Discussion of statutes begins always with the statutory language. Much water has been flowed under the bridge below before Arlene even mentions the statutory language, only part of which she cited to a partial source.

The actual Patient Protection and Affordable Care Act, P.L. 111-148, 124 Stat. 119, was the document from which this discussion should have started. Not some editorializations about "what the government wants," or summaries of what judges said. This is law school. One of the first lessons in it is that when discussing statutes, one always starts from the text.

You can find the relevant provisions 124 Stat. at 242 et seq. (p. 124 of the GPO print of the bill). You probably want to pay careful attention to section 5000A(g), 124 Stat. at 249 (p. 131 of the GPO print). You might also want to consult Chapter 68, Subchapter B of the Internal Revenue Code.

The government wants the individual mandate to be a tax, not a penalty, for two reasons.

1. Additional Congressional Authority Under Art. I, Sec. 8

Classifying the mandate as a tax opens up a head of congressional authority as an alternative to the Commerce Clause. If classified as a tax, the mandate could fall within Congress's power to "lay and collect Taxes, Duties, Imposts and Excises, to ... provide for the ... general Welfare of the United States” US Const. Art 1, Sec 8. As such, if the Supreme Court finds that the individual mandate does not comport with the Commerce Clause, the government is hoping that the court will find authority for it in the broader congressional authority to tax. This line of argument is unavailable if the individual mandate is classified as a penalty.

2. Anti-Injunction Act May Bar Lawsuit

A completely different statute called the Anti-Injunction Act prevents lawsuits "for the purpose of restraining the assessment or collection of any tax." 28 USC 7421. Essentially this means you can't bring a lawsuit until the IRS actually tries to collect the tax. Therefore, the government argues that this means the current lawsuit is barred since the "tax" does not go into effect until 2014. Of course, this argument will only delay the lawsuit since even if the mandate is classified as a tax, as soon as the IRS begins collecting it in 2014, the suit will be allowed under the Anti-Injunction Act.

Please note that the text of Act refers to the mandate as a penalty, not as a tax. See PPACA Sec. 1501(b). Further complicating the government's desire that the mandate be classified as a tax is that the legislative history of the Act indicates that the mandate was called a "tax" in earlier congressional drafts, but that the term "tax" was replaced with "penalty." (See Florida v. U.S. Department of HHS, 716 F.Supp.2d 1134 for a discussion about this.)

How does that "complicate" anything? Isn't Holmes' point that the words mean what they do, and that the doing is not affected by the naming, because in the end there are no operative distinctions between "tax," "penalty," and "tax penalty"? Surely no one will seriously argue that it's unconstitutional to use the word "penalty" but constitutional to use the word "tax." In which case, why does the name matter at all?

-- HarryKhanna - 24 Jan 2012

Courts Have Ruled the Mandate a Penalty

Judge Vinson, of the Northern District of Florida, rejected the governments argument that the mandate is a "tax," holding that it is a "penalty." The 11th Circuit affirmed his ruling in this regard, and refer repeatedly in their opinion to the mandate as a "penalty." The 11th Circuit did not agree with Judge Vinson's assessment that the mandate was not severable, and believe the potential unconstitutionality of the mandate would not render the entire act unconstitutional. (See Judge Vinson's Opinion: http://www.realclearpolitics.com/docs/2011/Vinson_HCRuling_0131.pdf and the 11th Circuit's Opinion: http://www.uscourts.gov/uscourts/courts/ca11/201111021.pdf)

-- KhurramDara - 24 Jan 2012

_Seems to me that courts are just using semantics to push political agendas. It reminds me of what Eben discussed today regarding the courts making decisions without having to point to what really is leading them to their conclusions. That is all._ -- KippMueller - 24 Jan 2012

I agree with Kipp - i could definitely imagine them deciding to remove the designation "tax" for political reasons rather than because they didn't believe it was a tax - not that the belief of congress/the administration in what metaphysically constitutes a "tax" necessarily affects whether the court believes it does. What does a tax do if not penalize those on whom it is applied, and what is a penalty if not a tax? The potentially different moral connotations typically associated with each word is of arguable relevance. Vinson's line here: "Congress should not be permitted to secure and cast politically difficult votes on controversial legislation by deliberately calling something one thing, after which the defenders of that legislation take an “Alice in Wonderland” tack and argue in court that the Congress really meant something else entirely, thereby circumventing the safeguard that exists to keep their broad powers in check." is nice in theory but seems hilariously naive, given the inherent spin associated with choosing any descriptive language. Here is Justice Taft on his take of the difference between the two - i'd be curious if you any more informed than i was after reading it.

