Within a year or two, the Supreme Court probably will decide whether the new federal mandate to purchase a particular type of health insurance is authorized by Congress' constitutional power to "regulate Commerce ... among the several States." If the Obama administration cannot convince the court that the commerce clause allows Congress to force people to engage in commerce, the administration has a backup argument: The mandate is separately authorized by Congress' constitutional power to tax.
If this argument succeeds, the constitutional system of a federal government of limited, enumerated powers will, for all practical purposes, come to an end.
The Constitution grants Congress the "Power To lay and collect Taxes, Duties, Imposts and Excises." Pursuant to the Affordable Care Act, the penalty for not buying a congressionally designed health insurance policy will be collected by the Internal Revenue Service.
The Obama tax theory, in effect, would give Congress the power to make laws on any subject, impose a fine for noncompliance, have the IRS collect the fine, and then claim that the entire regulatory structure is part of the tax power. The result would nullify Article I of the Constitution, which carefully grants Congress 18 specific powers — and does not grant a general power to legislate on everything.
All three federal judges who have ruled on the Obamacare tax argument, even the one who upheld the Obama administration on the commerce clause issue, have rejected it.
The most obvious reason why these judges are correct is that the Affordable Care Act itself calls the penalty a "penalty" and not a "tax."
President Barack Obama, for his part, told CNN in September 2009 that the penalty is "absolutely not a tax."
It's true that the penalty is placed in the Internal Revenue Code, in a subtitle with the heading "Miscellaneous Excise Taxes." But the Code itself declares that the headings have no legal significance, and no inferences can be drawn from them.
A leading Obamacare defender, Yale professor Jack Balkin, cites a 1937 case, U.S. v. Sonzinsky, where the Supreme Court upheld a $200 tax on the transfer of machine guns. Although the tax was meant to discourage machine guns rather than to raise revenue, the court said the judges should not engage in "[i]nquiry into the hidden motives" behind a tax.
Yet two judges agreed that Sonzinsky actually seals the case against the penalty: Sonzinsky also means that when Congress says that something is a "penalty" and is not a "tax," then courts should not speculate that Congress meant something else.
Could Congress rescue the law by amending it so that the word "penalty" was replaced with "tax"? Probably not, because the new "tax" would not be the type that Congress has the constitutional power to impose.
The 16th Amendment grants Congress the power to "collect taxes on incomes, from whatever source derived." The Supreme Court has defined "derived" income to mean "undeniable accessions to wealth." Here, the mere refusal to purchase a product is not any kind of "income" or accession of wealth.
Likewise, the penalty cannot be an excise tax. An excise tax is imposed on an event or item, such as the acquisition of a machine gun. Again, there is no event to be taxed, and never in American history has a federal excise tax been imposed on an American's inactivity.
Thus, the tax is constitutionally a "direct tax" — similar to a head tax, or a tax on real estate. The Constitution requires that such taxes be imposed "in Proportion to the Census." The mandate penalty is not so apportioned.
Congress does have nearly limitless authority to create income tax deductions and could have created one for the cost of buying approved insurance. Courts, however, will not be ruling on the constitutional bill that Congress might have enacted but, rather, on the unconstitutional one that Congress did enact.