Defects in the Supremes’ holding that the Obamacare penalty is a “tax”
Under the Constitution’s original meaning, the Supreme Court’s holding that Obamacare’s penalty for not purchasing health insurance is a tax is defective in at least two respects.
First: The court fails to understand the Constitution’s line of distinction between those exactions that qualify as taxes and those that are regulatory in nature. That line was critical to the Founding Generation—in fact, it was a basis for the American Revolution.
In Founding-Era parlance a “tax” is a measure adopted primarily for the production of revenue—that is, to raise funds “to pay the Debts and provide for the Common Defence and general Welfare of the United States.”
While it is true that the Founders recognized that a bona fide revenue measure could serve the subsidiary goal of influencing behavior, the principal purpose had to be financial for it to qualify as a tax.
On the other hand, an exaction imposed primarily to regulate behavior (such as the ACA’s penalty for not buying insurance) is a regulation of commerce, not a tax, even if it might raise a small amount of revenue. As such, it is valid only if within the scope of the Commerce Power.
That the court misunderstood the distinction is clear from its statement that “[T]axes that seek to influence conduct are nothing new. Some of our earliest federal taxes sought to deter the purchase of imported manufactured goods.. . ” If the Court was referring to prohibitory tariffs, then it failed to recognize that the Founders considered them regulations of foreign commerce, not taxes.
Second: The court failed to recognize that even if the penalty were a tax it would be a “direct” tax, and therefore subject to apportionment among the states.
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My book, The Original Constitution: What It Actually Said and Meant (2d ed., 2011), pp. 159-61, contains what may be the most complete compendium of Founding-Era sources on the distinction between direct and indirect taxes. While there were some exceptions (for example, although taxes on ownership of capital and household goods were direct, excises on ownership of luxury goods were indirect) the usual line of distinction was that direct taxes were imposed on status, while indirect taxes were imposed ontransactions. A tax that one must pay despite doing nothing is the quintessential direct tax.
Because the Court failed to examine the sources fully, it missed the nature of the distinction. This appears poignantly when the Court justifies Congress’s power to tax inactivity by citing congressional authority to impose capitations.
But of course capitations are direct taxes, and must be apportioned.
For a podcast covering this subject in more detail, click HERE.
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Does this mean we can’t have protective tariffs?
@onetenther Protective tariffs were not considered “Taxes” by the framers, but regulatory levies permissible under the commerce clause.
@MikeMaharrey-TenthAmendment Do you have something to back that up?
@onetenther Natelson spends a lot of time in his book explaining the distinction and the historical basis for understanding tariffs and taxes. Quite honestly, I don’t have time to get into it here.
@onetenther If you’re in the mood to do some reading, this is a great scholarly article on the meaning of “commerce.” It touches on the tariff/taxation issue toward the end.http://constitution.i2i.org/sources-for-constitutional-scholars/legal-meaning-of-commerce-in-clause/
@onetenther One more…shorter.
http://tenthamendmentcenter.com/2012/07/06/taxes-are-for-revenue-scotus-is-wrong/
I appreciate the attempts in the law to demarcate whether a statute “taxes” or not, but really these semantics are confusing and go nowhere, except in culturally-accepted legal arguments that preserve the muck-a-muck of the status quo.
What if Congress thought the penalty was a great way to raise revenue, and incidentally, to encourage people to buy insurance? Would this make a difference? Arguing about Congress’ motives is something that really is not easy to do, and quite often, it leads to debates like these which solve nothing.
The article states: “[A]n exaction imposed primarily to regulate behavior (such as the ACA’s penalty for not buying insurance) is a regulation of commerce, not a tax, even if it might raise a small amount of revenue. As such, it is valid only if within the scope of the Commerce Power.
First, what is a “tax?” Consider the home mortgage interest deduction. Mostly, people have an initial inclination to not see this provision as a tax at all. However, from the standpoint of a renter, there is most certainly additional tax to be paid for not purchasing a home on credit. Thus, the renter really IS being assessed a tax, but granted, in a roundabout way.
Clearly, there is some sort of long-held cultural bias going on in the way we choose to perceive schemes such as these. We just say, “It’s not a tax because it’s a deduction.” But seriously, is this the case?
In short, virtually every tax policy has the propensity to regulate. Thus, it would all come within the rubric of regulating commerce. “I don’t want to work if all I get to keep is 80%.” Does this make the income tax fall under the limitations of the Commerce Clause? No.
This is not a criticism of the article. I realize what the argument is, and these are the same arguments that are used in the case law, by attorneys and judges who were taught “this” is how you think. And so, that’s what they do. It’s a long-standing tradition in our legal system to adopt wrote methods of analysis without any purely sound logic. That’s why we are where we are. What a mess!
