Congress passed the ACA, which included a provision that required most Americans to maintain health insurance or make a payment to the IRS.
The individual mandate payment under the ACA was a valid exercise of Congress’ tax power.
One provision of the ACA was the individual mandate, which required most Americans to maintain health insurance. Individuals who did not maintain health insurance would have to make a “shared responsibility payment” to the Internal Revenue Service with their taxes, and the payment would be assessed and collected in the same manner as tax penalties. The ACA described the payment as a “penalty.”
Was the individual mandate of the ACA within Congress’ taxing power?
Yes, individual mandate of the ACA was within Congress’ taxing power.
Justice Scalia argued in part that the individual mandate payment was a penalty, not a tax, because, according to Justice Scalia, it was a consequence for a violation of the law. He also argued that the Supreme Court’s opinion was an improper imposition of a tax through “judicial legislation” instead of the proper method of congressional legislation.
The Supreme Court held that the fact that the ACA described the payment as a “penalty” and not a “tax” did not determine whether or not it could be viewed as an exercise of the taxing power, as confirmed by the Supreme Court’s own precedent. In Drexel Furniture, the Supreme Court focused on three characteristicts to determine if the “tax” at issue was a penalty: (1) the extent of the financial burden imposed; (2) whether there was a scienter requirement; and (3) the agency that enforced the “tax.” Here, these characteristics weighed in favor of finding that the ACA payment was a tax. First, the amount due under the ACA was significantly less than the price of insurance. Second, the individual mandate did not have a scienter requirement. Third, the IRS collected the payment through normal means of taxation, except that it was not permitted to use the means most suggestive of a punitive sanction.
The Supreme Court also found that the fact that the payment was intended to affect individual conduct, that did not mean it was not a tax. The payment did not impose negative legal consequences to not buying health insurance, and the Supreme Court found that this suggested that the payment merely imposed a tax, and that citizens could lawfully choose to pay instead of buy healthcare. The Supreme Court also held that the fact that the ACA used the word “penalty” did not mean that the Supreme Court had to read it as a punishment, citing New York v. United States in which the Supreme Court rejected a similar argument.
The Supreme Court also held that the payment was not a “direct tax,” which, under Aritcle I, § 9, Clause 4, would have had to be apportioned so that each state paid in proportion to its population. The Supreme Court cited its own precedent in which it suggested that only capitations and land taxes were “direct tax[es],” and the payment here was neither of those.
Finally, the Supreme Court addressed the argument that the penalty is problematic because it imposes a burden for an omission and not an act. The Court held that the penalty was still a valid tax because the Constitution did not forbid taxing omissions, the taxing power is limited, and the taxing power does not give Congress as much power to control individual behavior as the commerce power does.