Archive | Taxing and Spending Clause

The First Anniversary of the Obamacare Decision

Today is the first anniversary of NFIB v. Sebelius, the Supreme Court’s controversial decision in the Obamacare case. It is still too soon for us to fully appreciate the long-term impact of the ruling. We are also still far from reaching any kind of consensus about the correctness of the Court’s decision.

For the moment, however, I’m sticking with the assessment I made in this SCOTUSblog post written on the day the decision was announced:

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….

As the close 5-4 division in the Court shows, the justices remain deeply divided on federalism issues. Both Chief Justice Roberts’ opinion and the powerful four-justice dissent reaffirm the need to enforce limits on congressional authority. And both accept all or most of the main constitutional arguments against the mandate. The latter will constrain future mandates imposed under the Commerce and Necessary and Proper Clauses. 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

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Turning Federalism Right-Side Up – My Review of Michael Greve’s The Upside-Down Constitution

My review of Michael Greve’s important new book, The Upside-Down Constitution is about to be published in Constitutional Commentary, and is now available on SSRN. Here is the abstract:

Michael Greve’s The Upside-Down Constitution is one of the most important works on constitutional federalism in years. It is the best exposition to date of the idea that the American Constitution establishes a federal system primarily devoted to promoting competition between state governments. It is also probably the most comprehensive critique of the traditional view that federalism is really about promoting the interests of state governments. As Greve recognizes, state governments rarely want to compete, often preferring to establish cartels among themselves.

Greve praises the original Constitution for creating an effective system of interstate competition and the nineteenth and early twentieth century Supreme Court for enforcing it. But he warns that the system has broken down over the last eighty years, replacing competition with cartels and what he considers to be dysfunctional empowerment of state governments. He argues that American federalism has now reached a crisis point from which we must either restore some of its earlier, more competitive, structure, or face a decline similar to those that have beset several other federal systems

In Part I, I describe Greve’s argument, focusing especially on the ways in which it enhances our understanding of the history of constitutional federalism. Part II addresses a potential internal contradiction in Greve’s position. While he emphasizes the need for the judiciary to enforce a competitive regime and recognizes that the federal government often has incentives to promote cartelization, he endorses a broad interpretation of congressional authority under the Commerce Clause and the Spending Clause which effectively gives Congress a blank check to suppress competition in ways he deplores.

Part III briefly considers a second

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Chief Justice Roberts and the window tax

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. [...]

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Of Silver Linings and Clouds

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 [...]

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Next step: Repeal the individual mandate because it is unconstitutional

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 [...]

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Neal Katyal on the Federal Government’s “Pyrrhic Victory” in the Health Care Decisions

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 [...]

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NFIB as Marbury

My article yesterday for Scotusblog discussed the tremendous importance of the Court’s 7-2 use of the non-coercion rule to limit Spending Clause violations of State sovereignty and independence. The rule has been around ever since Steward Machine Company v. Davis (1937), but NFIB v. Sebelius is the first decision by any federal court to find that a conditional congressional grant violates the rule.

The folks who think that the “evolving Constitution” completed its evolution in 1937-42, and that everything the Court did during those years must be applied today with the broadest possible reading, should be especially pleased with the NFIB Court’s vigorous enforcement of a very important New Deal precedent.

My essay argues that the application of the non-coercion rule, as well as the  application of the doctrine of incidental powers for the Necessary and Proper Clause, are among the many elements of the Roberts opinion whose significance approaches that of some of the most important opinions by Chief Justice Marshall.

Although we do not know Chief Justice Roberts’ motives, I suggestion a comparison of NFIB to Marbury v. Madison: adroitly escaping from a partisan assault on the Court itself, the opinion moves constitutional law very far in the opposite of the direction favored by partisan assaulters–and does so in a way that leaves the partisan assaulters unable to use the case in their attacks on the Court. [...]

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Do the Court’s Commerce Clause and Necessary and Proper Clause Rulings in the Individual Mandate Case Matter?

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 [...]

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Where Richard Friedman and I Agree

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,”

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Thoughts on the Medicaid Spending Clause Decision

While the 26 state plaintiffs ultimately lost the case challenging the constitutionality of the individual mandate, they partially prevailed on the other federalism case decided today: the challenge to provisions of the Affordable Care Act requiring states to massively expand Medicaid coverage or lose all of their federal Medicaid funds.

The Supreme Court ruled that the federal government may deny the states additional Medicaid funds if they refuse to comply with the coverage expansion requirement, but may not take away their preexisting Medicaid funds. In previous cases, such as South Dakota v. Dole (1987), which upheld the denial of 5% of federal highway funds to states that refused to raise their drinking age to 21, the Court ruled that federal grant conditions are might be unconstitutionally “coercive” if they put too much pressure on states. But this is the first time the Court has actually invalidated spending condition on that basis. Because states are so heavily dependent on federal Medicaid grants, Chief Justice John Roberts’ opinion for the Court reasons as follows:

[In South Dakota v. Dole], [w]e found that the inducement was not impermissibly coercive, because Congress was offering only “relatively mild encouragement to the States…” We observed that “all South Dakota would lose if she adheres to her chosen course as to a suitable minimum drinking age is 5%” of her highway funds. In fact, the federal funds at stake constituted less than half of one percent of South Dakota’s budget at the time. In consequence, “we conclude[d] that [the] encouragement to state action [was] a valid use of the spending power.” . Whether to accept the drinking age change “remain[ed] the prerogative of the States not merely in theory but in fact.”

In this case, the financial “inducement” Congress has chosen is much more than

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My SCOTUSblog Discussion of the Individual Mandate Decision

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….

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The Tax Issue is Not Just a Technicality

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

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The Other Big Health Care Case Before the Supreme Court

With all the hoopla surrounding the individual mandate case, the media and most commentators have often given short shrift to the other big health care case the Supreme Court is about to decide: the constitutionality of the Obamacare’s massive expansion of Medicaid. Constitutional law scholar David Oedel recently posted this interesting article on the subject, arguing that the case raises important issues and that the 26 states challenging the law have a stronger case than most pundits think. Oedel is serving as counsel for the state of Georgia, one of the plaintiffs in the case:

As we await the U.S. Supreme Court’s decision on health care reform, it makes sense to recall an under-reported part of the case. Five of six hours of the Supreme Court’s oral arguments in March about the constitutionality of health care reform focused on the individual mandate and got most of the media’s attention. The last hour was left for considering whether the tradition of federal/state cooperation in delivering Medicaid has, in the Affordable Care Act, morphed into unconstitutional coercion of the states…

Until that oral argument, the 26 plaintiff states faced widespread expert skepticism about the states’ constitutional challenge to Medicaid’s expansion. No court has ever before held that the federal government unconstitutionally coerced any state through conditional federal spending. The ACA, though, puts an unusually heavy federal clamp on state “partners” in Medicaid. If any rogue state were to fail to extend free health care to large portions of the lower-middle class, as ordered under the ACA, it could lose all its federal funding for Medicaid for the poor. That funding is by far the largest federal outlay to any state, and is critical to states being able to care for the poor.

Justice Stephen Breyer unexpectedly suggested at oral argument that a

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