The Volokh Conspiracy

Congress’s inquiry into IRS abuses has now expanded beyond the hounding of domestic-policy conservative groups to Israel related ones. In a letter today the Chairman and minority leader of the Ways and Means Committee demand information on whether the agency “undertook special reviews of organizations whose missions involve Israel” and whose activities “contradict or are inconsistent with the Administration’s policies.” Will this be within the scope of the Justice Department investigation?

Again, if the IRS did so, it was only doing what the New York Times (and Peace Now and J Street) told it to.

The Acting Commissioner appears for a hearing on Friday (after the Jewish holiday of Shavuot).

In addition to the IRS’s particular interest in right-wing groups focussed on domestic policy, it has taken an unusual interest in right-wing pro-Israel groups. (I am friends with the leader of the group written about in the link.)

One major question raised by the IRS scandal is where these ideas came from. At least as far as Jewish groups go, the IRS scrutiny is not a fluke. That is not to suggest it was ordered by the White House – that is highly unlikely. At the same time, it certainly does not come out of the blue. The past several years have seen a concerted campaign in the mainstream liberal press to bring the IRS down upon certain pro-Israel groups, particularly those that support activities in the West Bank (or the Territories Formerly Occupied By Jordan).

For example, in 2009 David Ignatius had a story in the Washington Post, A Tax Break Fuels Middle East Friction. “Critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns,” he wrote. The Guardian in 2009 also had a piece calling for IRS action.

In 2010, the New York Times continued the theme with a massive, expose-style front page story, which concluded that while such tax breaks do not seem to be exactly illegal, it creates :a surprising juxtaposition: As the American government seeks to end the four-decade Jewish settlement enterprise and foster a Palestinian state in the West Bank, the American Treasury helps sustain the settlements through tax breaks on donations to support them.” The article then tried to raise questions about whether such groups really satisfied U.S. tax-deductible requirements, suggesting the IRS should look into them. The activities the supported, the Times article suggests, were illegal and extremist.

Picking up the gauntlet, J Street called on the IRS to “probe” groups that support settlements, despite there being no apparent violation of tax laws involved.

And last year, an op-ed in the Times by Peter Beinart argued that “we should push to end Internal Revenue Service policies that allow Americans to make tax-deductible gifts to settler charities.”

This is just a sampling: the notion that right wing Jewish groups should be “probed” by the IRS because they do not line up with President Obama’s (former?) absolutist anti-settlement policy is not a new one. All the organs of intelligent opinion agreed that some generally right wing Jewish groups need to be dealt with by the IRS because they contradict government policy, not because of any evidence of tax fraud. And surely IRS bosses read the Post and the Times; it may even be their “absolute truth” as Times editor Jill Abramson memorably put it.

It would be interesting to find out whether the particular groups mentioned in these articles received any unusual requests from the IRS: I’d love to know either way.

Of course, there may be no direct connection between the campaign for such audits, and the action the IRS in fact took. But nor can one say the IRS action came out of nowhere, was some random frolic and detour.

Similarly, the action against Tea Party groups is not surprising. If one reads that they are racist, dangerous groups, then one might think their tax status is worth looking into.

Colorado’s Constitution (Art. X, sect. 20) is the Taxpayer’s Bill of Rights. Like similar provisions in other states, Colorado’s TABOR requires voter approval for tax increases, and for most spending increases that exceed inflation plus population growth. Several state legislators have filed suit in federal court to have TABOR declared unconstitutional. Allegedly, requiring voter approval for tax or spending increases violates Article IV, sect. 4 of the U.S. Constitution, which provides: “The United States shall guarantee to every State a Republican Form of Government. . . .”

In federal district court, the Colorado Attorney General filed a motion to dismiss Kerr v. Hickenlooper, based on the argument that RFOG claims are non-justiciable. That motion was denied, and the case is currently on interlocutory appeal to the 10th Circuit.

On Friday, I filed an amicus brief on behalf of the Independence Institute and the Cato Institute. The brief draws heavily from Rob Natelson’s article, A Republic, Not a Democracy? Initiative, Referendum, and the Constitution’s Guarantee Clause. 80 Texas Law Review 807 (2002). Natelson shows that the Founders consistently used the words “republic” or “republican” to refer to governments which had direct democracy. As the brief summarizes an analysis of every known Founding-Era dictionary: “Not one of these sixteen definitions from nine different Founding-Era definitions contained the least suggestion that a republic had to be purely representative.”

Moreover, the Supreme Court, in Luther v. Borden and Minor v. Happersett, has stated that the admission of a State into the Union is a conclusive determination that the State, at the time of admission, had a Republican Form of Government. Significantly:

In 1907, Congress admitted Oklahoma into the Union, although Oklahoma’s Constitution contained very strong provisions for initiative and referendum (Okla. Const., art. V, §§1-7) and provided for a mandatory referendum before the legislature could incur debt. Id. art. X, §25. Similarly, in 1912, Congress admitted New Mexico with a constitution that specifically contemplated enactment of laws, including fiscal measures, by citizen initiative. N.M. Const., art. XIX, §3.

Opponents of direct democracy rely heavily on a line from James Madison’s Federalist no. 10. They are misreading the document, however. Madison was criticizing pure democracy (no representation, no magistrates). A fuller examination of The Federalist shows that direct democracy was an accepted feature of what was considered to be a “republic.” See Federalists 6, 39, 43, 55, 63.

