Upcoming Obamacare Cases: Part 1- Its Not a Tax, Yes Its a Tax
To do justice to this subject, this must be presented in several parts because there are several issues the Supreme Court must decide. I should say up front that I am adamantly opposed to Obamacare. I believe that there are better ways to address health care reform than that which was chosen. Additionally, the method used- budget reconciliation- to pass a law that reordered 16% of the American economy was unprecedented and just plain wrong. If a law- any law- cannot stand on its own, then it is suspect from the start. That applies to riders on other laws of unrelated subject matter and the like. And if you have to get a law passed using back door methods like budget reconciliation, then there is an inherent problem in the legislation at the least, and clearly a problem with the budget rules that cry for reform. And yes, the Democrats were correct that when Republicans controlled Congress they used the reconciliation process, but certainly never to the degree of Obamacare’s reach. Additionally, the law did not, in my opinion, address the true problem with health care, namely price, which affected the vast majority of legal Americans, not the minority of Americans who lacked health insurance. And yes, again, those without health insurance affect health care costs, but the number of uninsured is overstated to begin with. When illegal immigrants are taken out of the equation and those who are eligible for other programs like Medicaid or S-CHIP, but who opt out of it for whatever reason, the problem is less urgent than Obamacare proponents make it to be. Instead of addressing the number of uninsured first, they should have addressed the costs first so that ALL Americans would benefit eventually. And, incidentally, this could have been achieved on a piecemeal basis rather than in over 2500 pages of law that many lawmakers never even read.
Regardless of my personal views, the cases now before the Supreme Court, despite which way they eventually decide, will be described as “landmark,” “groundbreaking,” and “controversial.” I will note my disagreement now. But, first let me address the fact that opposition to Obamacare is a conservative mantra. To me, being conservative is moving slowly, carefully and incrementally with checks and monitoring along the way. Obamacare fails my definition of conservativism. Most of the arguments against Obamacare are not, in fact, conservative at all, but libertarian (unless we include libertarianism as a subset of conservativism). The main line of attack- against the individual mandate- are actually libertarian in thought and practice. The fact is that the government- whether controlled by Republicans or Democrats- use the Federal tax code to deter or encourage behaviors. It is the whole idea behind subsidies, tax credits, deductions, etc. Ironically, it is also a great argument for true tax reform that simplifies those many pages of special interest carve outs even if they apply to individuals, but that is another subject.
One issue before the Supreme Court is the means by which the government is trying to influence behavior- namely, purchasing health care insurance if you have the means (the mandate). In order to do that, they “chose” the stick of the tax code. During the whole debate, Democrats and Obama argued that it was not a tax and that no one’s tax rate would increase under Obamacare. Instead, starting in 2014, if one does not have health insurance, the IRS has the right and was enabled to decrease a refund by either a set amount, or by a percentage of income. Under this system, assume I have no health insurance. I fill out my 2014 tax return and send it in on March 1, 2015 and I am due a $1,000 refund. Because I have no health insurance, the IRS will actually cut me a check for $905. They will “keep” the other $95 to subsidize other aspects of the health care law. If I still have no health care in 2015, then the “penalty” increases for that year, and so on. The whole scheme allows Obama to say that he is not raising taxes (which technically he isn’t).
Once the states and businesses began challenging the law in the court system, the Obama Administration asserted that the challenges should be blocked because no one can challenge a tax before the tax is collected. Put another way, the “its not a tax” statements during the debate were nothing but a public relations ploy. In court, the Administration was asserting that it was, in fact, a tax. There is an old law from the 1800s called the Anti-Injunction Act (AIA) which states that no one can challenge a tax or assessment in court before the tax was actually collected and a “harm” was suffered. The purpose of the law, upheld on many occasions and in many contexts, is to allow the government to lay and collect taxes without court interference. Imagine the gridlock that would occur if courts were involved every time the government decided to address a tax change. Nothing would ever get done. Instead, under the AIA, a person cannot sue regarding the legality or the constitutionality of a tax- no matter how defined- until someone actually suffered a “harm” under the law. In the case of Obamacare and the mandate “penalty,” that would not occur until 2015.
When the Obama Administration began arguing that point in the various District Courts, they were repeatedly shot down on the argument. On appeal to the Circuit Courts, they likewise were shot down and the cases were allowed to proceed, which is why they are now before the Supreme Court. Once Obama realized they were repeatedly losing the AIA argument, it was eventually dropped and the individual mandate became the central focus of the litigation. But a funny thing happened once these cases reached the Supreme Court.
In the initial filings with the Court, it was stated that neither side had a “friend” regarding Section 7421 of the act- that part that dealt with changes to the tax code allowing the IRS to decrease refund amounts. To both sides, it was a non-issue and the primary focus was on the constitutionality of the individual mandate under the Commerce Clause. However, the Supreme Court stepped in and revived the issue of enforcement timing under the AIA and appointed a “friend of the Court” to argue the case. The primary reason for the Court raising the issue again is conflict at the Circuit level. Namely, the Sixth and Fourth Circuits disagreed on whether the AIA applied. One decided that the term “tax” in the AIA was the broadest definition allowed while the other Circuit decided otherwise. In essence, the Supreme Court decided to look into the disagreement to the dismay of the government and opponents of Obamacare.
What makes this important is that the Roberts Court may actually be paving the way for the Supreme Court towards a path out of the political minefield any decision may produce in other areas, namely the mandate itself under the Commerce Clause. Should they decide that the penalty is a tax, they must necessarily decide that litigation against the law, especially the mandate’s enforcement mechanism, is blocked until such time that someone suffers “harm” under the law and then has standing to bring a court action. If, in fact, imposition of the tax or penalty or assessment is unconstitutional under the Commerce Clause, 2012 is not the right time to decide that case. Instead, under this theory, late 2015 is when the case should rightfully appear before the Court on these other constitutional issues. In effect, the Supreme Court, by reviving the issue using Circuit Court conflict as a pretext for doing so, is kicking the can further down the line. To me, the mere fact that they even reopened the issue practically unilaterally, intimates that this will be their fall back decision should there not be strong approval or disapproval in their internal debate over the individual mandate’s constitutionality. In other words, Roberts has allowed himself an “out” in this whole case, a compromise of sorts. However, that compromise would not definitively decide the main issues one way or the other and would, in effect, be a temporary victory for the Obama Administration.
In the next part, I will attempt to explain why Roberts resurrected the AIA argument despite neither party supporting the original Administration line of argument. Namely, it is because in cases totally unrelated to health care reform, in the interests of reaching a conservative practical conclusion, one needs to read the Commerce Clause and Necessary and Proper Clause rather liberally. In short, in a certain way, some members of the conservative wing of the Court have boxed in their arguments.