"Not a Tax" Comes Back to Haunt ObamaCare


John S. Baker, Jr., Professor of Law, LSU Law School, writes:

           Had Speaker Pelosi paid just a little attention to the Constitution, Obamacare would basically be home free.  Instead, a federal judge in Florida appears poised to declare unconstitutional the requirement that all Americans purchase health insurance or face a monetary penalty beginning in 2014, the so-called “individual mandate.”

            During the legislative debate, Speaker Pelosi was asked whether the individual mandate might be declared unconstitutional. She dismissed the question with “Are you serious?” The federal court in Florida was not so dismissive.  Despite a recent, contrary ruling by a federal court in Michigan, the federal judge in Florida refused to dismiss the constitutional challenge to the individual mandate even as he did dismiss some of the other constitutional claims made by twenty states.

            The result would have been different, however, had Speaker Pelosi understood the constitutional and jurisdictional – as opposed to political -- significance the word “tax.” If the “penalty” attached to the individual mandate is actually a “tax,” then the Tax Anti-Injunction Act would prevent any federal court from exercising jurisdiction over the constitutional challenge to the individual mandate.  Congress long ago barred federal courts from interfering with the collection of federal taxes.

            President Obama had promised that he would not raise taxes on Americans earning under $250,000.  When asked whether the penalty attached to the individual mandate was a tax, President Obama said it was “absolutely not a tax.” He also said “[n]obody considers [it] a tax increase.” Nevertheless, in an attempt to prevent the court from ruling on the constitutionality of the individual mandate, the Obama Justice Department argued that the penalty was in fact a tax. The Justice Department argument failed because the individual mandate provision was written in a way clearly to avoid using the word “tax.”

            The language of the bill and the legislative process demonstrated that Congress chose to make the payment for failure to have health insurance a penalty, and not a tax.  Early drafts of the bill had referred to the payment to be assessed as a tax.  The fact that the word “tax” was dropped from the final version was very significant. Also, elsewhere in the 2,700-page bill, Congress did impose taxes on medical devices, high-cost health insurance policies, high-income taxpayers, and tanning services.  The fact that Congress claimed to be acting, not under its taxing power, but pursuant to the Constitution’s Commerce Clause in providing for the penalty was important. The bill also eliminated the usual enforcement procedures for collecting a tax.  Although taxes usually raise revenue, the legislation failed to indicate that the penalty imposed would actually raise revenue. If -- as claimed by the Department of Justice -- this penalty would raise significant revenue, it was quite strange that the legislation failed to mention those funds when the bill’s supporters were desperately searching for offsetting revenues to reduce the projected increased costs resulting from the healthcare legislation.

            Does it really matter whether Congress used the word “penalty” or a “tax?”  Ironically, the Government’s lead lawyer noted the significance of the word “tax.”  That attorney argued in another case challenging the same legislation that a court’s jurisdiction is appropriately restricted on matters of taxes because “the elected representatives in Congress are held accountable for taxes they impose.”  In other words, courts do not have jurisdiction over the individual mandate because members of Congress are accountable to the electorate for their votes on this “tax.”                

            Of course, the deliberate choice to avoid the T-word was a political calculation intended precisely to avoid such political accountability.

            Now, the litigation consequences of this political calculation are clear.  The choice not to call the penalty a “tax” means that the court has jurisdiction. Had the legislation made the penalty a “tax,” the court would have had little room to disagree.  The court’s opinion indicated as much.  Rather than bullet-proofing the Healthcare bill, Speaker Pelosi and President Obama focused on dodging the political bullet on taxes.


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