Can Congress Tax Inactivity?

Can Congress Tax Inactivity? June 28, 2012

One of the central questions in the Obamacare ruling is whether Congress has the power to tax inactivity or tax the failure to purchase something.  This is the most obvious retort to the cigarettes analogy.  Granted, Congress has the power to tax the purchase of a cigarette, but does Congress possess the power to tax you for not purchasing a cigarette?

Roberts begins to addresses this in the opinion he authored on p. 41. There are three considerations, he says, that address this concern.

First, the Constitution does not guarantee that individuals can avoid taxes through inactivity. While many taxes are levied when you make a purchase or take an action, the Constitution contemplates a capitation or poll tax or a tax simply for existing.  Roberts thinks, then, that there is explicit Constitutional space for taxes of this sort.

Second, he says, the power to tax is not unlimited. Roberts refers to decisions “invalidating punitive exactions obviously designed to regulate behavior otherwise regarded at the time as beyond federal authority,” or invalidating taxes that are so extreme as to be purely punitive.  So the Congress could not, for instance, tax someone for not teaching their children the Gospel, because what we teach our children is beyond the proper sphere of federal authority – and the Congress could not impose a $100,000 tax for not purchasing health insurance since then the amount would be so punitive that the “tax” would no longer be a tax but a compulsion.

Third, he says, the power of taxation (thus defined) “does not give Congress the same degree of control [as one has under the Commerce Clause] over individual behavior.” Essentially, if the federal government had the power to compel the purchase of health insurance under the Commerce Clause, it could theoretically imprison a person who refuses.  If the federal government’s power is only through the tax code, then it can only tax a person who refuses to purchase health insurance.  Given that the tax cannot be clearly punitive, the tax will not be extreme, and a person can simply choose to pay the tax rather than take the action the government is seeking to encourage.

I find the second point persuasive, although I wish that Roberts had set forth the limitations more fully.  The taxing power is limited to those who pay taxes, there is an (undefined) limit on how extreme the tax can be, and it cannot reach into areas that are in principle beyond federal authority.  Are there other limitations?  Testing what is beyond federal power, and testing the limit of how heavy the tax can be, will be a matter for further litigation to explore.

I personally find the third point persuasive, although I seem to be in the minority amongst conservatives I am hearing and reading.  If you are faced with the options of purchasing an item or paying a tax, then you have to comply with those two options at risk of imprisonment.  This seems to be the case with any kind of tax, however — which is why I find Roberts persuasive on this point.

The weak point, it seems to me, is in the first point.  Is this an impermissible, direct, unenumerated tax?  That you cannot avoid taxation through inactivity is not, it seems to me, the same thing as saying the federal government can tax you for failing to purchase particular products.  If you cannot compel people to enter into commerce, why can you tax them for failing to enter into commerce?

Partisans on both sides should consider how this can play out.  While you can use tax breaks to incentivize the purchase of products you want to encourage, can you use tax penalties to penalize those who fail to purchase that product?  That is the ruling here.  So it would seem that the government can not only use incentives to encourage the purchase of fuel-efficient vehicles, but they could penalize those who fail to buy such cars.  If Congress’ taxing power extends this far, can you tax a person for getting an abortion?  Or for not getting sterilized?  The limits are not very clear.  It would seem that you could stick a tax on a broad array of human activity and thus gain far-reaching control over the behavior of the citizens.

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  • Jeremy Forbing

    I am trying to avoid partisan comments on this issue today, but I don’t think it is taking a side to say that this seems to be a tax penalty on the uninsured for the financial burden they place on the insured when they do seek care. So to my mind, it is not a penalty for inaction. But that’s a semantic point to be sure.

    But as many are pointing out, just because something is constitutional doesn’t mean it’s good law.

    • Timothy Dalrymple

      It’s an interesting point. It’s not how the decision itself frames the issue — it’s framed as a tax on an omission, at least in the majority opinion — but it’s a reasonable way of framing it, I suppose.

