Supreme Court Concocts New “Rational (Tax) Basis” Test in Upholding Health Law

In a move that seems to have surprised many observers, the Supreme Court today upheld nearly all of the Patient Protection and Affordable Care Act by a 4+1 to 4 majority (I’ll explain the math below). Chief Justice John Roberts, who wrote the Court’s opinion, joined with the four liberal justices in affirming the individual mandate and essentially all of the Medicaid provisions. The Court’s three reliable conservatives, plus Justice Kennedy, wrote in dissent that the entire law should be ruled invalid. The opinions can be read in their entirety here.

Addressing the question of the individual mandate, Roberts agreed that the mandate was not a proper exercise of Congress’s commerce power:

“The power to regulate commerce presupposes the existence of commercial activity to be regulated. … As expansive as this Court’s cases construing the scope of the commerce power have been, they uniformly describe the power as reaching “activity.” … The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce bypurchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.”

That’s the good news. A majority of the Supreme Court Justices recognize that Congress’s commerce power is not totally unbridled. Predictably, Justice Ruth Bader Ginsburg wrote a concurring opinion expressing her belief that the mandate WAS in fact a constitutional exercise of the commerce power (explaining the 4+1 majority I mentioned above). Although Justices Breyer, Sotomayor, and Kagan concurred with parts of Roberts’s majority opinion, they concurred with Ginsburg on the extent of Congress’s commerce power.

The four-Justice majority also rejected the government’s backup argument that the mandate could be justified under Article I, Section 8, Clause 18 (what grade schoolers are taught is the “elastic clause”) as “necessary and proper” for effectuating the rest of the Affordable Care Act:

“The individual mandate … vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it. Even if the individual mandate is “necessary” to the Affordable Care Act’s other reforms, such an expansion of federal power is not a “proper” means for making those reforms effective.”

The majority nevertheless sustained the mandate as a legitimate exercise of Congress’s tax power, even though the statute expressly describes the penalties for lack of coverage as “penalties” not a tax; even though the penalty is not included among the numerous other levies in the statute that ARE expressly identified as taxes; and even though President Obama and Democratic members of Congress repeatedly and vigorously denied accusations that the penalty was a tax:

“The most straightforward reading of the individual mandate is that it commands individuals to purchase insurance. But, for the reasons explained, the Commerce Clause does not give Congress that power. It is therefore necessary to turn to the Government’s alternative argument: that the mandate may be upheld as within Congress’s power to “lay and collect Taxes.” Because “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality,” … the question is whether it is “fairly possible” to interpret the mandate as imposing such a tax. … In answering that constitutional question, this Court follows a functional approach,”[d]isregarding the designation of the exaction, and viewing its substance and application.” “

Does this mean that any time Congress imposes a monetary penalty for failure to comply with some statutory requirement, the provision will automatically be considered constitutional? Not exactly.

The majority does recognize that some regulatory restrictions that include a monetary penalty are not valid exercises of Congress’s tax power. But how such provisions are drafted is important. It’s relevant that this penalty is to be collected by the IRS along with individual income taxes and that the penalty “is not so high that there is really no choice but to buy health insurance.” Perhaps most important, “None of this is to say that payment is not intended to induce the purchase of health insurance. But the mandate need not be read to declare that failing to do so is unlawful. Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS.” Of course, those all seem to be relatively low hurdles to clear for Congress to expand its regulatory power —  not entirely boundless, but pretty close.

Ironically, in order to even reach the legal question of whether the mandate constitutes a tax, the majority first had to find that it was not, in fact, a tax — sort of. The federal Anti-Injunction Act (26 U. S. C. §7421(a)), forbids courts to adjudicate the validity of any tax measure unless the plaintiff has already paid the tax. (No lower court had held that the suit should be barred because of the Anti-Injunction Act, but DC Circuit Court of Appeals Judge Brett Kavanaugh did take that view in a concurrence in one case.) That arguably SHOULD have prevented the majority from even reaching the merits of the mandate’s constitutionality once they agreed the mandate was a tax. But Chief Justice Roberts wiggled his way out of that one: “Congress did not intend the payment to be treated as a “tax” for purposes of the Anti-Injunction Act. The Affordable Care Act describes the payment as a “penalty,” not a “tax.” [But t]hat label cannot control whether the payment is a tax for purposes of the Constitution.”

In my opinion, it often IS the role of courts to second guess Congress and other legisltors on the underlying meaning of statutory language. Legislators should not be free to evade constitutional limitations by claiming one thing when they really mean something else. But that is precisely why I find it so troubling that the Court upheld the mandate as a tax even as Congress and the President went to extreme measures to deny that was one. Chief Justice Roberts’s explanation is that it does not matter what Congress calls the thing; a tax is a tax, and the Court knows one when it sees it. If the public doesn’t want Congress to impose the tax, they can respond at the ballot box.

The trouble, though, is that Congress and the President explicitly misrepresented this tax as something else for the purpose of evading public accountability. If the Court is going to rely on voter preferences as a sufficient check on governmental power, it ought at the very least to insist that the elected branches not lie about what it is they’re doing.

In many ways, today’s decision compounds one of the biggest weaknesses in the Supreme Court’s commerce clause jurisprudence. Under the so-called “Rational Basis Test,” which applies to economic regulation, the Court has refused to question due process or equal protection violations when Congress’s reason for enacting the law might be “rationally related” to a legitimate government interest. Under that test, however, Congress does not have to explain why the law was “rational” as long as the Supreme Court is willing to substitute its own rationale, however plausible.

In today’s decision, the Court was finally willing to say there is some economic regulation that does not satisfy the Rational Basis Test — some small zone of private activity that remains outside Congress’s reach. That still wasn’t enough, though, as the Court deferred to Congress and rubber stamped its over-reach on new grounds. This decision not only validates Congress’s power to regulate through the tax system. It says that Congress does not need to call a regulation a tax in order to get away with it. Congress and the President can even insist it is not a tax, just so long as a majority of the Supreme Court are willing to rationalize it as one. Meet the new Rational Tax Test.