If I’m ever going to resume regular blogging, Independence Day seems like a fitting and proper moment, and the Supreme Court has provided irresistible subject matter with its astonishing Obamacare decision.
I’m not very interested in the Chief Justice’s motives for – apparently – changing his mind about the law’s constitutionality after initially voting to overturn it. I’ll note, though, that the alleged “sources inside the Court” who told journalist Jan Crawford that Justice Roberts bowed to left-wing bullying have no way of knowing that, except in the unlikely event that he confessed it to them. In fact, there is a plausible argument for the proposition that Obamacare’s penalty for failing to obtain health insurance coverage is more like a tax than a penalty. The Chief Justice could have come to that conclusion sincerely, in which case he was duty bound to rule on that basis, regardless of what he thought of the merits of the statute.
The question that the Chief Justice’s opinion scants is whether, if the penalty is a tax, it is a tax authorized by the Constitution. The parties barely argued that point, but, now that we know that the Commerce Clause isn’t sufficient to sustain Obamacare, the seldom noticed provisions of Article I, sec. 9, cl. 4 – “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken” (modified by the Sixteenth Amendment, which authorizes a “tax on incomes” without apportionment) – are of vital importance.
Why might the Obamacare penalty, clearly labeled a “penalty” and not a “tax” by Congress, nonetheless be a tax. The dissenting opinion spells out the distinction between taxes and penalties:
Our cases establish a clear line between a tax and a penalty: “‘[A] tax is an enforced contribution to provide for the support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.’” United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U. S. 213, 224 (1996) (quoting United States v. La Franca, 282 U. S. 568, 572 (1931)).
A perfect tax raises revenue with no punitive consequences. A perfect penalty raises no revenue at all; it is severe enough to deter all of the unlawful conduct that it targets. The Chief Justice’s primary argument, reduced to its nub, is that some penalties have so little deterrent effect that they amount to pure revenue measures and thus should be treated as taxes for constitutional purposes. I doubt that view is correct, but let’s assume it arguendo.
As a deterrent to going without insurance, the Obamacare penalty will fail. Consider what it will amount to in 2016, when it is fully phased in: A single taxpayer with no dependents whose adjusted gross income (modified in ways that are of no significance to most people) is between about $9,750 and about $37,550 will have to pay $695 if he doesn’t obtain health insurance. For a married couple with two children under age 18 and modified AGI of between about $19,500 and about $102,900, the penalty will be $2,085. Above those levels, the amount is based on income, though no one will be penalized more than the national average cost of the least expensive level of coverage that Obamacare permits anybody to buy (“bronze level” coverage). [Note: These calculations assume that the standard deduction and personal exemption will be the same in 2016 as in 2012. The actual ranges will be a bit higher. Taxpayers with modified AGI below the minimum are “required” to obtain insurance but aren’t subject to any penalty. In practice, virtually all of them will be covered by Medicaid, which satisfies the insurance coverage mandate.]
The cost of disobeying the individual mandate is thus, for all but the very wealthiest, far less than the premiums for any sort of health insurance. (The bronze level premium is expected to be around $12,000 a year for a family of four.) Moreover, Obamacare requires insurance companies to accept all applicants without regard to pre-existing conditions (“guaranteed issue”) and without adjusting premiums to reflect their health (“community rating”). The penalty, then, is no incentive to buy insurance before one becomes expensively sick or injured. Once people realize this fact, the penalty will raise plenty of revenue. There won’t be many non-senior citizens who won’t pay it, other than those with employer-provided coverage (probably many fewer than today) or Medicaid, the very ill (for whom reimbursements exceed insurance premiums) and the small groups that are exempt from the penalty (such as illegal aliens, Indians living on reservations, prisoners and persons with too little income to file tax returns).
Revenue will be reduced somewhat, because the IRS has almost no effective means of enforcing the penalty. It can withhold unpaid penalties from tax refunds but cannot garnish wages, attach assets or file tax liens, nor are there any criminal penalties for failure to pay. The government will have to sue many delinquents individually if it wants to collect, which will be uneconomical. These difficulties should not, however, affect the legal analysis.
If the penalty is going to raise revenue without deterring “unlawful conduct”, characterizing it as a tax isn’t preposterous. But we then face the Constitution’s clear command: If the Obamatax is a “Capitation, or other direct, Tax”, it must be apportioned among the states by population, which the penalty is not.
The government’s defense on this point was that Obamacare imposes a “tax on incomes” authorized by the Sixteenth Amendment. The reasoning was that the penalty is the greater of a flat rate of $695 per uncovered individual ($347.50 for dependents under age 18) or 2.5 percent of modified adjusted gross income (subject to a cap). The second element supposedly turns the levy into an income tax. That argument has two fatal weaknesses:
First, what gives rise to liability for the Obamatax is not the receipt of income but the failure to obtain health insurance coverage. The levy is not a “tax on incomes” but a tax on conduct (or non-conduct), with the amount based (for some taxpayers) on income.
Second, for the majority – most likely the considerable majority – of taxpayers, income will be irrelevant to the amount of the penalty. For them, it will be a simple capitation tax. The fact that a few people will pay an income tax instead can’t rescue the capitation from the need for apportionment.
The alternative argument would be that the penalty is an excise tax, permissible under Congress’s authority to levy “duties, imposts and excises”. There is a hint of that in the Chief Justice’s opinion, but no one can seriously contend that a tax on doing nothing is an excise, and the government didn’t try to do so in its own briefs.
It seems, therefore, that the following propositions are incontrovertible:
1. The Obamacare penalty was intended to punish “unlawful conduct”. Since Congress had no authority under the Commerce Clause (or any other part of the Constitution) to compel the purchase of insurance, it can’t make that failure unlawful and cannot penalize it.
2. If one ignores Congress’s intentions, the penalty can be construed as a tax, because it will raise substantial revenue and doesn’t effectively deter any conduct, lawful or unlawful.
3. Considered as a tax, the penalty is a capitation, because, for most individuals, it is a flat amount that does not vary by income.
4. A capitation tax must be apportioned among the states in proportion to population. Since the statute contains no apportionment provisions and the amount collected from state to state will certainly not meet the proportionality standard, the Obamatax is unconstitutional.
As a final note, what the preceding discussion most clearly shows is that, constitutional or not, Obamacare has no prospects for success. The individual mandate is bound to be ignored by almost all of the young, healthy persons whose actuarially excessive insurance premiums are supposed to support the structure. Without revenue from that group, guaranteed issue and community rating will destroy private insurance companies.
It’s possible, of course, that the eradication of health insurance and a return to out-of-pocket payment would be less than catastrophic. That is, after all, the way that the market for almost all other goods and services operates. The missing piece here is a way to hedge against extraordinary medical costs, the role now filled by insurance. Since Obamacare outlaws all health insurance that doesn’t conform to its prescriptions, a substitute is required. Perhaps some entrepreneur cleverer than I will devise one and make a fortune.
Or perhaps Congress will simply repeal this faux-constitutional mess.
Addendum: For reasons that I cannot fathom, this post has drawn a heavy volume of spam comments (mostly pushing phony pharmacies), which I’m tired of deleting. Therefore, comments are now closed.