"The difference between a tax and a penalty is sometimes difficult to define, and yet the consequences of the distinction in the required method of their collection often are important. Where the sovereign enacting the law has power to impose both tax and penalty, the difference between revenue production and mere regulation may be immaterial, but not so when one sovereign can impose a tax only, and the power of regulation rests in another. Taxes are occasionally imposed in the discretion of the Legislature on proper subjects with the primary motive of obtaining revenue from them and with the incidental motive of discouraging them by making their continuance onerous. They do not lose their character as taxes because of the incidental motive. But there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty, with the characteristics of regulation and punishment. "

http://bit.ly/wU8de9

Source of quotation?

apologies - above -- RohanGrey - 24 Jan 2012

tax n. a governmental assessment (charge) upon property value, transactions (transfers and sales), licenses granting a right, and/or income. (http://legal-dictionary.thefreedictionary.com/tax).

The usual notion of a tax is that it is something collected on the basis of positive events. Which is to say, you typically have a free choice about whether you will undertake the actions that will lead to a tax being collected from you. The fee that would be exacted under the Affordable Care Act (whether we call it a tax or a penalty) would be resting on a person's choice not to do something--that is, not to pay for insurance that they don't want. I have heard people argue that it is really a tax on the affirmative choice to be a "self-insurer," and not on the choice to refrain from buying insurance, but this line of argument strikes me as duplicitous. Failing to purchase something seems to be more of non-action than an action--even if that failure to purchase entails a plan to purchase a substitute at a later time. What do you think?

Then again, maybe this doesn't matter. Maybe taxes don't have to be tied to positive transactions. Does anyone know of other taxes that are based on a non-action? There is the estate tax, for instance. Dying isn't usually a choice, but the estate still gets taxed, regardless. Then again, death is definitely an event, as opposed to a non-event.

So in your judgment there would be something different about the situation in which Congress says "Everyone (with the following exemptions) must pay the following amount in additional income taxes, but we rebate the tax to you if you maintain adequate minimum health coverage for your family?" Then the tax would be on the income, and the choice about whether to qualify for the rebate would determine the incidence of the tax?

Turning it into a choice of whether to positively qualify for the rebate certainly seems to transform the question into one of affirmative volition, rather than latent inaction. At least I think that is what the hypothetical is aiming at. Also, wrapping up the tax-penalty in the framework of the income tax adds a layer of complication onto things, making it that much more difficult to identify the tax-penalty as one or the other (or both). At its core though, I don't see the situation as being very different, since the additional tax-penalty (now piggybacked onto the income tax), is still hinging on an refusal to take special action. The default operation in both situations is that people will be losing additional money to the government, unless and until they go out of their way to avoid it.

The idea of a positive transaction being the touchstone of a properly-named "tax" takes the default operation to be that people won't be losing additional money to the government, unless and until something about the status quo changes.

On the question of taxes based on non-actions: If I sell my house for more than I paid for it (or in some other cases, for more than the amount I am imputed to have paid for it, even I did didn't do anything to acquire it, which would be known as my "basis") I owe capital gains taxes on it. But if I "roll over" by buying another house within 18 months, I am not required to pay capital gains taxes at all. Does that mean that the capital gains taxes are based on my inaction in not buying another house? Or was I penalized for not buying another house? How, from a Holmesian point of view, could one tell?

Here's the way the situation looks to me, but I'd be happy to hear other ways of interpreting. At T1, I own my original house. At T2, the house has been sold (at a profit over my basis). At T3a, I have bought another house. On the other hand, at T3b, 18 months have passed, I haven't bought another house, and I must now pay a capital gains tax. At T1, the status quo is that I own a house (and, ignoring property taxes and everything, I won't have to pay any additional taxes on it). In moving to T2, I have upset the status quo by choosing to engage in an activity that brings with it a capital gains tax. The tax, therefore, is tied to the positive action of my earning money by selling something. If I go to T3a, the tax is forgiven on account of whatever policy aims that serves. If I go to T3b, then the tax comes due, and I must pay it. It can appear that the tax is only being forced upon me by virtue of my failure to buy another house, and maybe it is, from a certain viewpoint. At the same time, however, it shouldn't be forgotten that I found myself in T2 only as a result of my own choice to leave T1. The move from T2 to T3b is certainly the result of personal non-action, but is the tax excised on account of the move from T1 to T2, or the move from T2 to T3b? I gravitate toward the former, but what would Holmes say?

If we determine that money exacted on the basis on a non-event can't be termed a "tax," and that the Affordable Care Act falls under this head, then we'd have a problem with arguing in favor of the Act under the taxing power. Can we make solid determinations on these questions?