  • retr2327

    “So it would seem that the government can not only use incentives to encourage the purchase of fuel-efficient vehicles, but they could penalize those who fail to buy such cars.” For what it’s worth, it’s my understanding that economists generally view these two alternatives as essentially interchangeable. I.e., a tax credit for the purchase of a Prius (or other hybrid)is, for all practical purposes, exactly the same as a tax penalty (i.e., surcharge) on the purchase of all non-hybrids.
    One caveat: it’s my general impression that for ConLaw purposes, there may be a signficant difference between a “penalty,” in the sense of a punitive action that is not intended primarily to raise revenue, and a “tax,” even if the tax is, in some sense, imposed to shape behavior. And I believe the opinion indicates that if the tax for non-compliance with the ACA had been determined here to be primarily punitive in nature, Roberts would have stricken it.

    • Timothy Dalrymple

      You’re right in your caveat. And you may be right about penalties versus incentives, viewed economically. But with the tax approach for *not* purchasing the car, nearly everyone would be taxed. If you go with the incentive, only some people pay fewer taxes. So the consequences for individuals are quite different.

    • David

      A tax designed to punish someone for inactivity IS punitive in nature. If there was no intent to punish , there would be no reason for the “tax”.

      • Timothy Dalrymple

        This comes down to the definition of terms. Arguably the tax is just requiring everyone, either through acquiring coverage or paying the tax, to put money into the system that supports others and will eventually support them.

    • There are two comments I’d make here. The first is that one can consider the penalty in the ACA to be exactly equivalent to a rise in the income tax combined with a tax credit for the same amount. Note that the penalty only comes into play when your income is above a certain threshold. Therefore one could consider it a tweak in the formula for calculating the income tax. Separately, one can consider a tax credit in the amount of the rise in your income tax, which you’re eligible for only if your income is above the selfsame level. No need to think of this in terms of a “tax on inactivity” — it’s exactly equivalent to a tax increase plus a tax credit.

      The reason this isn’t a capitation or direct tax is simply because it is dependent on income, and thus could be considered, instead, a modification to the income tax.

      • Timothy Dalrymple

        Except that there *was* no increase in income tax accompanied with a tax credit. It may come out to the same mathematically, but that doesn’t mean they’re the same thing legislatively or judicially. And your comments do not reflect the fact that the tax is predicated on a failure to obtain health insurance. It’s not simply a matter of income level. So, one can try to dance around it, but it is a tax on a failure to take a particular action. It’s clearly framed as such in the Roberts opinion.

        • They’re not only the same mathematically — they’re the same in application in every sense. The two situations are exactly the same in terms of consequences, effect on citizens, and so on. If one were to hold that one case was constitutional and the other wasn’t, that would open up a huge can of worms — one could then conceivably be able to go through the entire tax code, or in fact all laws ever passed, looking for combinations of laws and trying to figure out if there had been some secret “purpose” to passing those laws so that, when combined, they produce some effect that you think ought to be ruled unconstitutional even though the question wasn’t one of interpretation or application, but merely whether the laws were meant to be passed “together” or “separately”. That would lead to a disastrous level of uncertainty.

          It seems to me that the exact equivalence of a tax penalty for “inactivity” with a tax increase one everyone + a tax credit for “activity” means that there cannot be a meaningful legal distinction between the former and latter from a constitutional point of view. This argument is made even stronger by the clear correctness of the other principle Roberts outlined, which is that the Court should use any reasonable construction of a law in order to attempt to find it constitutional. In this particular case to do otherwise would lead to massive uncertainty in the interpretation of laws in general.

          • Timothy Dalrymple

            I’m not convinced. Thanks for the link on the penalties available to the IRS for those who refuse to pay. You appear to be right about that, although I doubt it will last. It will not be difficult, either by legislation or by executive order, to strengthen the penalties against those who refuse to pay the tax. But for the argument here. It’s an interesting theory, but I just find the legislative and political dynamics around the two options quite different.

  • Kristen inDallas

    Exactly! They could easily make the claim that gym memberships (assuming people use them) improve health and reduce societal costs of healthcare. It’s not a completely true, but about as true as the claims made of insurance coverage. Does that mean I can be taxed for chosing not to purchase a gym membership? Even if I know I won’t “use” that membership so that the benefit to society is moot anyway (just like some people know they won’t “use” their health coverage).

