Mandate Begone! The Logic of Chief Justice Roberts’ Unique Tax Power Theory

In my previous post, I explained how no one other than Chief Justice Roberts ever held the legal position that he came, for whatever reason, to hold.  Some may respond, “Hold on”:  Many law professors like Jack Balkin claimed loudly that the individual mandate was a tax. True. But that is not what Justice Roberts held.  Instead he rewrote the section in which the mandate appears by giving it a “saving construction”  so that it was no longer a mandate, then upheld the penalty alone as a tax because it was so low that it did not coerce compliance.  In other words, he did not hold that the individual insurance mandate was either a tax, or that it could be upheld as written under the tax power.

In this post, I examine the text of Roberts’ reasoning in some detail, so it is not for all readers.  In my next post, I will provide a more layman’s overview of this analysis from my column in today’s Washington Examiner.

Let’s start with the fact Roberts did not uphold the mandate as written but instead changed its meaning by providing a “saving construction.”  This is his most crucial move to reach his desired result:

The most straightforward reading of the mandate is that it commands individuals to purchase insurance.  After all, it states that individuals “shall” maintain health insurance. 26 U. S. C. §5000A(a). Congress thought it could enact such a command under the Commerce Clause, and the Government primarily defended the law on that basis. But, for the reasons explained above, the Commerce Clause does not give Congress that power. Under our precedent, it is therefore necessary to ask whether theGovernment’s alternative reading of the statute—that it only imposes a tax on those without insurance—is a reasonable one. . . .

[A]ccording to the Government, . . . the mandate can be regarded as establishing acondition—not owning health insurance—that triggers a tax—the required payment to the IRS. Under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes, like buying gasoline or earning income. And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax.

The question is not whether that is the most natural interpretation of the mandate, but only whether it is a “fairly possible” one. Crowell v. Benson, 285 U. S. 22, 62 (1932). As we have explained, “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.” Hooper v. California, 155 U. S. 648, 657 (1895). The Government asks us to interpret the mandate as imposing a tax, if it would otherwise violate the Constitution. Granting the Act the full measure of deference owed to federal statutes, it can be so read, for the reasons set forth below. (31-32)

Notice that the first two sentences in bold are the opposite of each other.  The most natural interpretation of what the statute calls the “individual responsibility requirement” is that it is a command or mandate, but reading it that way would “violate the constitution.”  So, to “save” it, Roberts accepts the government’s “alternate” view that that it is not a mandate or command:

And it is only because we have a duty to construe a statute to save it, if fairly possible, that §5000A can be interpreted as a tax. Without deciding the Commerce Clause question, I would find no basis to adopt such a saving construction. (44)

Why not?  Because this construction is not the legal meaning of the statute as normally read.  One has to change the statute to mean the opposite of what it says to uphold it as a tax.  This may be the most crucial passage of his whole opinion, which renders it unique.  It also renders the Commerce Clause analysis absolutely necessary to its holding that, only as rewritten, can §5000A be upheld under the tax power. This is even conceded by the 4 liberal justices who, as Ilya notes here, sign onto Part III-C of Roberts opinion, which includes this:

The Court today holds that our Constitution protects us from federal regulation under the Commerce Clause so long as we ab­stain from the regulated activity.

Let me now turn to the substance of his “saving construction” to see that he does not uphold a mandate as a tax; instead he eliminates the “requirement” or mandate from the statute.  According to his reconstruction, the “penalty” included in the “individual insurance requirement” was NOT a penalty to compel conduct but merely a tax that could “affect” or “influence” conduct.  He accomplishes this by (a) functionally distinguishing a tax from a penalty, then (b) providing a “saving construction” that the “penalty” in the ACA is not a penalty but is instead a tax.  Let me explain how he did this (on pp. 35-37) by inserting my own comments in brackets and adding some bold and italics for emphasis:

First, he started by adopting a “functional approach” to distinguish taxes from penalties (footnotes omitted):

Our cases confirm this functional approach. For example, in Drexel Furniture, we focused on three practical characteristics of the so-called tax on employing child laborers that convinced us the “tax” was actually a penalty  [ME:  that is, it was NOT a tax but was INSTEAD a penalty, so he puts “tax” in quotation marks].  First, the tax imposed an exceedingly heavy burden—10 percent of a company’s net income—on those who employed children, no matter how small their infraction. Second, it imposed that exaction only on those who knowingly employed underage laborers. Such scienter requirements are typical of punitive statutes [ME: what he will construe the ACA “penalty” NOT to be because punishing inactivity would be unconstitutional], because Congress often wishes to punish only those who intentionally break the law. Third, this “tax” was enforced in part by the Department of Labor, an agency responsible for punishing violations of labor laws, not collecting revenue.

Next, he applies this functional approach to the “penalty” in the ACA to show that this “penalty” COULD BE construed to function as a tax and NOT as a penalty because it does not compel conduct:

The same analysis here suggests that the shared responsibility payment [ME: not the statute’s own “individual responsibility requirement“] may for constitutional purposes be considered a tax, not a penalty [ME  Bingo]:  First, for most Americans the amount due will be far less than the price of insurance [ME rendering it a “choice” that is NOT compelled, like the mortgage interest deduction], and, by statute, it can never be more.  It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the “prohibitory” financial punishment in Drexel Furniture. 259 U. S., at 37. Second, the individual mandate contains no scienter requirement. Third, the payment is collected solely by the IRS through the normal means of taxation—except that the Service is not allowed to use those means most suggestive of a punitive sanction, such as criminal prosecution. See §5000A(g)(2). The reasons the Court in Drexel Furniture held that what was called a “tax” there [ME: notice he puts “tax” in quotation marks] was [ME: really] a penalty support the conclusion that what is called a “penalty” here may [ME: instead] be viewed as a tax.

