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The Individual Mandate and the Tax Power

March 28, 2012 8:00 AM

Gillian Metzger
Vice Dean and Stanley H. Fuld Professor of Law, Columbia Law School

Erwin Chemerinsky's post well-states the argument for the constitutionality of the individual mandate---the requirement that individuals purchase health insurance or pay a penalty---under the Commerce Clause. I agree that the mandate falls well within the existing scope of Congress's commerce power: It is a regulation of quintessential economic activity, specifically individuals' actions in accessing and paying for health care. As Judge Sutton put it, "No one is inactive when deciding to pay for health care, as self-insurance and private insurance are two forms of action for addressing the same risk. Each requires affirmative choices; one is no less active than the other; and both affect commerce." Thomas More Law Center v. Obama, 651 F.3d 529, 561 (6th Cir. 2011). And while Michael Rosman argues that requiring insurance is not the same thing as regulating how people pay for health care, I think the link between the two is plainly sufficient to fall within the broad deference given to Congress when it is addressing economic activity that substantially affects interstate commerce.

I also agree with Richard Epstein that the goal of the mandate is in part to subsidize the cost of insurance for all by guaranteeing that the pool of insured individuals is broad. He views this as society "free-riding" on the young and healthy. But let's be clear, there's plenty of free-riding going on here by all. The young and healthy, as well as those who aren't so healthy but can't afford insurance, are free-riding on the requirement that emergency care will be available regardless of ability to pay. More to the point, there's no constitutional prohibition on forcing the young and healthy to help subsidize the old and infirm. That's the kind of economic and social policy choice that is for the political branches, not the courts, to make.

Epstein argues that the proper way to do this kind of subsidization is through imposing a tax on general revenues, not through the mandate. Yet while the mandate doesn't target general revenues, a strong argument can be made that it is a tax. Under the Affordable Care Act, the only consequence for individuals who don't buy insurance is that they must pay an annual penalty on their tax returns. To be sure, the primary goal of the mandate is to encourage individuals to purchase insurance, but it is well established that a tax can serve a regulatory purpose. All the Court has required for a tax to be valid is that it serve the general welfare, be revenue raising, and not violate any independent constitutional prohibitions, including the bar on an unapportioned direct tax. The mandate satisfies these minimal conditions. It reduces the cost of health insurance, is estimated to raise $4 billion a year, and does not fall into the narrow categories of capitation and property taxes found to constitute direct taxes.

As Nadine Strossen notes, Monday's arguments on the applicability of the Tax Anti-Injunction Act (AIA) previewed the tax power defense of the mandate, with Justice Alito underscoring the seeming inconsistency in arguing that the mandate was not a tax for AIA purposes yet was sustainable as an exercise of the tax power. We'll find out Tuesday whether the Justices' apparent skepticism about the mandate's status as a tax for AIA purposes carries over to the tax power argument. But it shouldn't.

The question of whether the mandate is a tax for AIA purposes is fundamentally an issue of statutory interpretation. By contrast, the question of whether it falls under the tax power is necessarily a constitutional inquiry. Some lower court judges have mistakenly elided the statutory and constitutional investigations, concluding that the tax power argument fails because Congress did not intend the mandate to be a tax. This conclusion ignores considerable evidence in the record to the contrary, not least of which is that Congress included the mandate in the Internal Revenue Code and made it enforceable only through a penalty to be paid as part of an individual's annual income tax return. More importantly, this conclusion is at odds with the presumption of constitutionality that ordinarily attaches to congressional legislation. Paying due respect to Congress precludes concluding that it has disavowed a constitutional basis for a challenged enactment absent clear evidence to that effect---and such clear evidence simply isn't present here.




Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.