First Day of Supreme Court Oral Arguments on ACA: Is the Penalty a Tax?


March 26, 2012

March 26, 2012 (Washington, DC) — In the first day of oral arguments here at the Supreme Court on the constitutionality of the Affordable Care Act (ACA), the Obama administration told the 9 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? While Gertrude Stein famously said, "A rose is a rose is a rose," US Solicitor General Donald Verrilli Jr, representing the administration, said today that a penalty is a penalty…is a tax.

It was an acute and confusing legal discussion — akin to Bill Clinton's "what the definition of 'is' is" — that contrasted sharply with the slogans shouted by ACA supporters and opponents who marched outside the Supreme Court building on a cool, sunny Monday morning in the nation's capital.

Demonstrators at the Supreme Court. Photo courtesy of Robert Lowes

How the justices define the individual-mandate penalty figured into today's question before the court — should it wait until at least 2015 to review the constitutionality of the mandate?

Specifically, the court entertained arguments this morning about the ACA'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, Virginia, cited the law last year when it declared that it was premature to rule on the constitutionality of the individual mandate. The court said that the penalty owed by Americans who do not obtain insurance coverage beginning in 2014 amounts to a tax, a position not taken by other federal courts in ACA lawsuits. Until the first penalty is actually paid in 2015, the case is not ripe for review, the appellate court said.

Allowing the ACA 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.

Justice Stephen Breyer

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.

In his 30 minutes before the high court, Verrilli argued that the penalty is indeed a penalty, and therefore not subject to the AIA, because "penalty" is the word Congress explicitly chose to use in the text of the law. If the court were to agree with the administration on that, he said, it need not fear a flood of litigation hog-tying the Internal Revenue Service over tax collection.

US Solicitor General Donald Verrilli Jr

"We've taken this position, after very careful consideration, and we've assessed the institutional interests of the United States and we think we are in the right place," said Verrilli.

This is a change of federal direction, because in a number of district court cases on the ACA, the government originally contended that the individual mandate should not be reviewed until someone paid the penalty, which it said qualified as a tax in regard to the AIA.

Verrilli will maintain a version of the older argument tomorrow when the court deliberates on the central issue in the ACA case — whether the individual mandate is constitutional. The Obama administration is saying that apart from the AIA, the mandate operates as a tax law, which buttresses its argument that the mandate is justified under Congress's constitutional authority to tax. In other words, the penalty is a penalty is a tax.

The justices saw this seeming incongruity coming.

Justice Samuel Alito Jr

"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 ACA in the Supreme Court case also do not consider the individual-mandate penalty as triggering AIA jurisdiction. However, their reasons are somewhat different from the administration's. 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 AIA issue is a moot one because the officials are challenging the mandate itself, not the penalty. The ACA, Katsas noted, distinguishes between the 2 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 did not find that line of reasoning persuasive.

Chief Justice John Roberts Jr

"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."

"Friend of the Court" Says AIA Should Delay Review

Because neither the Obama administration nor the 26 state officials and the National Federation of Independent Business (NFIB), also a party to the lawsuit, consider the AIA an ACA speed bump, the Supreme Court appointed attorney Robert Long Jr as a "friend of the court" to argue that the AIA indeed applies. Long today told the justices that the penalty amounts to a tax because the ACA specifies that it be assessed and collected in the same way as a tax.

Justice Breyer contested that assertion.

"Being collected in the same manner as a tax doesn't automatically make it a tax, particularly since the reasons for the AIA are to prevent interference with revenue sources," said Breyer.

Justice Ruth Bader Ginsburg

Justice Ruth Bader Ginsburg added that the AIA resembles another law on tax litigation that "does not apply to penalties that are designed to induce compliance with the law rather than to raise revenue."

Next on the Schedule

The ACA has come under legal attack in more than 2 dozen federal lawsuits. The 26 state officials, together with the NFIB, prevailed in a federal district court in Pensacola, Florida, which struck down the individual mandate as well as the entire law, viewing them as inseparable. An appeals court in Atlanta, Georgia, agreed that the mandate was unconstitutional, but spared the rest of the ACA. The high court agreed to review the appellate decision, especially in light of how other lower courts have upheld the law.

Tomorrow the Supreme Court will conduct 2 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 high-court 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 ACA. The Supreme Court is expected to issue a ruling in the case sometime before July.


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