A Net Expansion of Federal Power

This article first appeared in Counselor Magazine published by the University of Cincinnati College of Law.

Contrary to popular opinion, the challenge to the constitutionality of the Affordable Care Act was about federal power, not healthcare.

At issue: Can Congress impose an “individual mandate” to require people to purchase health insurance or pay a penalty (or, alternatively, can it impose a tax on being uninsured), and can it induce states to participate in a major Medicaid expansion by threatening to terminate all Medicaid funding if they don’t?

These are important questions.  If the federal government can mandate private purchases, it can force A to give money to B without first taxing A and, by logical extension, can impose other intrusive mandates on private conduct.  And if it can induce States to participate in federal programs by making them an offer they can’t refuse, it can effectively force State legislatures to raise taxes to fund federal programs.

In an opinion written by Chief Justice Roberts, the Court said:

  • The individual mandate exceeds Congress’s power to regulate interstate commerce because it compels commerce instead of regulating it and is not “necessary and proper” for implementing insurance reforms, but the penalty for being uninsured can survive as a “tax” under Congress’s power to “lay and collect Taxes.”
  • The Medicaid expansion program exceeds Congress’s spending power because it commandeers the states in violation of the Constitution, but the Court will preserve the program on altered terms by letting states opt-out of it without losing Medicaid funding.

The tax and opt-out decisions were decided 5-4, with Justice Roberts joining the four “liberal” Justices and casting the deciding vote.

The tax decision shocked many observers because it:

  • Relies on a theory that was rejected by all the lower courts and received almost no attention in the briefs and oral arguments.
  • Ignores precedent and logic to conclude that the “tax” at issue is not a “direct tax,” although the Court did not say what type of tax it is.  This avoided a constitutional requirement that direct taxes must be apportioned among the States based on population.  Until now, the apportionment requirement applied to taxes other than income taxes, which are direct taxes exempt from apportionment under the Sixteenth Amendment, and excise taxes, which are indirect taxes imposed on activities and products and not subject to apportionment.
  • Is analytically weak in saying that taxing your failure to buy health insurance is the same as denying you a tax deduction if you don’t borrow to buy a home.  Both create incentives to buy something (i.e., health insurance; houses), but taxes on inactivity can take all your income, while forgoing tax deductions won’t do that unless income tax rates are 100%.  Justice Roberts’ analogy assumes a world in which the federal government has a legitimate claim on all income (and therefore property), an assumption most people would find absurd and morally objectionable.
  • Ignores the fact that a tax that applies merely because you exist is different in kind from all other federal taxes, which people can avoid by their choice of activities and property ownership.

The opt-out decision also surprised many observers because it preserves the Medicaid expansion program on altered terms by relying on a severability provision not found in the Affordable Care Act.  A State that opts out will now get less Medicaid funding than other States even though its residents pay the same Medicaid payroll taxes.

Many believe (some approvingly) that by re-characterizing the individual mandate as a “tax” and going out of his way to save the Medicaid expansion program, Justice Roberts made a political, not legal, decision under pressure from the administration.  Whatever his motivation, the obvious weaknesses in his opinion make that view plausible, which could significantly harm the credibility of the Court and weaken the Constitution.

In any event, the net effect of the decision is expanded federal power.  The commerce power and spending power decisions impose important limits on federal power.  But the tax decision gives Congress unprecedented power to induce private conduct, including non-economic conduct, by taxing the failure to engage in that conduct.  Unless the Court limits that power in the future, it will be the equivalent of the general regulatory “police power” the administration unsuccessfully sought under the commerce power.

At the same time, the expanded taxing power is arguably less of a threat to liberty than an unlimited commerce power.  It is enforceable only by monetary exactions, while the commerce power can be enforced by imprisonment, and the Court said those exactions cannot be “punitive”.  The Court may also limit future taxes on inactivity to people who owe income taxes, the category of people affected by the individual mandate tax.

About Jack Painter

Jack Painter is a corporate attorney in Cincinnati, Ohio.