Many polls show that large majorities of the public want to raise tax rates on people earning over $250,000 per year. But in an interesting recent post on the Democrats’ approach to tax policy, Megan McArdle cites an interesting 2012 poll of likely voters conducted for The Hill, which shows that the vast majority of Americans prefer rates that are much lower than those that existed even before the the recent fiscal cliff deal:

Three-quarters of likely voters believe the nation’s top earners should pay lower, not higher, tax rates, according to a new poll for The Hill.

The big majority opted for a lower tax bill when asked to choose specific rates; precisely 75 percent said the right level for top earners was 30 percent or below.

The current rate for top earners is 35 percent [the rate that existed before the fiscal cliff deal - IS]. Only 4 percent thought it was appropriate to take 40 percent, which is approximately the level that President Obama is seeking from January 2013 onward...

The new data seem to run counter to several polls that have found support for raising taxes on high-income earners....

But The Hill poll found that a dramatically different picture emerges when voters are asked to specify the “most appropriate” rates.

Support for relatively low tax rates was not limited to Republicans or high-income earners. Indeed, low tax rates for the wealthy got their highest level of support from relatively low-income survey respondents, and their lowest level from the wealthy themselves:

Republicans were more likely than Democrats to support lower tax rates for the wealthy, but voters in both parties solidly supported lower rates compared to current law. Eighty-one percent of Republicans favored tax rates below current levels, compared to 70 percent of Democrats.

The Hill Poll, conducted by Pulse Opinion Research of 1,000 likely voters, also found broad support for lower rates across income groups. The group most supportive of lowering tax rates on the wealthy below current rates made between $20,000 and $40,000 a year; 81 percent supported tax rates of 30 percent or lower....

Of the income groups surveyed, those making more than $100,000 a year were the least supportive of lower rates, with just 66 percent supporting income tax rates of 30 percent or lower. That group was most likely to support income tax rates of 40 percent. Eleven percent of those voters said a 40 percent tax rate was most appropriate.

This result is not an anomaly, and is in fact consistent with previous poll results that ask questions about specific tax rates, such as this 2009 Tax Foundation study.

Why is it that large majorities simultaneously support increasing income taxes on people earning over $250,000 per year, but also believe that they should be taxed at a lower rate than existed even before the recent fiscal cliff deal raised it for individuals earning over $400,000, and families earning over $450,000? As The Hill points out, the most likely explanation is political ignorance. Most people probably don’t know what tax rates are currently in force, especially for people in income classes other than their own:

One possible explanation is voters may not know how much the nation’s top earners are already being taxed. The poll did not ask voters to identify current tax rates before saying what rate they favored.

“It might be that people are underestimating how much the rich pay now,” said Bruce Bartlett, a former Reagan adviser and Treasury official under President George H.W. Bush [Note: Bartlett is indeed a former adviser to Reagan and Bush I, but he has also moved to the left on economic issues in recent years].

If most of the public is indeed ignorant on this point, it would be consistent with extensive political ignorance on a wide range of other issues, including fiscal policy and the federal budget.

To be clear, I am not suggesting that raising tax rates above 30 percent is a bad idea merely because the vast majority of the public opposes it. Most of the public has little understanding of the relevant arguments and data. Their views are only a weak indicator at best of the desirability of particular tax rates. But the data do suggest that ignorance of current tax rates may be a strong influence on the distribution of public opinion on tax issues. And public opinion, in turn, has an influence on policy, even if it’s not the only factor affecting it.

The Washington Post reports that Congress and the president are considering abolishing the mortgage interest deduction as part of a deal to avoid the “fiscal cliff”:

Of all the deductions woven into the sprawling U.S. tax code, few have been more fiercely guarded than the enormous tax break that lets homeowners deduct the interest they pay on their mortgages.

But as Congress and the White House negotiate the first major rewrite of tax laws in decades, changing the generations-old mortgage-interest deduction — which costs the government roughly $100 billion a year — has gone from far-off possibility to part of the conversation....

Current law allows homeowners to deduct the interest paid on mortgage balances up to $1 million, including on second homes, as well as on $100,000 worth of home-equity loans. The deduction overwhelmingly benefits wealthier families, partly because they tend to have larger mortgages and pay more interest, and partly because most low- and middle-income Americans do not itemize deductions on their tax returns.

Most economists and property law scholars have long been critical of the deduction for reasons I summarized here. The deduction incentivizes overinvestment in land as opposed to other parts of the economy, and it skews people’s decisions towards homeownership and away from renting. Although homeownership has some benefits, it also has significant costs. On balance, government should be neutral between owning and renting, not try to favor one over the other.

As the Post points out, the deduction also overwhelmingly benefits the wealthy. The story quotes USC law professor Edward Kleinbard, as follows:

Edward Kleinbard, a tax expert and law professor at the University of Southern California, said the mortgage-interest deduction represents the kind of government “extravagance” that the country no longer can justify, given its fiscal troubles.

“We simply cannot afford wasteful government subsidy programs anymore, and this is one of the most important examples of that,” Kleinbard said. “It’s very much a subsidy to those Americans who need it least.”

I agree. However, as both the Post and Mark Edwards at PropertyProf Blog emphasize, the deduction still enjoys strong political support. Mortgage lenders and the real estate industry are among its powerful interest group backers, and it still enjoys considerable popularity with the general public, though many are willing to reduce it for higher-income homebuyers.

The deduction’s popularity and strong support from powerful interest groups have enabled it to survive previous attacks by would-be budget-cutters, not to mention years of criticism from scholars. It’s far from certain that its luck will run out this time. The sacred cow might yet wriggle its way off the fiscal cliff chopping block. But the severity of the fiscal crisis does make it more vulnerable than it was in the past.

