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U.S. Supreme Court Debates Whether Individual Mandate Penalty Is a Tax
By Robert Lowes
WebMD Health News
Reviewed by Laura J. Martin, MD
March 26, 2012 -- In the first day of arguments before the U.S. Supreme Court on the constitutionality of the Affordable Care Act, the issue was about whether the law's penalty for not purchasing health insurance is essentially a tax.
Why is that important? Because if it is a tax, then the court can't rule on it until it goes into effect in 2014 and someone sues for a refund, which then delays any rulings regarding the entire law until 2015.
But today the Obama administration told the nine justices that a penalty for failing to obtain health insurance coverage should not bar them from ruling on the case later this year.
Its line of reasoning? This can get confusing. U.S. Solicitor General Donald Verrilli Jr., representing the administration, said today that the penalty is a penalty ... but it is also like a tax. More on that to come.
The Anti-Injunction Act
The law has come under legal attack in more than two dozen federal lawsuits. One suit, filed by 26 state officials together with the National Federation of Independent Business, has traveled all the way to the Supreme Court.
Specifically, the court heard arguments this morning about the health reform law's relationship to another law called the Anti-Injunction Act (AIA), which bans lawsuits that attempt to block the assessment or collection of a tax.
A federal appeals court in Richmond, Va., cited the law last year when it declared that it was premature to rule on the constitutionality of the individual mandate -- the part of the law requiring people to buy health insurance -- until the first penalty is actually paid in 2015.
Allowing the case to be heard, it ruled, could open the door to more tax suits that would "wreak havoc" on the government's ability to raise revenue.
The need to collect revenue was not lost on Justice Stephen Breyer today.
"Taxes are, for better or for worse, the life's blood of government," said Breyer.
When a Penalty Is Not a Tax
In his 30 minutes before the high court, Verrilli argued that the penalty is not subject to the tax act because "penalty" is the word Congress explicitly chose to use in the text of the law.
In what may seem like an about face -- but is instead more of a legal high-wire act -- Verrilli will argue Tuesday the opposite: that the penalty is indeed a tax. Here's why: Tuesday's hearings will focus on whether the law's individual mandate, which requires nearly all Americans to buy health insurance, is constitutional.
To make its case, the Obama administration will say that apart from the tax act, the mandate operates as a tax law, which strengthens its argument that the mandate is justified under Congress' constitutional authority to tax.
In other words, the penalty is a penalty is a tax.
The justices saw this seeming incongruity coming.
"Today you are arguing that the penalty is not a tax," Justice Samuel Alito Jr. said. "Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?"
Verrilli replied that he could not point to a case, but added that the Supreme Court has held in other cases that "something can be a constitutional exercise of the taxing power whether or not it is called a tax."
Can the Punishment Be Separated From the Crime?
Like the administration, the officials from 26 states who are challenging the law in the Supreme Court case also do not consider the individual-mandate penalty a tax.
They agree that the penalty is truly a penalty.
However, Gregory Katsas, an attorney for the state officials, told the Supreme Court today that the issue is a moot one since they are challenging the mandate itself, not the penalty.
The health reform law, Katsas noted, distinguishes between the two issues. For example, some categories of Americans are subject to the mandate, but not the penalty. One such category is the very poor.
Chief Justice John Roberts Jr. challenged Katsas on his reasoning.
"The idea that the mandate is something separate from whether you want to call it a penalty or tax just doesn't seem to make much sense," said Roberts. "It seems very artificial to separate the punishment from the crime. ... Why would you have a requirement that is completely toothless?"
Katsas replied that "Congress reasonably could think that at least some people will follow the law precisely because it is the law."
Next on the Schedule
Tomorrow, the Supreme Court will conduct two hours of oral arguments on whether Congress is empowered under the Constitution's commerce clause to require individuals to obtain health insurance or else pay a penalty.
The hearings conclude on Wednesday with a morning session on whether voiding the individual mandate requires the entire law to be struck down, and an afternoon session on the constitutionality of Medicaid expansion under the Affordable Care Act. The Supreme Court is expected to issue a ruling in the case sometime before July.
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