Thursday, July 22, 2010

The Individual Mandate and The Original Meaning of Taxation


For some time now, opponents of the individual mandate have focused on showing that the mandate does not fall within Congress's commerce clause powers. But the Justice Department has made clear that it will defend the new health care act both under Congress's power to regulate commerce and its power to tax and provide for the General Welfare. Opponents now realize that they must win on both theories. As a result, there has been renewed interest in showing that the individual mandate is not within the taxing power either. This is fairly difficult to do, because the individual mandate is part of the Internal Revenue Code.

Nevertheless, J. Kenneth Blackwell and Kenneth Klukowski give it a try in an op-ed in the Wall Street Journal. Unfortunately, the attempt is not successful.

Their first argument is that the individual mandate is not a tax because it is a "penalty". Blackwell and Klukowski argue that "penalties aren't taxes." This definitional argument seems odd. The tax code has long contained various types of penalties; for example if you fail to pay your taxes on time, you are assessed a penalty. The fact that something is called a "penalty" in a statute cannot by itself remove it from Congress's taxing power. A tax on pollution would be a penalty on polluters, and a tax on failing to install anti-pollution equipment would be a penalty on failing to install such equipment. The tax code creates incentives through tax penalties. Why such laws would fail to be taxes is not explained.

Next, Blackwell and Klukowski argue that the mandate is "legally separate from the penalty." It is hard to see how that can be so. The mandate is nothing more than a tax on people who aren't otherwise exempt and who don't purchase qualifying insurance. There is literally nothing else to it. Put another way, if you don't have to pay the tax, the mandate does not apply to you at all. The mandate does not really exist separate from the penalty. As a practical matter, that is all there is to it.

At this point, Blackwell and Klukowski turn to the real object of their piece. They argue that even if the mandate is a tax, it is an unconstitutional tax. The reason, they argue, is that the taxing power is strictly limited. The Constitution recognizes only four kinds of taxes: duties, excises, direct taxes, and income taxes (first mentioned in the Sixteenth Amendment). They argue that the mandate is not a duty, an excise, or an income tax, so it must be a direct tax. And it cannot be a direct tax because it is not apportioned. Because it does not fall in one of these four categories, it is not constitutional.

There are a number of problems with this argument. For one thing, Blackwell and Klukowski use incorrect definitions of several of these terms. For example, they argue that "[t]he only type of direct tax permitted by the Constitution was a `capitation tax,' or head tax." This is incorrect. Even before the 1895 Pollock decision it was understood that taxes on real estate could be direct taxes, and the tax struck down in Pollock was not a capitation tax. It was a tax on income from real estate, which the Court believed was effectively the same as a tax on land. (Blackwell and Klukowski also argue that a direct tax is defined as a tax "which cannot be passed on to someone else." However, a tax on land can be passed along to tenants.) Perhaps most embarrassingly for the authors, Article I section 9 of the Constitution speaks of "capitation or other direct tax," contemplating that there are other direct taxes besides capitation taxes.

This alone should alert you to the fact that their argument is not particularly well researched. Indeed, the biggest problem with their argument is that they do not actually bother to look at the text of the Constitution, much less make any inquiry into the original meanings of its words.

The text of Constitution recognizes not four, but at least six kinds of taxes.

Article I, section 2, speaks of "direct taxes." Article I, section 8, clause 1 speaks of "taxes" generally (which would include both direct and indirect taxes), duties, imposts, and excises. Finally, the Sixteenth Amendment speaks of taxes on income.

In United States v. Hylton (1796), the very first case construing the taxing power, and indeed, one of the earliest Supreme Court cases, the Supreme Court flatly rejected Blackwell and Klukowski's argument that the number of constitutional taxes was strictly limited to four types and that each type was to be defined narrowly.

Hylton involved a federal tax on carriages, which Congress actually called a duty. The reason for this is simple. At the time of the founding the word "duty" was a general term for virtually any kind of tax, although today it has a narrower meaning. Blackwell and Klukowski, paying no attention to original meaning, argue that a duty is only a "tax on imports." But if they want to express fidelity to the Founders' plan, they should at the very least apply the original meaning of the words in the Constitution.

As Justice Chase explained in Hylton, "[t]he term duty, is the most comprehensive next to the generical term tax; and practically in Great Britain, (whence we take our general ideas of taxes, duties, imposts, excises, customs, etc.) embraces taxes on stamps, tolls for passage, etc. etc. and is not confined to taxes on importation only." Thus it is likely that under the original meaning of the Constitution, the individual mandate would qualify as a "duty," (and indeed it is a duty in another modern sense, because one performs it by paying money to the government); it might also be an excise or another type of indirect tax as well. As the Justices explained in Hylton, the terms "tax," "duty," "impost" and "excise" were not designed to be strictly exclusive of each other.

