CQ TODAY ONLINE NEWS
March 23, 2012 – 10:14 p.m.
Tax or Penalty: First Issue in Health Care Case
By Emily Ethridge, CQ Staff
The parties arguing before the Supreme Court about the health care law this week have one thing in common: They want the court to rule this year on the law’s constitutionality.
That means that neither the Obama administration nor the overhaul’s opponents are arguing that a tax law from the 19th century, the Anti-Injunction Act, would prevent the court from ruling now on the challenge brought by 26 states, the National Federation of Independent Business and four individuals.
The 1867 law bars suits against taxes before they are collected, and the court has decided to devote time Monday to hearing whether it applies to the insurance penalty in the 2010 health care overhaul (PL 111-148, PL 111-152). Under the overhaul, individuals who do not have health insurance would be subject to a penalty payable in their federal income tax return.
The 4th U.S. Circuit Court of Appeals threw out a separate case brought by Liberty University after ruling that the tax law applies and therefore prohibits legal challenges until the overhaul’s penalties are assessed. If the justices agree, that could postpone decisions on the three other issues before the high court until after the law’s individual mandate on insurance takes effect in 2014. That means that a decision could be pushed to 2015, when taxpayers file their federal taxes for the year before.
Most observers consider that outcome unlikely. One reason is that none of the other lower courts considering challenges found that the Anti-Injunction Act applied. On top of that, all parties in the suit before the Supreme Court agree that the tax law should not apply — a consensus that the court may want to acknowledge.
“It’s probably relatively unlikely that the court will use this to duck the question,” said Robert Alt, senior legal fellow at the conservative Heritage Foundation. “The court will be looking to whether or not they can credit that agreement — the fact that both parties don’t think this is an issue — and whether they can waive that argument. That would be a healthy chunk of the conversation.”
Ilya Somin, an assistant professor of law at George Mason University School of Law, also said he did not expect the court to use the Anti-Injunction Act as a way to defer consideration of the other issues before the court.
“Both parties in litigation and the country as a whole want a resolution on this issue, and I think the court is not insensitive to that,” Somin said.
Defining a Tax
All 90 minutes of Monday’s oral arguments before the court will be devoted to the tax law issue, and observers will be attuned to the vocabulary of the back-and-forth between the lawyers and justices. What terms will the justices use when referring to the fine levied on people who do not buy health insurance? Do they think of it as a tax or a penalty?
The administration maintains that people who do not have health insurance will be issued a penalty, not forced to pay a tax. Lower courts other than the 4th Circuit have agreed, saying the fine does not qualify as a tax — and therefore the tax act does not apply.
But even if the justices think of the fine as a tax, it matters whose definition of “tax” they are using. The 4th Circuit, Somin said, ruled under “a very unusual argument” that the Anti-Injunction Act’s definition of a tax is broader than the constitutional definition of a tax.
“One thing to look for: Does it seem like any of the justices are buying the 4th Circuit’s theory, that something can be a tax under the act but not under the Constitution?” he said.
Tax or Penalty: First Issue in Health Care Case
Because neither party in the case contends that the tax law applies to the health care overhaul challenges, the court has appointed lawyer Robert A. Long to make the argument that there is no difference between a tax and the penalty. In his brief, he said neither the tax law nor the Internal Revenue Code defines exactly what a tax is. But the broad definition supplied by Webster’s Dictionary shows that the penalty does qualify as a tax, he said.
In addition, the government has never identified any other assessed penalty in the Internal Revenue Code as not subject to the tax law — so there is no reason to think that Congress meant to exempt the insurance-coverage fine, he said.
If the court does decide that the Anti- Injunction Act applies to the case, it would set up a few scenarios for how it would or would not address the other three issues.
Because the tax law applies only to individuals who bring suits, the court would not rule on the question of whether Congress can require individuals to maintain a minimum level of insurance. It also would preclude the court from ruling on whether the individual mandate could be severed from the rest of the law when considering its constitutionality.
But the court still could decide to rule on one issue: whether Congress can condition federal Medicaid assistance to states on their adoption of new eligibility and coverage thresholds.
If the court punts on all the issues, Congress could act to bring up a case more quickly by passing a law that adds health insurance to the items exempted from the Anti-Injunction Act. That’s the scenario envisioned by Judge Brett Kavanaugh, who dissented in the D.C. Circuit Court’s decision in another case to uphold the mandate in which the court ruled that the challenge was properly in court.
“Unless Congress creates an exception for these Affordable Care Act cases — which Congress could still do at any time — this suit cannot be decided by the federal courts until 2015,” Kavanaugh wrote.
That scenario would not please the government or the plaintiffs, who are loath to leave the larger issue of constitutionality in limbo.
“They both want a resolution of the substance of the case,” Somin said. “It’s not very likely that you’re going to see that outcome.”