This morning, the Supreme Court released its decision on President Obama’s landmark health care law, the Patient Protection and Affordable Care Act or “Obamacare.” Chief Justice John Roberts, appointed to the Court by President Bush in 2005, delivered the majority opinion upholding the entirety of the law, including the individual insurance mandate, the regulations on insurers, and the new Medicaid requirements on the states expansion.

See TSL’s prior coverage of the case here, including summary, audio, and text of the hearings.

While the Court held the individual mandate, on which the case hinged, to be constitutional as a “tax” on those who refrain from purchasing insurance, Roberts soundly rejected the government’s argument that the mandate was justified under the Commerce Clause (Congress’s power under Article 1 Section 8 of the Constitution to regulate interstate commerce). In the syllabus of the decision, the Chief Justice argued,

Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Congress already possesses expansive power to regulate what people do. Upholding the Affordable Care Act under the Commerce Clause would give Congress the same license to regulate what people do not do. The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it. Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated powers. The individual mandate thus cannot be sustained under Congress’s power to “regulate Commerce.”

Nor, Roberts continued, would the mandate be justifiable under the Necessary and Proper Clause:

Each of this Court’s prior cases upholding laws under that Clause involved exercises of authority derivative of, and in service to, a granted power….The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it. Even if the individual mandate is “necessary” to the Affordable Care Act’s other reforms, such an expansion of federal power is not a “proper” means for making those reforms effective.

Nonetheless, the opinion cited precedent in Hooper v. California (1895) that “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.” Relying on this strong presumption of constitutionality, it concludes that even though the law defines the mandate as a penalty, and not a tax, the Court must construe it as one if it is “fairly possible” to interpret it that way.

Even this argument doesn’t hold up, however, because the mandate is not a tax, nor is it “fairly possible” to construe it as one. It is never referred to as a tax in the law, and President Obama emphatically denied that the mandate was, or was intended to act as, a tax. Instead, the law refers to it as a penalty and assesses it as a penalty for violating the law’s requirement to purchase health insurance. The difference is not trivial.

Justice Scalia makes this point in his dissent:

We never have classified as a tax an exaction imposed for violation of the law, and so too, we never have classified as a tax an exaction described in the legislation itself as a penalty. …[W]e have never—never—treated as a tax an exaction which faces up to the critical difference between a tax and a penalty, and explicitly denominates the exaction a “penalty.” Eighteen times… throughout the Act, Congress called the exaction… a “penalty.” That [it] imposes not a simple tax but a mandate to which a penalty is attached is demonstrated by the fact that some are exempt from the tax who are not exempt from the mandate—a distinction that would make no sense if the mandate were not a mandate.

While seeming to impose strict limits on Congress’s power under the Commerce Clause, the majority decision grants broad authority to the government to use the tax code to coerce behavior. If construed as a tax, the mandate is a direct tax on citizens merely as a condition of living in the United States. Unlike taxes on income, sales, investments, or property, no actual activity need take place to make a citizen subject to it.

Roberts clearly rejects the authority of Congress to compel commercial activity, but grants unlimited authority to Congress to tax inactivity. As it stands, the decision authorizes unlimited capitation, or taxes per head, to which exemptions can be granted to individuals if they comply with mandates that Congress has no constitutional authority to compel directly. Nowhere is it made clear when or if taxation would become the unconstitutional coercion that this legal footwork is designed to circumvent.

The Chief Justice understands that the mandate “vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it.”

While he does not find such an “extraordinary ability” within the Commerce Clause, he does find it in the power to tax. This is a strange move, given that Roberts demonstrated a keen interest in defining limitations on the government’s ability to force universal participation in a market–activity which it could then regulate in any way it desired.

During oral argument in March, the Chief Justice made this point repeatedly:

Congress could — once you — once you establish that you have a market for health care, I would suppose Congress’s power under the Commerce Clause meant they had a broad scope in terms of how they regulate that market… …[O]nce we say that there is a market and Congress can require people to participate in it… it seems to me that we can’t say there are limitations on what Congress can do under its commerce power… …There’s this health care market. Everybody’s in it. So, we can regulate it, and we’re going to look at a particular serious problem, which is how people pay for it. But next year, they can decide everybody’s in this market; we’re going to look at a different problem now, and this is how we’re going to regulate it. And we can compel people to do things — purchase insurance, in this case; something else in the next case — because you’ve — we’ve accepted the argument that this is a market in which everybody participates (pages 39-40).

By allowing it to assess a “tax” on those who remain outside the health care market (something the law itself does not do), Roberts is letting the government to do an end-around on the limitations he just spelled out on its powers under the Commerce Clause. “Given significant deference that we accord to Congress in this area,” the Chief Justice stated during oral argument, once you have forced everyone into a market “all bets are off, and you could regulate that market in any rational way.”

The individual mandate has been rejected as a commercial regulation, but upheld as a “standing around tax,” allowable under an apparently unlimited taxing power. Which interpretation would have been more damaging to individual liberty is difficult say, because the effect is much the same. Only time will tell how Congress chooses to exercise this new power to tax inactivity, but, as Trevor Burrus of the Cato Institute notes, “If there is one thing the federal government knows how to do well, it’s tax.”

Links:

For a more optimistic outlook on the ruling, see TSL guest blogger Tommy McLaughlin’s post on Obamacare’s “silver lining”.

The Skeptical Libertarian’s own Moriah Costa was present for the groundbreaking ruling this morning.

Reason Magazine’s initial coverage of the decision.

CNN: “What health reform could cost you.”

The Supreme Court’s complete decision, including the majority and dissenting opinions.

Volokh Conspiracy: Hints that Roberts switched his vote here and here.

Ilya Somin: The Tax Issue is Not Just a Technicality and Supreme Court Majority Endorses Activity-Inactivity Distinction