In my view, the deduction should be abolished completely, not just for the wealthy. If we want to lower the tax burden for the poor or the lower-middle class, the best way to do so is to reduce their income or payroll tax rates across the board, not give them a deduction that only applies if they buy a particular product, thereby skewing their incentives.

It may be defensible to argue that abolition should be phased in gradually over a period of several years. That way, we can smooth the transition for homeowners who relied on the deduction when they took out mortgages they are currently still repaying. While the government is not legally obligated to protect such reliance interests, there may be a policy case for doing so. The word “may” is a crucial qualification here. I’m far from certain about whether and to what extent abolition should be phased in gradually as opposed to immediately. Regardless the reliance argument does not apply to new purchases that occur after the deduction has been abolished. For them, abolition can be immediate.

UPDATE: The Promethefeu blog criticizes my tentative suggestion that we do a gradual phaseout of the mortgage interest deduction for current mortgage-holders:

This is a mistake for several reasons. First, current homeowners do have a reliance interest in home-buyers benefiting from the deduction. If home-buyers can expect to get the deduction, they will be willing and able to pay more for houses. This is something that homeowners relied upon when they bought their houses. If the deduction is abolished, this could mean a significant hit to home values and whatever plans homeowners may have made relying upon that home value could be disrupted.

Second, and I think much more importantly, this would create a harmful discontinuity in the real estate market: If you currently have a mortgage, you would have an incentive to stay in your current house for longer than optimal in order to avoid giving up the deduction. Otherwise, you would have to settle for a cheaper place/dig into your capital/pay a higher mortgage.

On the first point, I agree that current homeowners may have some reliance interest in the effect of the mortgage interest deduction on the resale price of their houses. However, the reliance interest here is much smaller than that embedded in their payment plans for their current mortgage. Home prices fluctuate for a wide range of reasons, and we can reasonably expect people who purchase real estate to be aware of that. The diminution caused by eliminating the mortgage interest deduction is just one of many factors that could cause a substantial change in resale price.

The second point is valid. However, it is mitigated by the fact that I don’t propose to keep the deduction in place for current mortgages permanently. I would merely phase in its abolition over a period of a few years. That should greatly reduce the potential distortion in the real estate market.

That said, as I noted in my original post, I’m far from certain that a phased abolition of the deduction really is preferable to an immediate. It’s possible that we should slaughter the sacred cow all at once, rather than opt for a slow, lingering death.

 
I find it strange that the Obama campaign would be making so much of Romney’s income from foreign sources when Obama’s foreign source income appears to be a much bigger percentage of his income over the last few years. Of course, one can’t tell for sure because Mitt Romney has not released his 2009 tax return.

Yet in the three tax years in which Barack Obama has been President (2009, 2010, and 2011), fully 30.1% of the Obamas’ gross income has come from foreign sources: ($2,711,340 out of a 3-year total gross income of $8,993,449).  In 2009, 26.5% of the Obamas’ gross income came from foreign sources. In 2010 it was a whopping 41.4%, and in 2010 it was 30.2%.

The salary that we taxpayers pay him as President (just under $1.2 million over the 3 years) accounted for less than 13% of the Obamas’ income, a share dwarfed by their 30% from foreign sources over the same period.

From 2009 through 2011, the Obamas paid $87,429 in foreign taxes, which they applied toward a credit to reduce their U.S. tax bill.  The amounts I examined are reported on Form 1116, of which there are two filed along with their 1040 when they had both general and passive foreign income.

Their returns do not disclose which foreign countries are responsible for paying the Obamas the $2.7 million in foreign source income, but the overwhelming bulk of it must come from payments resulting directly or indirectly from book sales.  Nonetheless, the Obamas did report a total of $3,611 in foreign passive income in 2009 and 2010, a type of income that most often results from investments in foreign countries.  Like some of the foreign investments for which Romney has been pilloried, this Obama passive foreign income might result from the foreign investments of U.S. financial entities in which the Obamas invested. [See update below; the passive income indeed came from the foreign investments of a U.S. entity in which the Obama's had an interest (Michelle Obama in a beneficiary), but it is not one over which they had any control over the investments.]

I hope that the White House press will be able to determine the foreign sources that account for over 30% of the Obamas’ income. And given President Obama’s campaign rhetoric, I would especially like to know the origins of the foreign passive income [again, see below].

UPDATE: Mystery solved. Jeffery Silver, Visiting Asst. Professor at Detroit Mercy, kindly emails to point out that in the 2010 return Statement 14 following one of the the Obamas’ Forms 1116 shows that 2010′s passive foreign source income ($1,571) resulted from “Freeman Henry G. Jr. Decd TW,” which is the so-called “Pin Money Trust” set up for first ladies by Henry Freeman, who died in 1917. The 2009 return does not appear to contain a similar statement, but given the similarity in amounts, the passive income in that year must come from the same source. Just to be clear, the Obamas would have no discretion over the investment of the Freeman Trust.

In NFIB v. Sebelius, Chief Justice Roberts imagined a hypothetical federal tax on windows, in order to bolster his point that the Court should treat the individual mandate as a “tax,” even though the Obamacare statute calls it a “penalty.”

Suppose Congress enacted a statute providing that every taxpayer who owns a house without energy efficient windows must pay $50 to the IRS. The amount due is adjusted based on factors such as taxable income and joint filing status, and is paid along with the taxpayer’s income tax return. Those whose income is below the filing threshold need not pay. The required payment is not called a “tax,”a “penalty,” or anything else. No one would doubt that this law imposed a tax, and was within Congress’s power to tax. That conclusion should not change simply because Congress used the word “penalty” to describe the payment. Interpreting such a law to be a tax would hardly “[i]mpos[e] a tax through judicial legislation.” Post, at 25. Rather, it would give practical effect to the Legislature’s enactment.