Does a piece of legislation have to use the word "tax" in order to be based on the taxing power? If Congress passes a statute that amends the Internal Revenue Code to set higher or lower penalties for particular taxpayer actions, and it doesn't use the word "tax" but only "penalty," does that statute not take its constitutional basis from the power to lay and collect taxes?

-- RyanBingham - 25 Jan 2012

The detailed summary of the Act (dpc.senate.gov/healthreformbill/healthbill04.pdf) lists the payment as a penalty: "Beginning in 2014, most individuals will be required to maintain minimum essential coverage or pay a penalty of $95 in 2014, $350 in 2015, $750 in 2016 and indexed thereafter; for those under 18, the penalty will be one-half the amount for adults. Exceptions to this requirement are made for religious objectors, those who cannot afford coverage, taxpayers with incomes less than 100 percent FPL, Indian tribe members, those who receive a hardship waiver, individuals not lawfully present, incarcerated individuals, and those not covered for less than three months." Do the categories of objectors give us any indication as to whether it resembles a tax or a penalty? The fact that there are exceptions made for religious objectors indicates to me that the fee resembles a penalty more than a tax; I couldn't find many taxes out of which it was possible to opt out based on religious objection. It looks like you can do so with the social security tax if you have religious objections to being part of a social insurance system, but that doesn't seem to parallel the case here.

-- KirillLevashov - 24 Jan 2012

Without coming to any conclusions just yet, I'll add some text from the Act: *Subtitle F—Shared Responsibility for Health Care PART I—INDIVIDUAL RESPONSIBILITY SEC. 1501 [42 U.S.C. 18091]. REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE.* _(a) FINDINGS.—Congress makes the following findings: (2) EFFECTS ON THE NATIONAL ECONOMY AND INTERSTATE COMMERCE. The effects described in this paragraph are the following: (A) The requirement regulates activity that is commercial and economic in nature: economic and financial decisions about how and when health care is paid for, and when health insurance is purchased. In the absence of the requirement, some individuals would make an economic and financial decision to forego health insurance coverage and attempt to self-insure, which increases financial risks to households and medical providers. (I) ...By significantly increasing health insurance coverage, the requirement, together with the other provisions of this Act, will minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums... (J) Administrative costs for private health insurance, which were $90,000,000,000 in 2006, are 26 to 30 percent of premiums in the current individual and small group markets. By significantly increasing health insurance coverage and the size of purchasing pools, which will increase economies of scale, the requirement, together with the other provisions of this Act, will significantly reduce administrative costs and lower health insurance premiums. The requirement is essential to creating effective health insurance markets that do not require underwriting and eliminate its associated administrative costs._

The Internal Revenue Code was amended to include this "requirement"/"penalty"/"tax," including all relevant penalty amounts: http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00005000---A000-.html

This sparks possible new discussion ingredients: Holmes' notion of a legal duty and what this would mean to the "bad man"; the "law and economics" rationalization for a Congressional mandate to insure yourself against health risks; and the expansion of the insurance market through governmental regulations of people's health choices (and wallets).

What bothers me is the use of communitarian language ("shared responsibility") as a guise for the creation of a stable marketplace ("economies of scale"). Perhaps that's why the word "penalty" was used instead of "tax": to instill the feeling of guilt in the uninsured. Breaking the tax code does not instill the sense of committing a crime against your community.

Does anyone actually think the emotions of the public are affected by the text of a statute with which we have already established that no one is at all familiar, even thoughtful well-educated persons such as yourselves? Why not choose some more probable perhapses, as for example that a "penalty" is a term of art in tax law, meaning a payment collected from the taxpayer after an earlier payment for which the taxpayer is responsible has not occurred?

-- ArleneOrtizLeytte - 25 Jan 2012

It would seem that the distinction between the subsequent "penalty" and the initial "tax" as used in 26(F)68(B)(1) Section 6671 and 26(F)68(B)(1) Section 6672 is that the penalty carries the option of being supplemented by additional penalties above the original amount as determined by the particular piece of legislation that authorized it - which in itself is i guess a form of "non-compliance" tax. Taft's attempt to associate "penalties" with executive regulation power (as opposed to legislative taxation power) seems counter to the actual examples of penalties as described in that part of the tax code - all of them lay out specific rules and amounts for determining what penalties to impose, rather than leaving it to regulatory discretion (with a few exceptions for possible waivers). This might be an attempt to ensure that the "penalties" are dispersed uniformly as articulated by the Constitution, which would go towards the case that it is merely another form of tax.

-- RohanGrey - 25 Jan 2012