Symposium: “Schrödinger’s tax” is useless – and the command to purchase medical insurance is unconstitutional

Case preview: Court’s newest ERISA dispute will clarify states’ authority to regulate prescription-drug middlemen

This article is part of a symposium previewing California versus Texas.

Matthew Forys is Associate General Counsel and Chief of Staff of the Landmark Legal Foundation. He filed an amicus letter in support of Texas on Landmark’s behalf.

In 2017, Congress changed the payment of shared responsibility of the Affordable Care Act to $ 0, questioning whether Section 5000A could continue to be interpreted as the proper exercise of Congressional tax sovereignty such as the Supreme Court in the National Federation of Independent Business v. Sebelius was established. When the initial hurdle of standing in California versus Texas is cleared, the court will focus on what remains of the ACA’s individual mandate: mere suggestive language or an improper order in violation of the trade clause.

Section 5000A requires that Americans who are not otherwise tax exempt must have “essential minimum coverage” of health insurance. This order is followed by a “shared responsibility payment” or “penalty” imposed on those who fail to comply. In the NFIB, the court ultimately interpreted Section 5000A as creating a tax rather than an administrative order and penalty. In the ACA litigation that led to the NFIB, the question of whether the key elements of the section – command and payment – should be analyzed as separate, stand-alone provisions or viewed as a whole was a recurring preliminary question. With the revision of the payment to zero, that problem has reappeared in California versus Texas.

In Seven-Sky v Holder, an ACA appeal ruled by the US Court of Appeals for the District of Columbia Circuit seven months prior to the NFIB Supreme Court ruling, Judge Laurence Silberman found that the mandate “imposes obligations that What is independent of the punishment is “that the two elements were” analytically and legally separate “. Then-Judge Brett Kavanaugh wrote in his dissent that the lawsuit was precluded by the Anti-Injunction Act, a law that prohibits lawsuits over tax assessment and tax collection until tax has been paid. Kavanaugh suggested that the court should avoid the constitutional issues raised by Section 5000A as Congress could easily resolve them in the near future. A “minor change” in the legal language by Congress would “establish the constitutionality of the law under the tax clause”. However, he noted, “The tax clause has traditionally not approved a legal ban or mandate, just a financial incentive or incentive.” It looked like someone who didn’t get health insurance could be acting illegally. (This is a key difference between a regulatory penalty and a tax. Penalties are triggered by failure to comply with legal obligations, while taxes are levied on otherwise law-abiding citizens.) Kavanaugh suggested several ways that Congress could fix the constitutional issues, such as elimination and replacing the command language in subsection (a) or adding a language that reformulates the mandate and penalty as an integrated whole: “The taxpayer has the legitimate choice of either maintaining health insurance or making the payment to the IRS required by Section 5000A (a) afford to. – (c). “

The Obama administration relied on Kavanaugh’s analysis of tax power in its letter, which arose from another ACA challenge, and argued that optimization was not necessary. The language of subsection (a) could be read “in the context of section 5000A as a whole”, merely as a predicate of tax consequences. “To the extent that the constitutionality of section 5000A under the tax jurisdiction of Congress depends on whether subsection (a) creates an independent legal obligation, the law must be read not to do so,” wrote the Obama Justice Department. He asked the Supreme Court to interpret Section 5000A as an “integrated set of incentives”. Chief Justice John Roberts apparently took note.

In the NFIB, a divided court issued a broken decision with Roberts at the center. Some parts of Roberts’ opinion stood as an opinion for the court, while in other parts Roberts wrote only for himself. Five judges agreed that the individual mandate could not be maintained under the trade clause or the necessary and appropriate clause, as can be seen from the combination of Part III-A of Roberts’ opinion with the dissent of the four Conservatives. In their view, citizens’ obligation to trade went beyond the broadest reading of the trade clause.

In Parts II and III-C, Roberts, with the assistance of the four Liberals, including the late Judge Ruth Bader Ginsburg, drafted the court’s opinion to discuss the nature of the shared responsibility payment: either regulatory sanction or tax. For the purposes of the Anti-Injunction Act, it was a penalty, not a tax, because Congress called it a penalty. However, for constitutional reasons, it was a tax rather than a penalty when analyzed under a functional test. (Some have noticed that Roberts created Schrödinger’s tax.)