The above language is a plausible argument for the Chief Justice’s tax/penalty analysis. But by discussing a window tax, the Roberts opinion provides one more reminder why the individual mandate, if it is a tax, is a direct tax, not an indirect tax. Direct taxes must be apportioned by state population. Art. I, sect. 9, cl. 4. If the individual mandate is a direct tax, then it is unconstitutional, because it is not apportioned by state population.

Pursuant to the 16th Amendment, direct taxes on income need not be apportioned, but neither the individual mandate nor the hypothetical window tax are taxes on income. Constitutionally, “income” subject to the federal income tax must be  ”undeniable accessions to wealth.” Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). A decision not to buy overpriced insurance from Congress’s Big Insurance pets, like the decision not to buy a particular type of window, is not an “accession to wealth.” The decision provides no additional income to the person.

So let’s accept Chief Justice Roberts’ theory that a window tax and the individual mandate are analytically comparable. On July 9, 1798, Congress enacted a direct tax statute, to pay for national defense preparations against France. “An Act to provide for the valuation of lands and dwelling-houses, and the enumeration of slaves, within the United States. On July 14, Congress passed the “Direct Tax Act,” to provide for collection of the July 9 taxes. Pursuant to the Direct Tax Act, federal assessors were to examine houses to assess them for purposes of the direct tax. In addition, the Direct Tax Act ordered the assessors make records of the number and sizes of windows in each house. The window data were to be gathered so that Congress could, in the future, decide to impose a direct tax on windows. Paul Douglas Newman, Fries’s Rebellion: The Enduring Struggle for the American Revolution 76-77 (2004).

It seems there was no dispute that a window tax was a direct tax. A fortiori, a tax on not having certain types of windows would be also be a direct tax. This is one more piece of evidence that Chief Justice Roberts was wrong in stating that the individual mandate “tax” is not a direct tax. Much more extensive discussion of the direct/indirect tax issue (but not of window taxes) can be found in Rob Natelson’s 27 minute podcast on the subject, for iVoices.org.

Today’s USA Today quotes me on the individual mandate decision as follows:

“You can look for silver linings in the cloud, but it’s still a cloud,” said George Mason University law professor Ilya Somin, who wrote a brief opposing the health law. He said the decision offers Congress a road map to enact similar laws by crafting them as taxes instead of mandates.

The quote is accurate. I do think the ruling is a cloud over the Constitution, and I do believe that Chief Justice John Roberts’ opinion allows Congress to mandate almost anything it wants, so long as the mandate is structured as a so-called “tax” similar to the individual health insurance mandate. In addition, the ruling upholds a major unconstitutional statute. Although the law might be repealed, there is also a good chance it will not be. Relative to a decision striking down the mandate that might have been and almost was, this result is a disappointment.

Some might wonder whether the above is consistent with other statements I have made to the effect that the decision also offers supporters of limits on federal power cause for optimism. Part of the explanation is that I spoke with the USA Today reporter less than an hour after I got the decision, and I have since had more time to study it closely, as well as read commentary by both supporters and opponents of the mandate who believe the Court’s decision gave a lot of ground to the latter.

But, ultimately, I don’t think there is any great inconsistency in my view. The decision is a disappointment relative to one that actually invalidated the mandate, and also dangerously expands Congress’ tax power. I fully acknowledge that. But at the same time it endorses important constraints on Congress’ powers under the Commerce and Necessary and Proper Clauses and lends new respectability to the notion of strong judicial enforcement of such limits. It makes it very difficult for anyone to seriously argue that such enforcement could only be advocated by wacko extremists or people ignorant of constitutional law. I am also far from certain that the Court will stick to Roberts’ dubious Tax Clause analysis in future, less politically charged cases. Finally, I believe that the Medicaid/Spending Clause ruling – which I don’t think I discussed with the USA Today reporter – is actually far more of a silver lining than a cloud.

Obviously, losing the mandate case was a significant setback. But if we had to lose at all, better this way than almost any other. Whether the positive effects of the decision predominate over the negative ones in the long run remains to be seen. It depends on future events such as the identity of the next few Supreme Court appointments, and whether or not Obama’s health care law can be repealed or modified.

Perhaps most important, it depends on the future development of our constitutional culture. Over the last twenty to thirty years, the idea of strong judicial enforcement of limits on federal power has gained a lot of ground. It has moved from being the preserve of a small number of activists and academics to becoming an integral part of mainstream legal discourse. Many jurists and academics still hate it; but they now have to take it seriously. As Jack Balkin might put it, judicial enforcement of federalism has moved from “off the wall” to “on the wall.” Whether we can make further progress is difficult to say. Much could potentially go wrong. But at this point, I am guardedly optimistic.

McCulloch v. Maryland had a very good day at the Supreme Court yesterday, with NFIB relying on and applying McCulloch‘s rules for when an enactment violates the Necessary and Proper Clause. What happened after the McCulloch decision also shows the next steps in battle over the individual mandate, as I suggest in an essay this morning for National Review Online.

In refusing to hold the Second Bank of the United States unconstitutional, the McCulloch Court gave Congress broad latitude in Congress’s own evaluation of whether the Bank was “necessary” in a constitutional sense. Relying on and quoting McCulloch, President Andrew Jackson made his own judgment of constitutional necessity when he vetoed the recharter of the Bank in 1832. After a titanic political struggle, the Bank was gone, and a new term created by Jackson, “equal protection,” had become part of what the American People were coming to believe the Constitution was supposed to mean.

