A"tell" in poker is a subtle but detectable change in a player's behavior or demeanor that reveals clues about the player's assessment of his hand. Something similar has happened with regard to the insurance mandate at the core of last month's health reform legislation. Congress justified its authority to enact the mandate on the grounds that it is a regulation of commerce. But as this justification came under heavy constitutional fire, the mandate's defenders changed the argument—now claiming constitutional authority under Congress's power to tax.
This switch in constitutional theories is a tell: Defenders of the bill lack confidence in their commerce power theory. The switch also comes too late. When the mandate's constitutionality comes up for review as part of the state attorneys general lawsuit, the Supreme Court will not consider the penalty enforcing the mandate to be a tax because, in the provision that actually defines and imposes the mandate and penalty, Congress did not call it a tax and did not treat it as a tax.
The Patient Protection and Affordable Care Act (aka ObamaCare) includes what it calls an "individual responsibility requirement" that all persons buy health insurance from a private company. Congress justified this mandate under its power to regulate commerce among the several states: "The individual responsibility requirement provided for in this section," the law says, ". . . is commercial and economic in nature, and substantially affects interstate commerce, as a result of the effects described in paragraph (2)." Paragraph (2) then begins: "The requirement regulates activity that is commercial and economic in nature: economic and financial decisions about how and when health care is paid for, and when health insurance is purchased."
In this way, the statute speciously tries to convert inactivity into the "activity" of making a "decision." By this reasoning, your "decision" not to take a job, not to sell your house, or not to buy a Chevrolet is an "activity that is commercial and economic in nature" that can be mandated by Congress.
It is true that the Supreme Court has interpreted the Commerce Clause broadly enough to reach wholly intrastate economic "activity" that substantially affects interstate commerce. But the Court has never upheld a requirement that individuals who are doing nothing must engage in economic activity by entering into a contractual relationship with a private company. Such a claim of power is literally unprecedented.
Since this Commerce Clause language was first proposed in the Senate last December, Democratic legislators and law professors alike breezily dismissed any constitutional objections as preposterous. After the bill was enacted, critics branded lawsuits by state attorneys general challenging the insurance mandate as frivolous. Yet, unable to produce a single example of Congress using its commerce power this way, the defenders of the personal mandate began to shift grounds.
On March 21, the same day the House approved the Senate version of the legislation, the staff of the Joint Committee on Taxation released a 157-page "technical explanation" of the bill. The word "commerce" appeared nowhere. Instead, the personal mandate is dubbed an "Excise Tax on Individuals Without Essential Health Benefits Coverage." But while the enacted bill does impose excise taxes on "high cost," employer-sponsored insurance plans and "indoor tanning services," the statute never describes the regulatory "penalty" it imposes for violating the mandate as an "excise tax." It is expressly called a "penalty."
This shift won't work. The Supreme Court will not allow staffers and lawyers to change the statutory cards that Congress already dealt when it adopted the Senate language.
In the 1920s, when Congress wanted to prohibit activity that was then deemed to be solely within the police power of states, it tried to penalize the activity using its tax power. In Bailey v. Drexel Furniture (1922) the Supreme Court struck down such a penalty saying, "there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty with the characteristics of regulation and punishment."
Although the Court has never repudiated this principle, the Court now interprets the commerce power far more broadly. Thus Congress may regulate or prohibit intrastate economic activity directly without invoking its taxation power. Yet precisely because a mandate to engage in economic activity has never been upheld by the Court, the tax power is once again being used to escape constitutional limits on Congress's regulatory power.
Supporters of the mandate cite U.S. v. Kahriger (1953), where the Court upheld a punitive tax on gambling by saying that "[u]nless there are provisions extraneous to any tax need, courts are without authority to limit the exercise of the taxing power." Yet the Court in Kahriger also cited Bailey with approval. The key to understanding Kahriger is the proposition the Court there rejected: "it is said that Congress, under the pretense of exercising its power to tax has attempted to penalize illegal intrastate gambling through the regulatory features of the Act" (emphasis added).
In other words, the Court in Kahriger declined to look behind Congress's assertion that it was exercising its tax power to see whether a measure was really a regulatory penalty. As the Court said in Sonzinsky v. U.S. (1937), "[i]nquiry into the hidden motives which may move Congress to exercise a power constitutionally conferred upon it is beyond the competency of courts." But this principle cuts both ways. Neither will the Court look behind Congress's inadequate assertion of its commerce power to speculate as to whether a measure was "really" a tax. The Court will read the cards as Congress dealt them.
Congress simply did not enact the personal insurance mandate pursuant to its tax powers. To the contrary, the statute expressly says the mandate "regulates activity that is commercial and economic in nature." It never mentions the tax power and none of its eight findings mention raising any revenue with the penalty.
Moreover, while inserting the mandate into the Internal Revenue Code, Congress then expressly severed the penalty from the normal enforcement mechanisms of the tax code. The failure to pay the penalty "shall not be subject to any criminal prosecution or penalty with respect to such failure." Nor shall the IRS "file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section," or "levy on any such property with respect to such failure."
In short, the "penalty" is explicitly justified as a penalty to enforce a regulation of economic activity and not as a tax. There is no authority for the Court to recharacterize a regulation as a tax when doing so is contrary to the express and actual regulatory purpose of Congress.
So defenders of the mandate are making yet another unprecedented claim. Never before has the Court looked behind Congress's unconstitutional assertion of its commerce power to see if a measure could have been justified as a tax. For that matter, never before has a "tax" penalty been used to mandate, rather than discourage or prohibit, economic activity.
Are there now five justices willing to expand the commerce and tax powers of Congress where they have never gone before? Will the Court empower Congress to mandate any activity on the theory that a "decision" not to act somehow affects interstate commerce? Will the Court accept that Congress has the power to mandate any activity so long as it is included in the Internal Revenue Code and the IRS does the enforcing?
Yes, the smart money is always on the Court upholding an act of Congress. But given the hand Congress is now holding, I would not bet the farm.
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