Roberts wrote just for himself in Part III-B, admitting, “The simplest reading of the mandate is that it commands individuals to take out insurance.” He adopted a saving construction with the canon of constitutional evasion. Rather than reading the mandate as an order to take out insurance or pay a fine, which was prohibited under the trade clause, it could reasonably be viewed as a tax on lack of health insurance, just as the government taxes gasoline or income. The four Conservatives disagreed with Roberts on this point, instead finding that this reading exercised “violence” against the clear meaning of the words. (As was frequently pointed out during her ratification negotiations, then-Professor Amy Coney Barrett agreed with the Conservatives in a magazine article that the chief was “pushing the ACA beyond its plausible meaning to save the statute.”)

Roberts went on to Part III-C to describe how the payment “looks like a tax.” It is paid for by taxpayers; calculated by factors such as taxable income, number of dependents and registration status; located in the Internal Revenue Code; and enforced by the IRS. It is valued and collected in the same way as a tax, which gives “the essential characteristic of any tax: it brings at least some revenue to the government”. He then used a “functional approach” that relied on an extremely restrictive regulatory system in the child labor tax case to determine that the payment was a tax rather than a regulatory penalty. Perhaps in expectation that he would increase the authority of Congress through tax power, he wrote that tax power, while broader than the trade clause, does not have the same ability to control individual behavior. In a language similar to Kavanaugh’s in Seven-Sky, he wrote that a tax, as opposed to a penalty, “leaves a person the lawful choice of doing or not doing a given act so long as they are willing to pay a tax levied on them this choice. “

In her partial contradiction, Ginsburg accused Roberts of unnecessarily rejecting the government’s trade clause argument if the mandate could be maintained under the tax power. In Part III-D he replied that he had to deal with the trade clause first, since the mandate was more natural to read as an order to take out insurance than a tax. The savings construction was only necessary because the mandate under the trade clause had failed. He concluded: “The federal government does not have the power to order people to take out health insurance. Section 5000A would therefore be unconstitutional if read as an order. “Therefore, a majority found that the individual mandate violated the trade clause, as subsection (a), the order, was viewed in isolation. Only when the savings construction was applied could the order be seen as “integrated” into a tax for people without health insurance and confirmed under tax sovereignty.

In 2017, Congress changed the ACA through the Tax Cuts and Jobs Act. It left the framework in section 5000A (a) – (c) intact, but set the payment amount at the lower of “zero percent” of an individual’s household income or “$ 0” in subsection (c). We have to think about what seems almost like a philosophical thought experiment: Is a zero dollar tax still a tax? Under NFIB the answer is likely no. Subsection (c) no longer has some of the attributes that made it “look like a tax” to Roberts, and most importantly, it no longer has the “essential characteristic” of a tax increase for the government.

Based on this logic, Judge Jennifer Elrod found in the U.S. Court of Appeals Opinion for the 5th Circuit, currently under review by the Supreme Court, that the NFIB rescue design is no longer available. What remains is an order to take out insurance that has already been found unconstitutional in the NFIB. Judge Carolyn King countered differently that the amendment “requires nothing more than that individuals pay zero dollars to the IRS if they do not take out health insurance, which means that they do nothing at all”. She also argued that the framework for “lawful decisions” remains in place. “Under the new system, applicable individuals can legally choose between maintaining health insurance and doing nothing. In other words, the cover requirement is a dead letter – it only functions as an expression of national policy or words of encouragement. “The states defending the ACA also argued that what remains of the mandate is just a proposal, like the flag code. (The flag code, however, uses the more permissive term “should” rather than the ACA’s “shall”.) This contradicts the chief’s clear language in Part III-D that the stand-alone command is unconstitutional.

At the NFIB, Roberts appeared unwilling to risk the court’s institutional reputation in a politically charged case. Its saving construction showed respect for the executive and legislative branches. Three new judges have since joined the court, and two of them, Kavanaugh and Barrett, have already raised doubts about the chief’s original interpretation. The independent obligation created by the order is now harder to ignore. Assuming the challengers stand, it seems unlikely that the individual mandate will survive this time around. On to separability.

Posted in California v Texas, Texas v California, pre-hearing symposium in California v Texas, Featured

Recommended citation:
Matthew Forys, Symposium: “Schrödinger’s Tax” is dead – and the order to take out health insurance is unconstitutional,
SCOTUSblog (November 9, 2020, 9:28 am), – is-unconstitutional /