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The ACA: A Tax disguised as a Penalty


Posted by Justin Sykes on Monday, July 2nd, 2012, 12:12 PM PERMALINK


As poet James Whitcomb Riley wrote, if it looks "like a duck, swims like a duck, and quacks like a duck, call that bird a duck." The individual mandate upheld by SCOTUS last week not only looks like a tax, functions like a tax, but it is also enforced like a tax. Any cleverly veiled description of the individual mandate as a "penalty" and thus not a tax, blatantly overlooks the fact that it is a tax.

Thanks to Congress' legal contortions of our system of jurisprudence, the individual mandate has been allowed to limbo under the bar of judicial standing as just a "penalty," and find sanctuary as a "tax" in the arms of Article I Section 8 of the Constitution.

To clarify, there are two key points which the Government and its legal counsel advance, which amount to hypocritical interpretations of their own legislation. First, in order for SCOTUS to hear the challenge to the ACA, the Government had to show that the penalty contained in the legislation was not a tax, such that it is not barred by the Anti-Injunction Act. Second, the method in which the Government was able to successfully argue the merits of the ACA and the penalty it contains, was to prove that Congress could enact such legislation through its power to tax. In short, to get the case heard the penalty is not a tax, yet to get the legislation passed, the penalty is a tax.

Prior to examining the merits of the case, the Government had to overcome the Anti-Injunction Act's bar of suits brought "for the purpose of restraining the assessment or collection of any tax." In other words, for purposes of standing, the ACA's penalty had to be shown by the Government not to be a tax. If the penalty was shown to be a tax, the parties would not have had standing, as the tax is not yet in place and thus no cognizable injury is realized, such that there is no injury or issue for the court to rule on.

Because opposing council on both sides of the health care debate refused to argue that the penalty was a tax, SCOTUS was forced to appoint its own outside council or "amicus curiae" to argue for the penalty being a tax. To quote the court appointed council, "even though Congress did not label the shared responsibility payment a tax, we should treat it as such under the Anti-Injunction Act because it functions like a tax." The amicus brief further states, the penalties "shall be assessed and collected in the same manner as taxes."

However compelling the argument that the penalty is a tax, and thus barred by the Anti-Injunction Act, SCOTUS found for purposes of standing, the language crafted by Congress evidenced a penalty, not a tax, and the suit was not barred from being heard on the merits.

Once the Government was able to overcome the hurdle of the Anti-Injunction Act, however, their approach took an immediate 180. The Government was prepared with two arguments: (1) First, that Congress had the power to enact the mandate under the commerce clause; and (2) Second, "that if the commerce power does not support the mandate, we should nonetheless uphold it as an exercise of Congress' power to tax."

At first glance, these arguments seem destined to fail, and indeed SCOTUS found Congress could not enact such legislation under its first argument as the Commerce Power did not provide for such legislation. However, the second argument, that Congress could enact such legislation under its Power to Tax, was successful. To any layperson this seems odd, as the Government's principle argument, which allowed the legislation to pass the bar of the Anti-Injunction Act, was that the penalty was not a tax. Yet, the Government's principle argument in seeking to enact the legislation was that it was a tax and as such Congress could enact the legislation under its Power to Tax.

The Government was thus able to get the ACA in to court as a penalty, not a tax, while simultaneously getting the ACA passed by arguing the penalty was, for all intents and purposes a "tax."

While the Government's argument is an impressive display of legal gymnastics, it opens our legal system up to situations in which Congress can hypocritically craft two versions of the same legislation in a manner that benefits the passage of legislation, even though it is based on two contrary and conflicting logical interpretations.  

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