Tax Foundation Brief: Health Care Individual Mandate Beyond Congress’s Taxing Power

February 13, 2012

Today we filed a brief with the U.S. Supreme Court explaining that the health care “individual mandate” is beyond Congress’s taxing power.

On March 26-28, 2012, the Court will be hearing a record 5-1/2 hours of oral argument on the constitutionality of the Patient Protection and Affordable Care Act (PPACA), sometimes known as Obamacare or the health care reform law. The Court will be considering whether the law can be challenged despite the Anti-Injunction Act, whether the “individual mandate” requiring all Americans to purchase health insurance is severable from the rest of the bill, and whether the law is permitted under Congress’s power to regulate interstate commerce or its power to tax.

Our brief focuses on this last question: whether the individual mandate is permissible under Congress’s power to tax. We argue that it is not, because it is properly considered a penalty and not a tax:

  • Long-standing American suspicion of taxes, which dates from colonial times, has led to numerous federal and state restrictions specific only to taxes, such as the federal Anti-Injunction Act, state-level supermajority or multiple reading requirements, and voter approval thresholds.
  • These requirements in turn have necessitated a meaningful definition of “tax,” particularly to contrast against other government actions that result in revenue, such as fees and penalties.
  • Federal and state courts have risen to meet that need, articulating a definition that is widely accepted today:
    • (a) a tax is an exaction imposed for the primary purpose of raising revenue for general spending,
    • (b) a fee is an exaction imposed for the primary purpose of recovering from the payor the cost of providing a particular service to the payor, and
    • (c) a penalty is an exaction imposed for the primary purpose ofpunishing the payor for an unlawful act.
  • This definitional construct, best articulated by then-Judge Stephen Breyer on the First Circuit Court of Appeals, has strong historical and economic underpinnings, is supported by this Court’s precedents and the academic literature, and is widely used by numerous federal and state courts.
  • The PPACA bill itself and accompanying technical documents, as well as statements by President Obama, further show that the mandate should not be considered a tax.
  • The individual mandate is thus properly considered a penalty and not a tax for purposes of the U.S. Constitution’s Taxing Power and for purposes of the Anti-Injunction Act.
  • Holding otherwise jeopardizes a widely-used, long-standing, working definitional construct, which would have severe implications for taxpayer protections and revenue statutes across the country.
  • If the individual mandate is a tax, it is an unapportioned direct tax and thus unconstitutional.

Our brief lists pages of tax-definition precedents from nearly every federal and state court that would be jeopardized by a Supreme Court ruling that the individual mandate is a tax.

You may read our brief here or download a PDF version here.

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