  • Ben

    If you do not pay the tax, you still go to jail. Not for not buying health insurance, but for not paying the tax on not buying health insurance. This is a distinction that makes no difference in practical fact. Either way, Congress has the right to force you to buy insurance.

    Since the penalty/tax/whatever you want to call it is by statute less than the insurance premium, it is a more attractive option than insurance. With guarenteed issue is still in place, and that means the insurance industry is in big trouble. Premiums will go up, or the industry will die. Congress will then be compelled to go to single payer.

    Now, having said all that, this forces the politicians into a different game. Soon there will be a vote on whether to repeal this massive tax on the middle class, or not. Whether to bankrupt the insurance industry or not. It will die in the Senate, but everyone will be on record justt before the election. The voting public got another reminder that we cannot trust the Supremes to protect us from Congressional and Executive overreach.

    This is why laywers are so despised.

    • Timothy Dalrymple

      I wouldn’t agree. Congress, under this ruling, has the right to force you to buy insurance OR to pay a tax. It does not have the right to force you to buy insurance, full stop.

    • Actually this is not correct. The ACA specifically says that, while the penalty is assessed via the IRS, the worst thing that can happen to you if you do not pay it is you can have your refund reduced. If you are not due a refund, the IRS cannot impose a lien and there are no criminal penalties for failing to pay the penalty, whatsoever. It’s a rather toothless penalty, intentionally designed to be so to avoid the penalty being construed as in any way leading to potential criminal prosecution.

  • JF

    The fact that you have to parse the “law” like this indicates that we are far afield. Look up, rub your eyes, and look around: When you are punished for doing nothing, you don’t live in a free country. Why is that so hard for people to see? Did we really fight all those wars and spend all our efforts in history to establish an all-powerful government? How did it come to this? What a waste of our history and heritage. No way, no way in the world this is how it’s supposed to be.

    • John Haas

      “We’re going to say, ‘Folks, if you can afford health care, then, gosh, you’d better go get it,’ ” Romney said back in 2006. ” ‘Otherwise you’re just passing on your expenses to someone else.’ That’s not Republican, that’s not Democratic, that’s not Libertarian — that’s just wrong.”

      • Timothy Dalrymple

        I hope people understand the different powers apportioned to the states and to the federal government. It’s not just a quaint idea. It remains important. I know that you probably do, John, so this is not really directed at you. But sometimes I think America needs a remedial civics course.

        • John Haas

          “I hope people understand the different powers apportioned to the states and to the federal government.”

          Don’t look now, but I think Chief Justice Roberts just weighed in on that . . .

  • Basil

    What is the inactivity? You have entered into “commerce” already — we just have to figure out how to pay for it. At some point in our lives (and probably multiple points) we are ALL going to consume healthcare. We all go to the doctor, and on occasion, to the hospital. None of us are Daniel Boone, living all self-reliant on the frontier. And since we require emergency rooms to not turn people away (because that would be horrible), even if they cannot pay, then we have a “free rider” problem — how do we pay the costs of healthcare of the uninsured who turn up at the emergency room. Right now, we (the insured) all pay it in higher insurance premiums and higher taxes. And the unisured drive up costs overall because the cannot get preventative care. But if more people are insured, than our insurance premiums should start to stabilize because the costs are more widely distributed.

    There are multiple ways to pay for the healthcare we all consume — pooling everyone into insurance exchanges (this law, and what Romneycare does in Massachusetts), or taxing everyone and providing government insurance (what Canada does, and what Medicare does for the elderly), or even having the government provide the care directly (like the UK system, or what the Veterans Administration does here in the U.S.). Right now, we spend about twice as much per person as our peers in Europe or Japan, and yet 30 million are uninsured and have limited access to healthcare. It is a wasteful system. The Affordable Care Act is not perfect, but it is definitely a step forward.