Robert’s mentioned Supreme Court Justice Joseph Story’s commentaries on the Constitution in the opinion. Story addressed the meaning and scope of the general welfare phrase:
“Do the words, ‘to lay and collect taxes, duties, imposts, and excises,’ constitute a distinct, substantial power; and the words, ‘to pay debts and provide for the common defence, and general welfare of the United States,’ constitute another distinct and substantial power? Or are the latter words connected with the former, so as to constitute a qualification upon them? This has been a topic of political controversy; and has furnished abundant materials for popular declamation and alarm. If the former be the true interpretation, then it is obvious, that under colour of the generality of the words to ‘provide for the common defence and general welfare,’ the government of the United States is, in reality, a government of general and unlimited powers, notwithstanding the subsequent enumeration of specific powers; if the latter be the true construction, then the power of taxation only is given by the clause, and it is limited to objects of a national character, ‘for the common defence and the general welfare.’
The latter has been the generally received sense of the nation, and seems supported by reasoning at once solid and impregnable. The reading, therefore, which will be maintained in these commentaries, is that, which makes the latter words a qualification of the former; and this will be best illustrated by supplying the words, which are necessarily to be understood in this interpretation. They will then stand thus: ‘The congress shall have power to lay and collect taxes, duties, imposts, and excises, in order to pay the debts, and to provide for the common defence and general welfare of the United States;’ that is, for the purpose of paying the public debts, and providing for the common defence and general welfare of the United States. In this sense, congress has not an unlimited power of taxation; but it is limited to specific objects, —the payment of the public debts, and providing for the common defence and general welfare. A tax, therefore, laid by congress for neither of these objects, would be unconstitutional, as an excess of its legislative authority.”
Justice Story also stated the taxing power could not be used as a regulatory power:
“The power to lay taxes is a power exclusively given to raise revenue, and it can constitutionally be applied to no other purposes. The application for other purposes is an abuse of the power; and, in fact, however it may be in form disguised, it is a premeditated usurpation of authority.”
Looks like Justice Roberts needs a new title: Chief Usurper of the United States Supreme Court.
Because the Court failed to examine the sources fully, it missed the nature of the distinction.
That’s charming, yes, let us all believe that the court actually meant to make sure they decided properly, as opposed to say, being political creatures who knowingly help maintain the fraud of legitimacy.
Rob,
You refer to apportionment, forgive my ignorance, but wasn’t apportionment destroyed by the income tax amendment?
@VinB
A 1980 Congressional Research Service (CRS) report discussed the effect of the Sixteenth Amendment on the federal government’s power to tax:
“The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution… Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment and indirect taxes were still subject to the rule of uniformity.”
As stated by CRS, the Amendment did not authorize any new type of tax or repeal or revoke the existing clauses. Indirect taxes were still subject to the rule of uniformity and direct taxes were still required to be apportioned among the several States.
The Report also made the following statement concerning the nature of the income tax:
“Therefore, it can be clearly determined from the decisions of the United States Supreme Court that the income tax is an indirect tax, generally in the nature of an excise tax.”
In 1989, the CRS revised and updated its report and discussed the nature of an excise tax:
“What does the court mean when it states that
the income tax is in the nature of an excise tax?”
“An excise tax is a tax levied on the manufacture, sale, or consumption of a commodity or any various taxes on privileges often assessed in the form of a license or fee. In other words, it is a tax on doing something to property or on the privilege of holding some property or doing some act, not a tax on the property itself. The tax is not on the property directly, but rather it is a tax on the transaction.
When a court refers to an income tax as being in the nature of an excise, it is merely stating that the tax is not on the property itself.”
If the so-called tax in Obamacare is not direct then it can only be indirect. A review of the above shows it fails that test too.
@Bob Greenslade Bob, Thank you for the answer.
-vin
Actually around 60% of income taxes goes directly to pay the interest on our debt. END THE FED!
Very Good !!!!
@TenthAmendment The losing side has 25 days from ruling to petition the Supreme Court for a rehearing of the #Obamacare case. Will they?
…and for the truth about the ‘Federal Income Tax’…
http://www.losthorizons.com
So what does a country do when the leader does not follow the law but rather just declares what he will do? Intimidates the Supreme Court Chief Justice into ruling against the constitution he is sworn to uphold? What recourse does the nation have as nothing stops the FORWARD march of this unlawful regime?
Emmmm….. It’s Revenue… to pay into the HC Subsidy System. So: WRONG!
Please America, wake up!!