Moreover, Justice Chase explained, the language of the Constitution seems to contemplate additional kinds of indirect taxes that are not duties, imposts, or excises:
The great object of the Constitution was, to give Congress a power to lay taxes, adequate to the exigencies of government; but they were to observe two rules in imposing them, namely, the rule of uniformity, when they laid duties, imposts, or excises; and the rule of apportionment, according to the census, when they laid any direct tax.

If there are any other species of taxes that are not direct, and not included within the words duties, imposts, or excises, they may be laid by the rule of uniformity, or not; as Congress shall think proper and reasonable. If the framers of the Constitution did not contemplate other taxes than direct taxes, and duties, imposts, and excises, there is great inaccuracy in their language.

Blackwell and Klukowski seem to believe that the framers wanted to limit the kind of taxes Congress could issue. The truth is just the opposite. Congress was given a broad power to create taxes of different types, subject to the rule that direct taxes be apportioned. As Justice Chase explained:
The power, in the eighth section of the first article, to lay and collect taxes, included a power to lay direct taxes, (whether capitation, or any other) and also duties, imposts, and excises; and every other species or kind of tax whatsoever, and called by any other name. Duties, imposts, and excises, were enumerated, after the general term taxes, only for the purpose of declaring, that they were to be laid by the rule of uniformity. I consider the Constitution to stand in this manner. A general power is given to Congress, to lay and collect taxes, of every kind or nature, without any restraint, except only on exports; but two rules are prescribed for their government, namely, uniformity and apportionment: Three kinds of taxes, to wit, duties, imposts, and excises by the first rule, and capitation, or other direct taxes, by the second rule.

Similarly, Justice Patterson argues that Congress was given a broad power to tax and duties, imposts, and excises were offered as examples of the power to tax:
What is the natural and common, or technical and appropriate, meaning of the words, duty and excise, it is not easy to ascertain. They present no clear and precise idea to the mind. Different persons will annex different significations to the terms. It was, however, obviously the intention of the framers of the Constitution, that Congress should possess full power over every species of taxable property, except exports. The term taxes, is generical, and was made use of to vest in Congress plenary authority in all cases of taxation. The general division of taxes is into direct and indirect. Although the latter term is not to be found in the Constitution, yet the former necessarily implies it. Indirect stands opposed to direct. There may, perhaps, be an indirect tax on a particular article, that cannot be comprehended within the description of duties, or imposts, or excises; in such case it will be comprised under the general denomination of taxes. For the term tax is the genus, and includes,

1. Direct taxes.

2. Duties, imposts, and excises.

3. All other classes of an indirect kind, and not within any of the classifications enumerated under the preceding heads.

Once we investigate the original meaning of the taxing power, we see that Blackwell and Klukowski's argument from the framers' design is--shall we say--somewhat overtaxed.

UPDATE: Klukowski and Blackwell have a bit more to say on the subject over on They make a rather astounding claim:
But more disturbing even than Obama’s tax argument in court are the two other arguments he’s making, which we anticipated in The Blueprint.

The first is that the General Welfare Clause authorizes the mandate. That’s wrong. The Supreme Court has held that the General Welfare Clause grants no power to the government whatsoever. It limits power, requiring that any tax must be for national welfare, instead of one state’s welfare.

The Court explained that otherwise “general welfare” could empower government to do anything it wants. That’s exactly what’s happening.

The General Welfare Clause of Article I, section 8, gives Congress broad power to "[t]o lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defence and general welfare of the United States." The Supreme Court has confirmed this repeatedly in a long line of cases dating back to United States v. Hylton, quoted above. I have no idea which Supreme Court decision Klukowski and Blackwell are referring to. But the claim that the Supreme Court has held that the General Welfare Clause "grants no power to the government whatsoever" is not merely false; it is bizarre.

Perhaps the two are making the argument that all taxing and spending must be for the purpose of another of the enumerated powers, so that the General Welfare Clause grants no independent power that is not already found in another part of the Constitution. This argument was made in the early days of the Republic, and was rejected in the Washington Administration. Hamilton's view of the general welfare clause as an independent source of Congressional authority has won out, as the Supreme Court has repeatedly confirmed, for example, in upholding the Social Security Act in Helvering v. Davis. I assume that Klukowski and Blackwell aren't arguing that Social Security is unconstitutional, but the statements they make are so broad that it is difficult to know exactly what they are arguing.