  • Danny Boone

    ” None of us are Daniel Boone, living all self-reliant Well thats not accurate. This act is a few steps backwards. Nothing,nothing the Federal goverment does, ever works out as projected. I have the right to chose, and I chose not to be a part of this. THis abomination is more about control then healthcare. American history hase many examples of the failure of goverment progams.from welfare to home ownership. Healthcare,-well I contend that “A doctors labor is NOT my right” and I worry about the detramental affect this oppressive law will have on the quality of healthcare in AmeriKa! I say “Defy the Bastards”!

    • Basil

      You are commenting on a conservative blog on the internet, which was invented by the scientists at the Defense Advanced Research Projects Agency (DARPA), on a computer that that doesn’t blow up in your face because its electrical components have to meet standards set by the Consumer Product Safety Commission. The electricity powering your computer is from a power plant that is regulated by the Department of Energy to ensure it produces power in a safe and uniform way, and the Environmental Protection Agency, to regulate and minimize the amount of air and water pollution that the neighbors have to live with. The rates you pay on your electricity are regulated by your local utility commission, to ensure the electric company gets a fair return but you don’t get gouged, but they in turn get to draw upon Department of Energy, which also helps regulate commerce to make sure that there are fair prices in energy markets. And the highway you drove on to work/school was paid for by a combination of funds from federal, state and local government, and the car you drive in has to meet safety standards set by the Department of Transportation, National Highway Transportation Safety Administration (NHTSA) — I have an engineer friend who used to run the crash tests …I could on with examples like this for days..

      I am just so over this whole apocalyptic rhetoric. I was arguing with my in-laws last night (online) — they are full of Fox News talking points about “Obamacare”, which apparently means they are completely immune to things like reason and facts. So I here I have my other half’s sixty-something aunt complaining about “socialized health care” while she is about to draw Medicare, which I am paying for from my payroll taxes. But oh God forbid, can’t have some modest reforms (on a very Republican model that is actually working well in Massachusetts where 98% of people have health insurance and the state is not bankrupt) so that other people might have health care too. I have only two words to that can describe this: Ingrate and Hypocrite.

      If you don’t want to pay taxes and have government services, then move to Alaska, to a cabin in the wilderness with no phone (because that is government regulated and subsidized service), no power, no municipal water, and if you get sick — pay for the Doctor yourself — don’t expect free health care in an emergency room. Otherwise you are talking out of both sides of your mouth.

  • Rmb

    Basil and everyone else,

    I have one question: When we earn wages, buy things or own things (property, etc), taxes are imposed on us. Someone please tell me if we have ANY taxes that have EVER been levied on us when it doesn’t involve those three things?

    • I can’t think of any. I have tried and tried to come up with some precedent, but I can’t. I’ve searched the internet for any existing example of taxing inactivity, but can’t find any. Prior to yesterday, as far as I’m aware, you could completely avoid taxes but not earning any money, buying anything, or owning anything. That is no longer the case. I’ll keep checking back here, I’d love to hear if anyone else can think of any existing tax on inactivity.

      • Actually, I was wrong in my statement above. I just remembered that the amount of the tax is based on your income. So there is another option for people. They can buy health insurance, pay the tax, or earn less money and get healthcare for free.

  • SMW

    I keep hearing this argument that by leveraging people to buy insurance coverage, health care costs will go down. I ask you all a simple question: If I am covered by insurance that I have been leveraged to buy or am covered by insurance by the state due to my low income, am I going to use more or less services? In other words, if the state pays for my care, and I have a cold, how much more likely am I to go to a primary care doctor, or if I can’t get an appointment to urgent care, or if urgent care is busy to the ER? Guess what, it happens now and nothing in this bill addresses that. So this notion that the “free loaders” who go to the ER will now stop is misguided to say the least.

  • John Haas

    “It would seem that you could stick a tax on a broad array of human activity and thus gain far-reaching control over the behavior of the citizens.”

    Theoretically. But first you’d have to get Congress to pass the bill, a president tosign it, and most likely the Supreme Court to uphold it.

    I can’t say I lie awake at night worrying that a tax on the unsterilized or Koranless is imminent . . .

    • Timothy Dalrymple

      Yep. I was speaking here of legal/judicial restraints, but I commented elsewhere on political restraints.