President Jackson dealt the Bank a fatal blow by withdrawing federal deposits from the Bank, and moving them to state banks. President Romney can follow Jackson’s lead on his first day in office, instructing the Acting Secretary of Health and Human Services to use the waiver powers in the ACA statute to issue waivers to everyone for the individual mandate. Because the individual mandate is (supposedly) a tax, it can then be repealed through the budget reconciliation process, which cannot be filibustered.

I predict that the individual mandate will never mandate anyone. Yet the mandate will be long remembered as one of the most consequential laws enacted by a Congress. The result of the “bank battle” was that even though a central bank was judicially permissible, central banking was politically toxic for the rest of the century. The “mandate battle” may have the same effect in deterring any future thoughts of congressionally-imposed mandates. (Putting aside the obvious exception for mandates that have a solid basis in the constitutional text, such as jury service.)

The enactment of the mandate has also significantly increased the probability that the next Supreme Court appointments will be made by a President and confirmed by a Senate which denounces the mandate as unconstitutional, and that the new Justices will be the kind who are inclined to vigorously enforce the many strong constitutional limits on congressional over-reaching which are articulated in NFIB v. Sebelius.

I would have preferred that the mandate had met its end yesterday morning, but the fact that the mandate will have to be finished off by the People in November and their elected officials in January may lead to even better long-term results for advocates of a constitutionally limited federal government.

Georgetown law professor Neal Katyal is a highly respected liberal constitutional law scholar. He also argued several of the individual mandate cases for the Obama administration in the lower courts. In this recent New York Times op ed, he suggests that the result may well have been a “Pyrrhic victory” for federal power:

The obvious victor in the Supreme Court’s health care decision was President Obama, who risked vast amounts of political capital to pass the Affordable Care Act....

But there was a subtle loser too, and that is the federal government. By opening new avenues for the courts to rewrite the law, the federal government may have won the battle but lost the war....

The health care decision also contains the seeds for a potential restructuring of federal-state relations. For example, until now, it had been understood that when the federal government gave money to a state in exchange for the state’s doing something, the federal government was free to do so as long as a reasonable relationship existed between the federal funds and the act the federal government wanted the state to perform.

In potentially ominous language, the decision says, for the first time, that such a threat is coercive and that the states cannot be penalized for not expanding their Medicaid coverage after receiving funds....

This was the first significant loss for the federal government’s spending power in decades....

Of equal concern is the court’s analysis of the constitutionality of the individual mandate. While the court upheld the mandate, it did so by rejecting the federal government’s claim that it was regulating commerce.

Obviously, Katyal and I disagree on the merits of the two cases. For example, I think he is wrong to suggest that “until now, it had been understood that when the federal government gave money to a state in exchange for the state’s doing something, the federal government was free to do so as long as a reasonable relationship existed between the federal funds and the act the federal government wanted the state to perform.” The Supreme Court had indicated that “coercive” conditional grants are unconstitutional as far back as the 1930s, and reiterated that point in South Dakota v. Dole (1987), the leading modern precedent on conditional grants.

But we do agree that both the Medicaid decision and the individual mandate ruling contain potentially important gains for those who want stricter enforcement of constitutional limits on federal power. Indeed, Katyal’s pessimism on this score is probably greater than my optimism. I think that he underrates the significance of Chief Justice Roberts’ overexpansive interpretation of the Tax Clause.

Interestingly, Katyal points to yesterday’s Stolen Valor Act decision as an additional indication that both the Court and the public are willing to support judicial overruling of federal statutes. The case is very different from the mandate and Medicaid rulings in many ways. But I can to some extent see his point.

I would not go so far as to say that Katyal’s side of the debate over the scope of federal power has “won the battle, but lost the war.” Far from it. But it is clear that yesterday’s decisions give supporters of limits on federal power some useful ammunition, despite also dealing us a painful defeat. At the very least, the “war” is far from over.

As I pointed out yesterday, five justices, including Chief Justice Roberts, accepted all the plaintiffs’ major arguments against the individual mandate with respect to the Commerce and Necessary and Proper Clauses. But how much does that conclusion actually matter? My tentative view is that it will have little immediate effect, but may well be significant in the future.

One possible reason to dismiss the importance of the Court’s treatment of these issues is that it might have been mere dictum. After all, the Court upheld the mandate based on the Tax Clause, so the other two issues were not essential to the outcome. However, as co-blogger Jonathan Adler points out, Chief Justice Roberts’ controlling opinion explicitly holds that this analysis was essential to the outcome:

[T]hese analyses form an essential predicate to his ultimate conclusion that the mandate could be upheld as a tax. As the entire Court accepts, the most natural reading of the minimum coverage provision is as an economic mandate adopted pursuant to the Commerce Clause. It is only after rejecting the possibility that the mandate could be justified in this manner that the Chief returns to the text to see if it is susceptible to an alternative construction. Thus, the only reason the Chief Justice even considers whether the mandate could be considered a tax, the statutory text notwithstanding, is because of his prior conclusion on the Commerce and Necessary and Proper Clauses. Thus this decision provides five firm votes for meaningful limits on the most expansive of Congress’ powers.

One can still argue that the Commerce and Necessary and Proper analysis was dictum on the grounds that it was not seen as essential by the other four justices who voted to uphold the mandate. But to the extent that the Chief Justice’s opinion is controlling, as that of the majority justice who concurred on “the narrowest ground,” it is his position that matters. Moreover, as a practical matter, lower courts are unlikely to simply ignore a position that was forcefully endorsed by five Supreme Court justices in a major case.

