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Is the Mandate a Tax? Supreme Court Takes On Obamacare

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

The most important case to reach the Supreme Court, ostensibly since Roe v. Wade, began with the words, “There is no reason to think Congress exempted the penalty as a tax.”

No acknowledgement of the case’s significance. No grandiose declaration of constitutionality. In essence, it was a thesis statement – and a boring one at that, by many accounts.

But the ensuing hour and a half of argumentation provided a glimpse into both the controversial and technical aspects of the healthcare debate – starting with the question on whether or not the Court should even issue a decision on the matter right now.

There has been much speculation that the nine justices might throw out the case on jurisdictional grounds, involving the Anti-Injunction Act. It’s a contentious election year, and this decision has the power to sway the way the country votes in November. Besides, the Court tends to defer to Congress on matters legislative; they like to exhaust all other options before issuing a ruling on whether or not a law is constitutional.

It’s apparent the Court no longer has much patience with the AIA defense. Eight of the nine justices (Justice Clarence Thomas rarely, if ever, speaks in Court) directed questions challenging the court-appointed lawyer arguing that the Court had to withhold an opinion until the mandate took effect.

That lawyer, Robert Long, began his defense by stating simply that Congress had not differentiated the individual mandate noncompliance penalty from ordinary taxes. He gave three reasons. One, the law states that the penalty “shall be assessed and collected as taxes.” Two, penalties are included as taxes in our tax code. Three, the penalty looks like a tax in the manner it is collected; therefore, it must be one.

Mr. Long had barely completed his three reasons before Justice Antonin Scalia jumped in with the first question, regarding whether the IRS is explicitly collecting the penalty as a tax. From there on, the Justices continued to barrage Mr. Long with questions challenging the technical aspects of the AIA’s jurisdiction.

Although Justice Scalia is known for his courtroom humor, it was Justice Sonia Sotomayor who drew the first laugh from the audience, with a quip about how she and Mr. Long couldn’t come to an agreement on a technical matter, because “You assume the government to be incompetent, while I do not.”

Justice Stephen Breyer asked the first question not solely concerned with the finer points of tax law, noting that under the PPACA, the penalty is only part of the tax code insofar as collection is concerned; the manner of collection alone does not a tax make. He also noted one of the strongest points against classifying the penalty as a tax: its primary intent is not for generating revenue.

Justice Ruth Bader Ginsburg took the point about revenue one step further, noting, “if the mandate is successful, it won’t generate any revenue, as everyone would have insurance.” Mr. Long countered this with the Congressional Budget Office’s projection that the mandate penalty will raise revenue, intended or not – and a sizeable amount at that, with estimates around $4 billion per year.

The Justices didn’t seem too keen on ignoring the penalty’s intent, however; Justice Breyer continued to point out that the law never associates the word “tax” with the penalty, while Justice Anthony Kennedy suggested ignoring the words “assessed and collected” altogether when considering whether the AIA had jurisdiction. They seemed insistent that in order to consider the penalty a tax, they needed a better reasoning than, “it’s collected like a tax.” After all, the tax code includes a number of penalties that are collected through the IRS, but not considered taxes.

Justice Ginsburg introduced the final point the Justices considered before Mr. Long’s time ran out, pointing out that the states and private respondents wished to address the “must-buy” portion of the law, and were not in court to contest the penalty. Mr. Long argued that the mandate and the penalty are inseparable; the latter is the enforcement mechanism for the former. Furthermore, he said, even if the states weren’t concerned with the penalty itself, the AIA still applies, because their protesting the law would preempt someone else from paying taxes.

“Aren’t you trying to rewrite the statute?” Justice Elena Kagan asked in follow-up.

“I never said the statute was a model of clarity,” replied Mr. Long. The spectators laughed, but it was a prescient point, and one that may work against his argument.

After about twenty-five minutes of argument, Mr. Long sat down, and Donald Verrilli, Solicitor General of the United States, took his turn to argue that the AIA has no jurisdiction, and that the Court may rule on the mandate.

He’s barely begun his statement when Justice Samuel Alito interrupted him and said, “Today, you’re here arguing the penalty isn’t a tax, while tomorrow, it is,” provoking more laughter. He followed up by asking if the Court had ever ruled a penalty such as this a tax, but one exempt from the AIA.

