How the Supreme Court Upheld the Individual Mandate: It Is and Is Not a "Tax"

In Part II of his opinion upholding the Affordable Care Act, Chief Justice Roberts concluded that the individual mandate is not a "tax" within the meaning of the federal Anti-Injunction Act. However, in Part III-C of his opinion he found that the mandate is a "tax" for purposes of the General Welfare Clause. How could he reach both of those conclusions?


The Anti-Injunction Act prohibits the courts from entertaining challenges to any tax laws until those taxes are assessed. If the AIA had applied to this case, the courts would not have able to rule on the constitutionality of the Affordable Care Act until 2014, when the law goes into effect. By ruling that the individual mandate is not a tax within the meaning of the Anti-Injunction Law Justice Roberts made it possible for the courts to rule on this issue at this time. 


The General Welfare Clause of the Constitution confers upon Congress the power to tax and spend:

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States .... (Art. I, Sec. 8, Cl. 1)

In today's decision the Supreme Court held that the enforcement mechanism for the individual mandate is a tax within the meaning of this constitutional provision. How could the Court decide that the individual mandate is not a tax for purposes of the AIA but is a tax within the meaning of the Tax and Spending Clause of the Constitution?  


This issue was raised at oral argument. As I described in an earlier post, (Solicitor General  Verrilli's  Argument on the Anti-Injunction Act, (March 27, 2012)), Justice Samuel Alito asked Solicitor General Robert Verrilli how the enforcement mechanism for the individual mandate could be both a tax and not a tax. General Verrilli responded that under the Constitution "the form of the words doesn't have a dispositive effect on the analysis," whereas in the interpretation of a statute "the precise choice of words does have a dispositive effect":

JUSTICE ALITO: General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you 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?

GENERAL VERRILLI: No, Justice Alito, but the Court has held in the license tax cases that something can be a constitutional exercise of the taxing power whether or not it is called a tax. And that's because the nature of the inquiry that we will conduct tomorrow is different from the nature of the inquiry that we will conduct today. Tomorrow the question is whether Congress has the authority under the taxing power to enact it and the form of words doesn't have a dispositive effect on that analysis. Today we are construing statutory text where the precise choice of words does have a dispositive effect on the analysis.

Taking his cue from the Solicitor General, Justice Roberts employed two altogether different modes of legal reasoning - two different sources of legal authority - in deciding these two issues. In interpreting the AIA the entire matter turned upon the intent of Congress, and Chief Justice Roberts took a very literal approach to the question of determining their intent. In the Affordable Care Act Congress called the individual mandate a "penalty" and not a "tax." The issue before the Court in Part II of his opinion was whether Congress intended to block any court challenges prior to 2014. Justice Roberts reasoned persuasively that the statutory text of the ACA revealed that Congress did not intend for the AIA to apply to the individual mandate portion of the ACA.


But when it came to determining whether or not the enforcement mechanism of the individual mandate was or was not a tax within the meaning of the Constitution, Chief Justice Roberts switched interpretive gears. Roberts stated:

It is of course true that the Act describes the payment as a “penalty,” not a “tax.” But while that label is fatal to the application of the Anti-Injunction Act, supra, at 12–13, it does not determine whether the payment may be viewed as an exercise of Congress’s taxing power. It is up to Congress whether to apply the Anti-Injunction Act to any particular statute, so it makes sense to be guided by Congress’s choice of label on that question. That choice does not, however, control whether an exaction is within Congress’s constitutional power to tax. (39)

In his interpretation of the General Welfare Clause (or Tax and Spending Clause), the Chief Justice utilized a different interpretive approach - what he referred to as a "functional approach." (41). The Chief identified three factors that militated in favor of finding the enforcement mechanism functioned as a "tax" and not as a fine for wrongful behavior. First, the amount due for not purchasing health insurance is less than the cost of health insurance. Second, the government need not prove that the person failing to purchase health insurance had was guilty of wrongful intent, as is almost always the case with criminal laws. Third, the assessed fee was to be collected by the Internal Revenue Service, but the IRS was not permitted to impose  criminal sanctions for failure to pay the fee. The Chief Justice cited precedent to support his reliance upon these three practical considerations in determining whether or not the individual mandate constitutes a tax.


Justice Roberts also cited a number of examples of taxes that are intended to affect people's behavior but which are nevertheless clearly within Congress' power to enact under the General Welfare Clause:

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 on the 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. (42-43)

Furthermore, the Chief Justice reasoned that the enforcement mechanism for the individual mandate does not function as 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.” 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 aspunishment 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 doso 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 Governmentagrees with that reading, confirming that ifsomeone 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. (43)

The Chief Justice addressed the contrary argument of the dissenters by providing an example:

The joint dissenters argue that we cannot uphold §5000A as a tax because Congress did not “frame” it as such. Post, at 17. In effect, they contend that even if the Constitution permits Congress to do exactly what we interpret this statute to do, the law must be struck down because Congress used the wrong labels. An example may help illustrate why labels should not control here. Suppose Congress enacted a statute providing that every taxpayer who owns a house without energy efficient windows must pay $50 to the IRS. The amount due is adjusted based on factors such as taxable income and joint filing status, and is paid along with the taxpayer’s income tax return. Those whose income is below the filing threshold need not pay. The required payment is not called a “tax,”a “penalty,” or anything else. No one would doubt that this law imposed a tax, and was within Congress’s power to tax. That conclusion should not change simply because Congress used the word “penalty” to describe the payment. Interpreting such a law to be a tax would hardly “[i]mpos[e] a tax through judicial legislation.” Post, at 25. Rather, it would give practical effect to the Legislature’s enactment. (39)

In Part II of his opinion the Chief Justice was tasked with deducing the intent of Congress in the enactment of a specific statute; In Part III his job was to determine the meaning of the General Welfare Clause of the Constitution. In resolving the second question Justice Roberts found that a reasonable person could conclude that the enforcement mechanism for the individual mandate operates as a tax - a tax upon persons who do not have health insurance. 


The Chief Justice stated that for constitutional purposes the label that Congress attached to the law does not matter as much as the actual effect of the law. If it looks like a tax and walks like a tax and quacks like a tax then it is a tax, and therefore Congress had the power to enact such a law under the General Welfare Clause.


Is it justified to utilize two such different analytical approaches in different portions of the same opinion? I think so. Questions of statutory interpretation are very different from questions of constitutional interpretation. In the interpretation of a statute the courts are to be guided by the intent of the legislature, and the legislature's precise words matter. Accordingly, when Congress called the enforcement mechanism for the individual mandate a "penalty" instead of a "tax" that use of language signaled their intent. The interpretation of the Constitution, by contrast, cannot be controlled by the specific terms used in a piece of legislation. The Constitution is concerned with the actual effect of a law on the lives of the citizens of this Nation. Neither Congress nor a state legislature can evade constitutional requirements through the clever use of semantics. If this were a situation where Congress called what was in effect an unlawful penalty a "tax," the Court would be justified in striking down the law. In this case, the law was declared constitutional despite the language that Congress used to describe the Act.


The Chief Justice concluded this portion of his opinion with these words:

The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness. (44)

Wilson Huhn teaches Constitutional Law at The University of Akron School of Law. He is the author of "ObamaCare: Is It Necessary, What Will It Accomplish, Is It Constitutional?"