Even if the Chief Justice’s Commerce and Necessary and Proper analysis does bind lower courts, it’s possible it will not have much effect in practice. As Roberts emphasizes, the mandate exceeded the scope of those powers because it sought to regulate inactivity. No other current federal law does the same thing on the basis of those two clauses. But, as I explained in this article, the power to impose purchase mandates is one that Congress would have strong incentives to abuse in the future. So even if this case’s CC/NP rulings will not endanger any present laws, they could cut off future mandates.

Obviously, Congress can circumvent the limits on Commerce Clause mandates by trying to structure future mandates on inactivity as taxes, utilizing Roberts’ reasoning on why the health insurance mandate is a tax as a guide. However, the jerry-rigged nature of Roberts’ analysis and the possibility that it was developed primarily to avoid having to strike down this particular statute makes it possible that the the Court will back off at least some of it in future cases. Even if it does not, having to use the tax power at least prevents Congress from punishing mandate violators with prison time instead of fines.

Moreover, the doctrinal impact of this decision potentially goes beyond mandates in one important sense. Chief Justice Roberts and (less clearly) the four dissenting justices all reaffirmed the proposition that laws authorized by the Necessary and Proper Clause must be “proper” as well as “necessary.” As Roberts put it, “Even if the individual mandate is ‘necessary’ to the Act’s insurance reforms, such an expansion of federal power is not a ‘proper’ means for making those reforms effective.” This was the central theme of the amicus brief I wrote for the Washington Legal Foundation. Roberts did not give anything approaching a comprehensive definition of “proper.” But his emphasis on the idea that it imposes independent limitations on congressional power could well lead to future litigation on the subject.

The greatest potential significance of the Court’s Commerce and Necessary and Proper ruling, however, lies less in the doctrinal details and more in the fact that five justices were willing to endorse a strong substantive limit on these powers. That is both symbolically significant and a potential signal for future cases.

Obviously, whether or not Roberts’ analysis will really have an effect on future cases depends in large part on future Supreme Court appointments and the political situation. If, for example, Barack Obama gets reelected in November and replaces one or more conservative Supreme Court justices with liberals, yesterday’s Commerce and Necessary and Proper ruling will likely be ignored or overruled. But for reasons David Bernstein emphasizes, it’s also possible that things will move in the opposite direction. Some liberal observers fear such a result. It is still too early to say whether this part of the individual mandate decision will turn out to be an outlier or a sign of things to come.

Note the close parallels between my statements in this CBS News report and on the mandate decision, and those of University of Michigan law professor Richard Friedman, a well-known liberal legal scholar. It’s almost as if we coordinated our remarks in advance. But in truth I had no idea what he said until I read the article afterwards:

Although his liberal allies found that the commerce clause is a justifiable means to invoke the mandate, Roberts found it does not give Congress that authority. However, the court determined the mandate is constitutional under Congress’ power to “lay and collect taxes.”

Ilya Somin, law professor at George Mason University who wrote an amicus brief opposing the mandate, said he is “more surprised” that the court upheld it under the tax provision.

It was “the federal government’s weakest argument,” he said.

Richard Friedman, law professor at the University of Michigan, also said he was surprised that Roberts backed the tax argument, which he also called “the weaker argument....”

The University of Michigan’s Friedman attributed Roberts’ position to the weight of the case. “He was reluctant to see his court be the first one in 75 years to throw out a significant piece of legislation.”

Somin, who opposed the mandate agreed, saying, “It is generally rare for a court to strike down major legislation that has the support of the president and his party,”

SCOTUSblog has just posted a detailed analysis of today’s decision that I did for them. It’s much more thorough than anything I have been able to put up elsewhere. Here is an excerpt:

Today’s 5-4 Supreme Court decision upholding the individual health insurance mandate is an extremely frustrating result for those of us who argued that the mandate is unconstitutional. One might even call it taxing. The plaintiffs came about as close as one can to winning a major constitutional case without actually winning it. It is the legal equivalent of losing the World Series after leading in the bottom of the ninth inning in the seventh game. It is not a happy day for supporters of limited government.

Yet the Court also offers us a measure of hope and vindication. A majority of the justices rejected claims that the mandate is authorized by the Commerce Clause and Necessary and Proper Clause. That has little immediate impact, but bodes well for the future. The numerous pundits who claimed that this case was a slam dunk for the federal government turned out to be spectacularly wrong. The struggle over the constitutional limits on federal power is far from over....

In his discussion of the Commerce Clause, Roberts ruled that the Constitution denies Congress the power to “bring countless decisions an individual could potentially make within the scope of federal regulation and … empower Congress to make those decisions for him.” Yet, having closed the front door of the Commerce Clause, the Chief Justice has now “empowered” Congress to make those same decisions for us through the tax power...

Today’s decision is unlikely to be the last word on the constitutional limits of federal power. As the close 5-4 division in the Court shows, the justices remain deeply divided on federalism issues.... No one can any longer say that the case against the mandate was a sure loser that could only be endorsed by fringe extremists or people ignorant of constitutional law.

Defenders of extremely broad federal power won an important battle today. But the war will continue.

Some, including co-blogger Orin Kerr, have argued that today’s ruling that the individual mandate is a tax rests on a mere technicality. The mandate could have been a tax if only Congress had labeled it as such or structured it slightly differently, and so it makes sense for the Court to assume that it is a tax rather than invalidate an important law.

