Citation. 567 U.S. 519 (2012)
Congress passed the ACA, which included a provision that required all Americans to maintain health insurance or be charged a penalty.
The ACA’s individual mandate penalty is a valid tax.
In 2010, Congress passed the ACA. 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.
Is the individual mandate of the ACA a tax under the Taxing Power?
Yes, the penalty payment for not maintaining health insurance as required by the individual mandate could be interpreted as a tax, and is therefore a valid exercise of power.
The individual mandate penalty yielded the same essential feature of taxes—it produced revenue for the government. Additionally, Bailey v. Drexel Furniture Co. provided three relevant factors for determining whether something is a tax: the extent of the burden on the entities that have to pay, scienter requirements that indicate a punitive purpose of the law, and the agency charged with enforcing the law. The individual mandate penalty was not excessively burdensome, had not scienter requirement, and is collected by the IRS through normal means of taxation.
The Court also found that the fact that the penalty might have been aimed at influencing individuals to purchase insurance did not mean that the penalty was not a valid exercise of the tax power. The Court also held that it did not matter that Congress did not explicitly frame or label the penalty as a tax.
The Court also 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.