Congress enacted the Patient Protection and Affordable Care Act in 2010, which requires most Americans to have minimum essential health insurance coverage. It is argued that Congress does not have the power to enact the Act under the Commerce Clause.
A tax does not constitute a penalty when (1) the tax imposed is not an exceedingly heavy burden, (2) the tax is imposed only on those who knowingly violate the law, and (3) the tax is enforced by an agency responsible for punishing violations of the law.
Congress enacted the Patient Protection and Affordable Care Act in 2010 to increase the number of Americans covered by health insurance and to reduce the cost of coverage. The individual mandate demands Americans to have minimum essential health insurance coverage. While some people would receive the coverage from employers or government, others must purchase insurance from a private company to meet the requirement. Those who fail to have essential health insurance coverage must pay penalty to the Internal Revenue Service.
May Congress require the individual mandate within its enumerated power to lay and collect taxes under the Constitution?
Yes, the individual mandate may be upheld within Congress’ taxing power, because the mandate is not requiring individuals to buy insurance, which is outside the congressional authority, but instead it is simply imposing a tax on individuals who do not buy that product. Those who do not comply with the mandate merely need to pay tax to IRS, which is what Congress may demand on individuals.
Justice Scalia, Kennedy, Thomas, Alito
When an Act “adopts the criteria of wrongdoing” and then imposes a monetary penalty as the result of those who violate its standard, it creates a penalty, not a tax. The exaction at issue is clearly imposed for violation of the law, because the Act states that every applicable individual “shall” have health insurance or otherwise he/she must make a payment. The fact that Congress imposed a penalty for failure to purchase insurance is alone sufficient to make that failure unlawful. Our precedents show that this Court has never classified as a tax an exaction imposed for violation of the law.
What the Affordable Care Act imposes on those without health insurance resembles a tax, because it is paid into the Treasury by taxpayers when they file their tax returns. While the Act describes the payment as a “penalty,” not a “tax,” the label does not determine whether the payment may be viewed as an exercise of Congress’ taxing power. Whether a tax constitutes a payment depends on the amount of payment. Since the amount imposed by the Act is not an excessively heavy burden and is imposed only on those who knowingly hired underaged workers, the tax shall not be deemed a penalty. Because the Constitution permits a tax, the Court may not forbid it or judge its wisdom or fairness.