But the argument that this is not a tax has never been just about labeling or technicalities. The mandate is substantively a penalty rather than a tax, for reasons I explained here:

As recently as 1996, the Supreme Court reiterated the crucial distinction between a penalty and a tax. It ruled that “[a] tax is a pecuniary burden laid upon individuals or property for the purpose of supporting the Government,” while a penalty is “an exaction imposed by statute as punishment for an unlawful act” or – as in the case of the individual mandate – an unlawful omission. The individual mandate is a clear example of a penalty, where Congress requires people to purchase health insurance, and then punishes them with a fine if they fail to comply.

In September 2009, President Obama himself noted that “for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase.” He was right....

Even if the individual mandate does somehow qualify as a tax, it is not one of the types of taxes that Congress is authorized to impose. The Constitution gives Congress the power to enact several types of taxes: Excise taxes, duties and imposts, income taxes, and “direct taxes” that must be apportioned among the states in proportion to population.

No one, including the federal government, claims that the individual mandate is a duty or an impost. The individual mandate is not an income tax because an income tax must target some “accession to wealth,” in the words of Commissioner of Internal Revenue v. Glenshaw Glass Co., the leading Supreme Court case on the subject. The fine imposed by the mandate does not target any accession to wealth or flow of income. It simply forces individuals to pay a penalty if they disobey the federal government’s regulatory requirement. The fact that low-income individuals are exempted does not change this analysis. A fine for jaywalking would not become an income tax if low-income individuals were exempted from it....

It is even more implausible to suggest that the mandate is an excise tax. Excise taxes apply to economic transactions or the use of property of some kind. For example, a tax on the sale of alcoholic beverages qualifies as an excise. The individual mandate does not tax any kind of activity, use of property or economic transaction....
If the mandate is not a tariff, impost, income tax, or excise tax, it is either a direct tax or no tax at all. And if it is a direct tax, it would be an unconstitutional one, because it is not apportioned among the states in proportion to population as the Constitution requires.

Even if Congress had called the mandate a a tax, that still would not have made it constitutional. But to the extent that labeling does matter, it’s not just a pure legal technicality. Those who argue that Congress has a virtually unlimited power to impose taxes claim that the main constraint on this power is political accountability. But that accountability is undermined if the federal government can pretend that a bill is not a tax in order to get it enacted, and then turn around and claim it is a tax when it comes time to defend the law in Court. Had President Obama and the Democratic leaders in Congress announced this was a tax from the start, it likely would not have passed in the first place.

Ultimately, the constitutionality of this law doesn’t turn on labels. Labeling this penalty a tax would not have made it so. But for those who believe that political accountability is the sole constraint on the tax power, labels are not mere legal tecnicalities either.

UPDATE: It’s worth noting that Chief Justice Roberts’ opinion only briefly discusses the crucial question of whether the mandate – if it is a tax at all – turns out to be an unconstitutional “direct tax.” The four justice dissent by Alito, Kennedy, Scalia and Thomas properly takes him to task for this:

[W]e must observe that rewriting §5000A as a tax in order to sustain its constitutionality would force us to confront a difficult constitutional question: whether this is a direct tax that must be apportioned among the States according to their population. Art. I, §9, cl. 4. Perhaps itis not (we have no need to address the point); but the meaning of the Direct Tax Clause is famously unclear, and its application here is a question of first impression thatdeserves more thoughtful consideration than the lick-anda-promise accorded by the Government and its supporters. The Government’s opening brief did not even address the question—perhaps because, until today, no federal court has accepted the implausible argument that §5000A isan exercise of the tax power. And once respondents raisedthe issue, the Government devoted a mere 21 lines of its reply brief to the issue....

UPDATE #2: Chief Justice Roberts’ opinion does include a very brief discussion of why the mandate is not a “direct tax” that must be apportioned among the states (pp. 40-41). But that does not address the question of whether it falls under one of the other categories of taxes allowed by the Constitution. If it is not an income tax, excise tax, tariff, or impost, it’s not a tax authorized by the Constitution – even if it also isn’t a direct tax.

With the Supreme Court probably voting on the constitutionality of Obamacare (a term the President proudly embraces) on Friday, the health control law’s academic friends are diligently attempting to do what the entire United States Department of Justice could not do after two years of litigation: articulate plausible limiting principles for the individual mandate. Over at Balkinization, Neil Siegel offers Five Limiting Principles. They are:

1. The Necessary and Proper Clause. “Unlike other purchase mandates, including every hypothetical at oral argument on Tuesday, the minimum coverage provision prevents the unraveling of a market that Congress has clear authority to regulate.” This is no limitation at all. Under modern doctrine, Congress has the authority to regulate almost every market. If Congress enacts regulations that are extremely harmful to that market, such as imposing price controls (a/k/a “community rating”) or requiring sellers to sell products at far below cost to some customers (e.g., “guaranteed issue”) then the market will probably “unravel” (that is, the companies will lose so much money that they go out of business). So to prevent the companies from being destroyed, Congress forces other consumers to buy products from those companies at vastly excessive prices (e.g., $5,000 for an individual policy for a health 35-year-old whose actuarial expenditures for health care of all sorts during a year is $845).

So Siegel’s argument is really an anti-limiting principle: if Congress imposes ruinous price controls on  a market, to help favored consumers, then Congress can try to save the market’s producers by mandating that disfavored consumers buy overpriced products from those producers.

