The Power to Tax Is The Power

Understanding the Supreme Court's ObamaCare ruling

Author's Note: In light of Thursday's Supreme Court decision to uphold the Affordable Care Act's insurance mandate on the basis of Congress's taxing power rather than the Commerce Clause, a slightly modified reprise of this November 27, 2009, column seems appropriate. Note the part about the Supreme Court's long-standing position that Congress may regulate conduct through the tax system.

Ruth Marcus, Washington Post op-ed writer, tried to make a constitutional case  for the individual health insurance mandate that Congress will surely pass before the year is over. She offered two grounds, the Commerce Clause, which is specified in Senate Majority Leader Harry Reid's bill, and the taxing power.

On the first she writes:

Spending on health care consumes 16 percent–and growing–of the gross domestic product. There is hardly an individual activity with greater effect on commerce than the consumption of health care.

If you arrive uninsured at an emergency room, that has ripple effects through the national economy–driving up costs and premiums for everyone. If you go without insurance, that limits the size of the pool of insured individuals and–assuming you are young and healthy–drives up premium costs.

. . . [S]ince the New Deal, the Supreme Court has interpreted this authority to cover local activities with national implications.

 Narrow Power?

I won't repeat what I wrote previously about this strained argument. I don't agree with the constitutionalists who insist that the Commerce Clause was meant to be a narrow power intended only to create a free-trade zone among the states. In the Federalist Papers Alexander Hamilton complained that tariffs were too low under the Articles of Confederation, and in fact the states did not block one another's products. Historian William Crosskey makes a powerful case that the clause was intended by the leading framers as a general power to regulate economic activity, intra- and interstate. Moreover, the Antifederalists warned us (and James Madison later agreed) that the Constitution did not really establish a government of "few and defined" powers. (See my "The Constitution or Liberty"  and "Was the Constitution Really Meant to Constrain the Government?" )

Nevertheless, there is a distinction between regulating commerce and compelling everyone to buy a product offered commercially. It's a stretch to say such compulsion is permitted if it is connected to a congressional effort with respect to interstate commerce. Even Marcus seems to sense the stretch:

Granted, there is a difference between regulating an activity that an individual chooses to engage in and requiring an individual to purchase a good or service. . . .

But the individual mandate is central to the larger effort to reform the insurance market. Congress may not be empowered to order everyone to go shopping to boost the economy. Yet health insurance is so central to health care, and the individual mandate so entwined with the effort to reform the system, that this seems like a different, perhaps unique, case.

So why can't Congress order us to shop for the sake of "the economy"? Health insurance seems different to her, but it doesn't seem different to me. How will it seem to the nine Supreme Court justices?

Let's not forget, by the way, that Congress could reform the medical and medical-insurance without imposing a mandate by simply removing all barriers to competition. It would be nice if we could count on the court, at the very least, to forbid Congress from achieving a goal by means that violate freedom if means are available that do not. But let's hold our breath.

The Taxing Power

On to the justification for the mandate via taxing power. Marcus writes:

The individual mandate is to be administered through the tax code: On their forms, taxpayers will have to submit evidence of adequate insurance or, unless they qualify for a hardship exemption, pay a penalty.

Yale Law School professor Jack Balkin likens this to Congress raising money for environmental programs by taxing polluters. "Congress is entitled to raise revenues from persons whose actions specifically contribute to a social problem that Congress seeks to remedy through new government programs," he concludes.

Just because the IRS will police the mandate does not make this an issue of taxation. As written, the bill would impose a fine for not having insurance. How's that a tax? In fact, President Obama insisted to ABC's George Stephanopoulos that a fine for flouting the mandate is not a tax. "No, but—but, George, you—you can't just make up that language and decide that that's called a tax increase," Obama said. Guys, let's get our stories straight.

Missing the Mark

Balkin's example misses the mark. Since a polluter aggresses against innocents, a "tax" on him could be construed as restitution (if the money went to those damaged). There's no analogy with a fine for not having insurance. Obama would say the uninsured cost the rest of us money, but that's certainly not true of anyone who pays for medical care out of savings. Besides, the uninsured get an unfair rap. It is the insured, not the uninsured, who bid up the real price of medical services: Under the current interventionist system those services appear cheap and even free to those with insurance. The uninsured are the victims not the perpetrators.

I realize that these arguments are futile. As Balkin points out, the Supreme Court has long held that the government may use the tax system to regulate conduct—even if regulation, and not revenue, is the primary motive. As the Court said in U.S. v. Sanchez (1950), citing precedents from the 1930s:

It is beyond serious question that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed. . . . The principle applies even though the revenue obtained is obviously negligible . . . or the revenue purpose of the tax may be secondary. . . . Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate. [Emphasis added.]

Let that last phrase sink in. To amplify it the Court quoted an earlier case, Magnano Co. v. Hamilton (1934):

From the beginning of our government, the courts have sustained taxes although imposed with the collateral intent of effecting ulterior ends which, considered apart, were beyond the constitutional power of the lawmakers to realize by legislation directly addressed to their accomplishment. [Emphasis added.]

Congress may do via the taxing power even things it may not do directly.

Don't Blame the New Deal

It may be tempting to blame this all on the New Deal courts. But that temptation should fade as one reads the warnings issued by the Antifederalists while the ink was still wet on the constitutional parchment. As one Antifederalist said, "By virtue of their power of taxation, Congress may command the whole, or any part of the property of the people." And another: "[T]his power therefore is neither more nor less, than a power to lay and collect taxes, imposts, and excises at their pleasure; not only [is] the power to lay taxes unlimited, as to the amount they may require, but it is perfect and absolute to raise them in any mode they please."

Too bad they weren't listened to.

Sheldon Richman is editor of The Freeman, where this article originally appeared.