The tax power theory as a compromise position in the ACA litigation

JB

Decades of anti-tax agitation by Republicans, as well as President Obama's campaign pledge not to raise taxes on people earning less than $250,000 a year, made Democrats gun shy about calling anything a tax during 2009 and 2010. (The debt ceiling crisis of 2011 changed all this, as Democrats finally figured out that it might be good politics to paint the Republicans as obstructionist on taxes.) Democrats therefore focused on the commerce clause theory and made elaborate findings of fact to show the mandate's connections to interstate commerce.

Fear of Republican attacks on taxes led to one of the great bonehead plays in recent American constitutional law. In an interview with George Stephanopolous, who pressed him on his campaign pledge not to raise taxes, President Obama denied that the individual mandate was a tax, and continued to do so even after Stephanopolous told him that he had read the actual text of the bill!

Statements like these have no legal effect; they do not prevent the Justice Department or the federal courts from justifying the mandate through the General Welfare Clause. Nevertheless, mandate opponents would repeatedly point to this interview as evidence that the mandate could not be a tax, because, after all, Obama himself had said it wasn't.

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Legal strategies also shaped the way the tax argument was treated in the lower courts. Neither the government nor the mandate's opponents wanted to emphasize the tax power. The opponents didn't like the argument because it would make the mandate constitutional. They would rather fight about the commerce power exclusively.

The government's position was more complicated, and evolved over time. The Justice Department always included the tax power argument in its briefs, but rarely devoted much attention to it. At first the government argued that lawsuits challenging the mandate were barred by the Tax Anti-Injunction Act, which says that taxpayers cannot seek injunctions against taxes but must first pay the tax and then sue for a refund. That would mean that constitutional challenges could not begin in earnest until after 2014, when the mandate takes effect. But it also meant that if courts wanted to uphold the mandate on the merits, they would have to find a way to get around the Tax Anti-Injunction Act. This gave them reasons not to treat the mandate as a tax.

After two district courts struck down the mandate, the government's litigation strategy changed. It worried that states would begin to delay implementation and it sought a quick resolution of the constitutionality of the ACA. To that end, the government began to argue that the Tax Anti-Injunction Act did not apply because the mandate was not a "tax" for purposes of the act. This made it harder to push the tax power theory. As Justice Samuel Alito remarked in the oral argument, "General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax." Technically, the the two positions are consistent: The tax power, which includes taxes, duties, imposts, excises and other devices for raising revenue, could be and probably is far broader than the definition of a "tax" in a particular statute. Still, Alito's comment showed the government's rhetorical difficulty.

The government could have argued that the Tax Anti-Injunction Act was merely a protective device and not a complete bar to jurisdiction. The government could waive the limitation -- and had waived it in this case. [This is how the Court would likely reach the merits if it used the tax power theory.] But the Justice Department disliked that legal strategy. It has attorneys defending the government in tax disputes around the country. If an inexperienced lawyer accidentally waived the protections of the Tax Anti-Injunction Act, the Justice Department would be stuck.

Finally, the government probably assumed that the tax argument was superfluous: Any court that thought the mandate was constitutional probably also thought it was constitutional under the Commerce Clause. Conversely, any federal judge that didn't accept the Commerce Clause justification probably wasn't going to turn around and uphold the health care law under the taxing power.

But the arguments before the justices may have changed these assumptions. Chief Justice Roberts, and especially Justice Anthony Kennedy, seemed to worry whether there will be any limiting principle if they uphold the mandate on Commerce Clause grounds. ( As I've argued elsewhere, there are straightforward ways of stating such a limiting principle, but the government did not emphasize them at oral argument.) At the same time, both Roberts and Kennedy are no doubt aware of the political meaning of a 5-4 vote along party lines that gives Republicans what they could not get through the democratic political process. That concern, and the long history of deference to Congress on economic legislation, give the justices strong reasons to uphold the act.

The tax argument offers them a way out. Without deciding whether Congress can impose mandates under the Commerce Clause, the Court could simply interpret the mandate as a tax, and uphold it on that basis. This would require no significant change in the law. It would also signal that if Congress wants to impose mandates in the future, the Court prefers that it use the taxing power, and face the political consequences.