2. The Commerce Clause. “The minimum coverage provision addresses economic problems, not merely social problems that do not involve markets.” This is true, and is, as Siegel points out, a distinction from Lopez (carrying guns) and Morrison (gender-related violence). However, it’s pretty clear under long-established doctrine that the Commerce power can be used to address “social problems that do not involve markets.” E.g., Caminetti v. United States, 242 U.S. 470 (1917) (Congress can use the interstate commerce power to criminalize interstate travel by people intending to engage in non-commercial extra-marital sex); Champion v. Ames, 188 U.S. 321 (1903) (“What clause can be cited which, in any degree, countenances the suggestion that one may, of right, carry or cause to be carried from one state to another that which will harm the public morals?”). Personally, I thought that Chief Justice Fuller’s dissent in Champion had the better argument, but Champion and its progeny are well-established precedents, so proposed limiting principle number two does not work, unless we overrule a century of precedent.

Besides that, #2 does not work for the same reason that #1 does not work. If Congress forced food producers to sell products to some consumers at far below cost, then Congress could (for economic, not social/moral motives) force other consumers to buy overpriced food, so that the producers do not go bankrupt. Imagine that instead of the Food Stamp program (general tax revenue given to 1/6 of the U.S. population to help them buy food), Congress forced grocery stores to sell food to poor people at far below cost. And instead of raising taxes in order to give money to the grocery stores to make up for their losses on the coerced sales, Congress instead forced other consumers to spend thousands of dollars on food from those same stores, which would be sold to those consumers at far above its free market price.

If there’s a limiting principle, the only one seems to be that in order to mandate the purchase of a product, Congress must also inflict some other harm on the producers of the product, which the coerced purchases will ameliorate.

3. “Collective action failures and interstate externalities impede the ability of the states to guarantee access to health insurance, prevent adverse selection, and prevent cost shifting by acting on their own. Insurers operate in multiple states and have fled from states that guarantee access to states that do not.” This is really a policy argument for Obamacare. Hypothesizing that it’s a good policy argument, it’s not a limiting principle. That the advocates of Obamacare think that the policy arguments for their mandate is better than the policy arguments for other mandates does not provide courts with a limiting principle of law.

Moreover, the policy argument is wrong. It’s true that some insurance companies stop operating in states where the law forces them to sell insurance to legislatively-favored purchasers at far below the actuarial cost of the insurance, with the  legislature failing to compensate the companies for the enormous resulting losses. If you make it difficult for companies to operate profitably in your state, then they will eventually stop operating in your state. It’s not a collective action problem; it’s just a problem of several states enacting laws that prevent companies from covering their costs. Any state with guaranteed issue and other price controls can solve the problem immediately by simply using tax revenues pay compensation for the subsidy which the state law forces the insurance companies to provide to certain consumers.

Obamacare is a particularly weak case in which to argue that the federal government is riding the rescue of the states to solve a collective action problem. For the first time in American history, a majority of the States are suing to ask that a federal law be declared unconstitutional. These states are taking collective action to stop the federal government from imposing a problem on them.

4. The Tax Power. “[T]he minimum coverage provision respects the limits on the tax power. The difference between a tax and a penalty is the difference between the minimum coverage provision and a required payment of say, $10,000 that has a scienter requirement and increases with each month that an individual remains uninsured. Unlike the minimum coverage provision, such an exaction would be so coercive that it would raise little or no revenue. It would thus be beyond the scope of the tax power.”

Let’s put aside the fact that, however ingenious the progressive professoriate’s  tax arguments have been, the chances that the individual mandate is going to be upheld under the tax power appear to be at most 1% greater than the chance the Buddy Roemer will be the next President of the United States.

Presuming that Siegel’s tax justification for the individual mandate is valid, it is an anti-limiting principle. Congress can indeed mandate eating hamburgers, smoking, not smoking, not eating hamburgers, or anything else Congress wants to mandate, as long as Congress sets the “tax” at level that will raise a moderate amount of revenue, does not include a scienter requirement, and does not make the “tax” increase each month that the individual refuses to do what Congress mandates.

5. Liberty. “The minimum coverage provision does not violate any individual rights, including bodily integrity and substantive due process more generally. These rights would be violated by a mandate to eat broccoli or exercise a certain amount.” Pointing to the existence of the Bill of Rights is not an example of a limiting principle for an enumerated federal power. The Constitution does not say that Congress may do whatever it wishes as long as the Bill of Rights protections of Liberty are not violated. Ordering New York State to take title to low-level radioactive waste generated within the state (New York v. United States) did not violate any person’s substantive due process rights, but the order was nonetheless unconstitutional because it exceeded Congress’s powers. The federal Gun-Free School Zones Act did not, as applied, violate the Second Amendment rights of Alfonso Lopez, who was carrying the gun to deliver it to a criminal gang. Yet the Act still exceeded Congress’s commerce power. A limiting principle must limit the exercise of the power itself, not merely point out that the Bill of Rights protects some islands of Liberty which the infinitely vast sea of federal power might not cover.

Finally, I certainly agree with Professor Siegel that the Fifth Amendment’s liberty guarantee (and its 14th Amendment analogue for the states) should be interpreted to say that no American government can order people to consume a certain amount of healthy food, or to exercise. But there is no major case that is on point for this. The argument for a new unenumerated right “not to eat the minimum quantity of nutritious food which government scientists have  determined is essential for good health” is something that would have to be built almost entirely by extrapolation from cases that have nothing to do with food. I hope that courts would accept the argument; but if the political culture ever moved far enough so that a nutrition mandate could pass a legislature, I’m not as certain as Prof. Siegel that courts would overturn the mandate. The odds of winning a case against a nutrition mandate will be better if the judges who decide that case have not grown up in a nation where a federal health control mandate is the law of the land.