Let me repeat this sentence:  “the shared responsibility payment may for constitutional purposes be considered a tax, not a penalty.”

He then distinguishes between the compulsion of a penalty and the “influence” of a tax:

None of this is to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new. . . . Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods in order to foster the growth of domestic industry. See W. Brownlee, Federal Taxation in America 22 (2d ed. 2004); cf. 2 J. Story, Commentaries onthe Constitution of the United States §962, p. 434 (1833) (“the taxing power is often, very often, applied for other purposes, than revenue”). Today, federal and state taxes can compose more than half the retail price of cigarettes, not just to raise more money, but to encourage people to quit smoking. And we have upheld such obviously regulatory measures as taxes on selling marijuana and sawed-off shotguns. See United States v. Sanchez, 340 U. S. 42, 44– 45 (1950); Sonzinsky v. United States, 300 U. S. 506, 513 (1937). Indeed, “[e]very tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed.” Sonzinsky, supra, at 513. That §5000A seeks to shape decisions about whether to buy health insurance does not mean that it cannot be a valid exercise of the taxing power.

Here is another place where he clearly is denying that this tax is a penalty because this tax does not fit the constitutional (i.e. Supreme Court caselaw) definition of a penalty:

In distinguishing penalties from taxes, this Court has explained that “if the concept of penalty means anything, it means punishment for an unlawful act or omission.” [ME:  i.e. compulsion]  United States v. Reorganized CF&I Fabricators of Utah, Inc., 518 U. S. 213, 224 (1996); see also United States v. La Franca, 282 U. S. 568, 572 (1931) (“[A] penalty, as the word is here used, is an exaction imposed by statute as punishment for an unlawful act”). While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. The Government agrees with that reading, confirming that if someone chooses to pay rather than obtain health insurance, they have fully complied with the law. Brief for United States 60–61; Tr. of Oral Arg. 49–50 (Mar. 26,2012).

Indeed, it is estimated that four million people each year will choose to pay the IRS rather than buy insurance.

Finally, as his ruling in the Medicaid challenge establishes, there is a constitutional difference between compelling (i.e. commandeering a state) and offering an inducement to influence its conduct.

So Chief Justice Roberts clearly holds that the so-called “penalty” is not a penalty but is instead a tax under his “saving construction” Therefore, he did not hold that Congress may use its tax power to penalize inactivity.

But did he also hold that Congress may not penalize inactivity using its tax power?   That is how I read this later portion of his opinion (42-43):

Congress’s ability to use its taxing power to influence conduct is not without limits. A few of our cases policed these limits aggressively, invalidating punitive exactions obviously designed to regulate behavior otherwise regarded at the time as beyond federal authority.See, e.g., United States v. Butler, 297 U. S. 1 (1936); Drexel Furniture, 259 U. S. 20. More often and more recently we have declined to closely examine the regulatory motive or effect of revenue-raising measures. See Kahriger, 345 U. S., at 27–31 (collecting cases). We have nonetheless maintained that “‘there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty with the characteristics of regulation and punishment.’” Kurth Ranch, 511 U. S., at 779 (quoting Drexel Furniture, supra, at 38).

We have already explained that the shared responsibility payment’s practical characteristics pass muster as a tax under our narrowest interpretations of the taxing power. Supra, at 35–36. Because the tax at hand is within even those strict limits, we need not here decide the precise point at which an exaction becomes so punitive that the taxing power does not authorize it. It remains true, however, that the “‘power to tax is not the power to destroy while this Court sits.’” Oklahoma Tax Comm’n v. Texas Co., 336 U. S. 342, 364 (1949) (quoting Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U. S. 218, 223 (1928) (Holmes, J., dissenting)).

Two points on this part of his opinion.  (1)  The question he does not reach is “the precise point at which” a tax on inactivity becomes so punitive as to be beyond tax power so some penalties on inactivity are unconstitutional.  (2) But he also says that the line is between when an exaction is a tax “under our narrowest interpretations of the taxing power” and when” it becomes “so punitive” that the taxing power does not authorize it.”  Could Roberts be suggesting here that some penalty can be imposed on inactivity but not ones that too punitive?   If so, that sentence would fuzz up, if not destroy, his entire categorical analysis.  The best reading — which is the opposite of a “saving construction” — of this passage, I think, is that at some point an exaction becomes so punitive that it becomes a true penalty rather than a true tax.

In short, Roberts is not upholding the power of Congress to impose penalties on inactivity, i.e. a mandate, under the tax power.  To the contrary, such an economic mandate would be unconstitutional.   According to Roberts, even if Congress may use its tax powers to punish conduct; it may not use them to punish inactivity.  Mandates are off the table under both powers.  If you don’t like this argument, as the concurring liberal justices clearly do not, blame Chief Justice Roberts not me.

A final note:  After reading this “saving construction” analysis, it is easy to understand why no one previously adopted this position as their own, and difficult to believe that Roberts is compelled by this analysis to reach the result of upholding the Affordable Care Act. So it is correspondingly difficult to resist the conclusion that he adopted it to reach his desired result of upholding the ACA for the political reasons loudly urged upon him by defenders of the law.

PS:  I confess that I have not been able to follow the law blogosphere’s analysis of the case, so maybe this is already widely understood by law professors.   If so, I am happy to update this post with links to those law profs who have offered the same analysis.