILLI: They might have thought, Your Honor, that calling it a penalty as they did would make it more effective in accomplishing its objective. But it is -- in the Internal Revenue Code it is collected by the IRS on April 15th. I don't think this is a situation in which you can say -
CHIEF JUSTICE ROBERTS: Well, that's the reason. They thought it might be more effective if they called it a penalty.
GENERAL VERRILLI: Well, I -- you know, I don't -- there is nothing that I know of that - that illuminates that, but certainly -
JUSTICE SCALIA: You're saying that all the discussion we had earlier about how this is one big uniform scheme and the Commerce Clause blah, blah, blah, it really doesn't matter. This is a tax and the Federal Government could simply have said, without all of the rest of this legislation, could simply have said everybody who doesn't buy health insurance at a certain age will be taxed so much money, right?
GENERAL VERRILLI: It -- it used its powers together to solve the problem of the market not -
JUSTICE SCALIA: Yes, but you didn't need that.
GENERAL VERRILLI -- providing for the -
JUSTICE SCALIA: You didn't need that. If it's a tax, it's only -- raising money is enough.
GENERAL VERRILLI: It's justifiable under its tax power.
JUSTICE SCALIA: Extraordinary.
JUSTICE GINSBURG: Mr. Clement, doesn't that work -- that work the way Social Security does?
Let me put it this way. Congress, in the '30s, saw a real problem of people needing to have old age and survivor's insurance. And yes, they did it through a tax, but they said everybody has got to be in it because if we don't have the healthy in it, there's not going to be the money to pay for the ones who become old or disabled or widowed. So they required everyone to contribute.
It was a big fuss about that in the beginning because a lot of people said -- maybe some people still do today -- I could do much better if the government left me alone. I'd go into the private market, I'd buy an annuity, I'd make a great investment, and they're forcing me to paying for this Social Security that I don't want; but, that's constitutional. So if Congress could see this as a problem when we need to have a group that will subsidize the ones who are going to get the benefits, it seems to me you are saying the only way that could be done is if the government does it itself; it can't involve the private market, it can't involve the private insurers. If it wants to do this, Social Security is its model. The government has to do -- has to be government takeover. We can't have the insurance industry in it. Is that your position?
MR. CLEMENT: No. I don't think it is, Justice Ginsburg. I think there are other options that are available.
The most straightforward one would be to figure out what amount of subsidy to the insurance industry is necessary to pay for guaranteed issue and community rating. And once we calculate the amount of that subsidy, we could have a tax that's spread generally through everybody to raise the revenue to pay for that subsidy. That's the way we pay for most subsidies.
JUSTICE SOTOMAYOR: Could we have an exemption? Could the government say, everybody pays a shared health care responsibility payment to offset all the money that we are forced to spend on health care, we the government; but, anybody who has an insurance policy is exempt from that tax? Could the government do that?
MR. CLEMENT: The government might be able to do that. I think it might raise some issues about whether or not that would be a valid exercise of the taxing power.
JUSTICE SOTOMAYOR: Under what theory wouldn't it be?
MR. CLEMENT: Well, I do think that -JUSTICE SOTOMAYOR: We get tax credits for having solar-powered homes. We get tax credits for using fuel efficient cars. Why couldn't we get a tax credit for having health insurance and saving the government from caring for us.
MR. CLEMENT: Well, I think it would depend a little bit on how it was formulated; but, my concern would be -- the constitutional concern would be that it would just be a disguised impermissible direct tax. And I do think -- I mean, I don't want to suggest we get to the taxing power to soon, but I do think it's worth realizing that the taxing power is limited in the ability to impose direct taxes. And the one thing I think the framers would have clearly identified as a direct tax is a tax on not having something.
I mean, the framing generation was divided over whether a tax on carriages was a direct tax or not. Hamilton thought that was a indirect tax; Madison thought it was a direct tax. I have little doubt that both of them would have agreed that a tax on not having a carriage would have clearly been a direct tax. I also think they would have thought it clearly wasn't a valid regulation of the market in carriages. And, you know, I mean, if you look at Hilton [sic] against the United States, that's this Court's first direct tax -
MR. CLEMENT: I would like to say two very brief things about the taxing power, if I could. There are lots of reasons why this isn't a tax. It wasn't denominated a tax. It's not structured as a tax. If it's any tax at all, though, it is a direct tax. Article I, Section 9, clause 4, the Framers would have had no doubt that a tax on not having something is not an excise tax but a forbidden direct tax. That's one more reason why this is not proper legislation because it violates that.
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