What followed was an extremely technical argument about the AIA’s jurisdiction, complete with citations of specific clauses within the tax code. Mr. Verrilli concluded his point by saying that the Court may not even need to address the question of jurisdiction, prompting Justice Kennedy to crack a joke, saying, “But don’t you want to know the answer?”

Justice Ginsbug asked if the government is overlooking the AIA in order to make its argument, and Mr. Verrilli responded by shifting the focus to the very reason the whole case had made the Supreme Court.

“There are fundamentally a different set of issues at stake here” than simply disputing a tax, he said. He reiterated the purpose of the lawsuit; the states and private respondents are not in court to dispute tax payment, nor is the federal government trying to force them to pay the tax. The issue at hand is the individual mandate, and not the consequences for violating it.

The questions then turned to what Justice Sotomayor called, “collateral consequences” for not complying with the individual mandate. Justice Kagan posed the question of whether a person who had ignored the mandate, but paid the financial penalty, could in good faith state that they had not broken the law.

“Yes,” said Mr. Verrilli, “If they have paid the tax, they haven’t broken the law.”

The words had barely left his mouth when Justice Breyer burst in, saying, “You keep calling it a tax!” Mr. Verrilli amended it to “tax penalty,” but the point was made, that the government seemed to be giving a conflicting portrait of the financial obligation attached to disobeying the mandate.

Justice Alito concluded the questioning by asking whether an individual who feels the penalty was wrongly assessed may seek recourse using the AIA as justification for a refund.

“No, I don’t think so,” answered Mr. Verrilli. If that’s true, then the matter may be settled; if an aggrieved individual can’t use the AIA to have the penalty refunded, then the AIA would have no jurisdiction, and the Justices could rule on the issue of the mandate.

Mr. Verrilli took his seat after half an hour of argument, and Greg Katsas, part of the legal team representing the National Federation of Independent Businesses, rose to argue on behalf of the NFIB and the states.

If Mr. Katsas’ time in front of the Justices is any indication of what’s to come in the next two days, then the states and private respondents had better have prepared themselves well for Justice Sotomayor. She and Mr. Katsas traded words for several minutes, and while the matter at hand was a technical one over legal precedent, she was somewhat combative when questioning him.

Mr. Katsas then turned to the point he wished to make about the nature of the suit over the individual mandate, which was an argument similar to the one Mr. Verrilli made: the concern wasn’t over paying the penalty, but over the mandate’s constitutionality.

However, Chief Justice Roberts questioned whether the mandate and the penalty were inextricable, given that the penalty is the force behind the mandate. “Why would you have a requirement that is completely toothless? You know, buy insurance or else. Or else what? Or else nothing.” His point being, even if the lawsuit is over the constitutionality of the mandate, there’s still a penalty attached to that, and if the penalty is a tax, then the AIA applies, and the suit could be construed to preemptively block payment of a tax.

Mr. Katsas refuted this saying, “Congress reasonably could think that some people would follow the law because it is the law,” he said. He then presented the example of the poor, who are exempted from the penalty in the law. The mandate still applies to them, but rather than purchase a plan they can’t afford or face a penalty, they had the option of Medicaid enrollment.

Interestingly, the argument turned toward Medicaid expansion as a burden on the states – the subject of Wednesday afternoon’s arguments. Justice Kagan questioned Mr. Katsas on whether the states were “injured” by the expansion of Medicaid, and the two spent several minutes debating the issue.

Mr. Katsas’ arguments concluded with him explaining to Justice Sotomayor the legal standing the states had to challenge the individual mandate when the issue didn’t directly affect them (because, he said, putting more people on the Medicaid rolls would be an undue financial burden).

The AIA seemed to be left behind in favor of the meatier questions of the mandate, Medicaid, and constitutionality, subjects several of the justices were all too eager to broach.

The first day ended with Mr. Long’s final five-minute rebuttal, in which he reiterated his initial arguments for AIA jurisdiction. It seemed, however, that the Justices would side against Mr. Long, especially when Justice Breyer interrupted him to note that Congress explicitly avoided referring to the penalty directly as a “tax.”

All in all, the Justices’ willingness to challenge their court-appointed lawyer on the AIA’s jurisdiction implied that they’ll likely go ahead and rule on the individual mandate. They didn’t seem to find compelling the arguments in favor of classifying the penalty as a tax, and whatever questions they may have had for Mr. Verrilli and Mr. Katsas seemed overshadowed by the concerns for the penalty’s purpose. Perhaps we’ll have a ruling on the mandate in June after all.


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