As we prepare for the Supreme Court's decision on the Affordable Care Act, I tweeted last night that had Congress enacted the individual mandate as a tax and not a penalty, the law would be on much firmer Constitutional ground. I got a few responses asking why that was and since explaining esoteric tenets of our Constitution elides 140 characters, I'm posting this to briefly - (I am NOT a constitutional scholar) explain why the Tax and Spend Clause would have been a better legal option for the ACA.
Ok, so what's the issue? Congress had two choices for its legal justification for the ACA (i.e., what authority the Constitution granted for the passage of the law) - they could have chosen the Tax and Spend Clause (Art. I, Section VIII, Clause 1), or they could have opted for the Commerce Clause (Art. I, Section VIII, Clause 3). They chose the latter. Under the Commerce Clause, Congress can pass legislation to regulate: (1) “the use of the channels of interstate commerce;” (2) “the instrumentalities of interstate commerce, or persons or things in interstate commerce;” and (3) “those activities having a substantial relation to interstate commerce … i.e., those activities that substantially affect interstate commerce.” Thomas More, 651 F. 3d 529, 541 (6th Cir. 2011), citing U.S. v. Lopez, 514 U.S. 549, 558-59 (1995).
With regard to the ACA, the Government conceded that the law did not trigger either of the first two rationales, and therefore, had to be evaluated as a law that affected, in the aggregate, interstate commerce. The basic argument is this: "health care" is a market, people without health care consume billions of dollars in services each year that result in those with insurance having their premiums increased, which substantially affects interstate commerce, therefore, if you require everyone (with few exceptions) to carry insurance, these issues will be mitigated because uninsured citizens will no longer burden the system and insurance risk will be allocated in a fairer way among the broadest cross-section of the country (this is also why so many other elements of the ACA, including requiring insurers to accept people with pre-existing conditions, is so critical for them - the insurers' risk needs to be spread among the healthy and more infirm if they are going to have to accept everyone).
The complication arises because the law, opponents say, affirmatively requires a person to buy health insurance even if they are not currently sick and may (in theory at least) never need it. In doing so, these opponents say, the government cannot force a person into a consumer market involuntarily. Indeed, this argument goes, this is the first time Congress has ever required citizens to enter the "stream of commerce" against their will. Some courts bought the government's argument and said this was a proper exercise of Congress's authority under the Commerce Clause and one appellate court (the 11th Circuit) disagreed, saying that the government could not mandate that you enter commerce involuntarily.
It's important to note, even the 11th Circuit, which struck down the ACA, and whose opinion is the one the Supreme Court granted certiorari to review, conceded that as a general matter, Congress, can, under the Commerce Clause, regulate the health insurance industry and cited, as two examples, ERISA and COBRA (the former having to do with the regulation of employer-based health plans and the latter, the portability of health coverage after employment separation). It was just that here, where people were required to purchase insurance, the Court held, Congress had overstepped its bounds.
So why would the use of the "tax and spend" clause have been easier? Simply put, the Supreme Court has established precedent dating to the New Deal that basically gives Congress plenary authority (yes, with some minor limitations) over taxing and spending. Consider the language from the touchstone case on the matter, U.S. v. Butler, 297 U.S. 1, which, while striking down taxes levied within the Agricultural Adjustment Act of 1933, offered a sweeping view of Congress's authority to tax and spend: "The [tax and spend] clause confers a power separate and distinct from those later enumerated [,] is not restricted in meaning by the grant of them, and Congress consequently has a substantive power to tax and to appropriate, limited only by the requirement that it shall be exercised to provide for the general welfare of the United States. … It results that the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution." (emphasis added). Pretty comprehensive, no? Mind you, this was an opinion that included the so-called "Four Horsemen" of the Supreme Court, deeply conservative Justices whose antagonism toward the New Deal was so extreme that FDR wanted to change the Constitution so he could appoint new Justices. In other words, these are not the words of wild eyed liberals, but rather, sober, and some said, reactionary, Scalias of their day.
Tax and spend litigation subsequently upheld everything from requiring employers and employees alike to contribute to Social Security (Helvering v. Davis, 301 U.S. 619 (1937) and Unemployment Insurance (Steward Machine, Inc. v. Davis, 301 U.S. 548 (1937), and allows the federal government to place certain "strings" on federal funding to the states, such as requiring that they raise the legal drinking age to 21 in order to receive highway funding (South Dakota v. Dole, 482 U.S. 203 (1987)). Further, individual challenges to taxes for a variety of reasons, including infringement on religious freedom to those who question the constitutionality of the income tax or IRS are invariably shot down (for a discussion of why laws of general applicability as they relate to Constitutional challenges, see my blogpost: http://scarylawyerguy.blogspot.com/2012/03/laws-of-general-applicability-or-why.html). The other benefit to tax and spend is not having to go through the tortured formalism of a three-part test as you do with the Commerce Clause. Here, provided the tax is connected to some objective of the "general welfare," you're gold.
In other words, had Congress articulated the same rationale for the individual mandate (i..e, the need to spread insurance risk among the entire population) and taxed that purchase instead of assessing a "penalty" for failure to buy it, opponents would have been on very shaky ground based on the Supreme Court's decision in Butler. Further, having already approved of levying a tax for "old age pensions" and health care for the elderly, the Court would have been hard pressed to not uphold the ACA on these grounds. So why didn't Congress and the President do what Senator John Chafee did when he proposed his individual mandate model back in 1993? That answer is simple and can be summed up in one word - "politics." Democrats took the politically easier, but legally more challenging route because they did not want the dreaded three letter word T-A-X attached to this bill. Just another example of bad politics making bad law. Oh well, at least every legal scholar with a JD next to his/her name will be busy next week.
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