Monday, August 06, 2012

It Was Apparently Never About Freedom: The Dissenting Justices in the ACA Case Reveal That Their Objection Was Not About Liberty, After All

-- Posted by Neil H. Buchanan

In all of the discussion of the Supreme Court's ACA case, the one thing that everyone seems to agree upon is that it was all about liberty. Conservatives are pleased that there were five votes for the proposition that the Commerce Clause contains an activity/inactivity distinction, thus supposedly stopping Congress from requiring us to eat broccoli. Everyone else at least agrees that the conservatives on the Court sincerely argued -- perhaps not persuasively, but sincerely -- for a view of the Constitution that would limit federal power over people's lives.

This, it turns out, is an inaccurate view, as the dissenting opinion in the case inadvertently reveals. In my new Verdict column, I dissect the dissenting Justices' argument about the nature of the taxing power, pointing out that they elevate form over substance in defining what is a "tax" for Constitutional taxing power purposes. The Chief Justice's controlling opinion pointed out that "magic words" are not what is used to determine when something is a tax.

Instead, our system has always looked to the substance of what is happening, not the form or the words used. Thus, for example, if a taxpayer says: "I didn't receive income, but simply a loan that I never paid back," then we sensibly say that the taxpayer has received income that is subject to tax. The Chief Justice then points out that the ACA's "individual mandate" is functionally equivalent to a tax, because people have the option of paying the government more money than they otherwise would pay, or they can owe the government fewer dollars by buying private health insurance. And that, says the Chief Justice, ends the inquiry. Even though Congress called it a "penalty," it is functionally a tax, making the individual mandate well within Congress's taxing power.

As I point out in my column, economists tend to characterize nearly everything as a "price," and then to characterize anything that the government does as a "tax" that changes the prices that people face. The Chief Justice is troubled by the open-ended nature of this approach, because he sees (correctly) that every Congressional action might be recharacterized as a tax, which opens up (in his view) vast new opportunities for Congress to steal our freedom. He thus invokes a seat-of-the-pants proportionality test, suggesting that so long as Congress gives people a "real choice," then the law in question can be a tax -- but if the choice is so one-sided as to be coercive, then it is out of bounds. I find that argument unpersuasive, for reasons that I will describe below -- and for reasons that resonate with the controversy over the Commerce Clause.

But back to the dissenters. In an opinion that is notable for its vitriol (even by the standards of everything else that Justice Scalia has signed onto), four of the Court's five conservatives (Alito, Thomas, and Kennedy, along with Scalia) fairly scream that the taxing power must be limited by form, not substance. Their argument essentially says, as I discuss in my column: "There is a bright-line distinction between a 'tax' and a 'penalty,' and Congress called this a penalty. We have sometimes, in our cases, said that penalties have been mislabeled as taxes, but never the reverse. Therefore, we cannot do that here, either."

Reading the dissent, it really is astonishing how much weight they put on what Congress said, rather than what it did. One may object, however, that my column skipped over an important part of the dissenters' argument. They claim that there is a meaningful distinction between taxes and penalties, which is that penalties are imposed on people for being on the wrong side of the law, whereas taxes are imposed on people who have done nothing "wrong." The government had pointed out that it viewed the matter as a choice: If a person chooses to pay the "penalty" instead of buying insurance, then that person will be viewed as being in full compliance with the law -- just as, say, a person is in full compliance with the law when she pays more in taxes than she would have paid had she bought a house and taken the mortgage interest deduction.

The dissenters are unimpressed -- but in a way that is contradictory to their general approach. Here, they argue that substance matters, not form. It does not matter if the government says that people are not in violation of the law, because in fact they are worse off, which is the situation that people end up in when they violate the law. So the substance of the matter -- do people pay money to the government, or not -- is suddenly key to understanding what is a tax, not the words used. Ultimately, the dissenters are saying that the government has to be held to some of its words, but not all of them.

Even if one thinks that I am being unfair on the penalty/tax issue, however, the dissenters' most revealing moment is when they respond to the Chief Justice's argument that the ACA's mandate can be viewed as a tax, and thus (for purposes of determining whether to overturn the law) that it must be viewed as a tax. The dissenters write: "The issue is not whether Congress had the power to frame the minimum-coverage provision as a tax, but whether it did so" (emphasis in original). Again, the dissenters are all about form here. Did Congress "frame" the mandate as a tax? If not, no dice.

Consider, however, the profound concession that the dissenters are making here. They are not saying that Congress lacks the power under the Constitution to do exactly what it did in the ACA. They are saying only that Congress did not do it the right way. Why is that so profoundly revealing? Because the essence of the dissenters' position -- and certainly the meme that has dominated this entire debate -- is that Congress simply cannot do what it tried to do here, because the Constitution protects our freedom from such over-reaching. Now, we are simply told that any future Congress can do this very thing, so long as it uses the right words.

In an earlier series of Verdict columns and blog posts (the last of which, with links to earlier entries in the series, is available here), Professor Dorf pointed out that much of the rhetoric surrounding the early debate sounded in federalism principles, whereas the real argument from conservatives seemed to be a libertarian objection. The dissenters' argument shows that Professor Dorf was being too generous. There is neither a federalism nor a libertarian objection underlying this case. This is just full-on politics. Still, an anti-Obama conservative might argue that the dissenters would have struck a blow for freedom if they had gotten one more vote, because at least the ACA would have been struck down.

Again, however, the debate all along has been about the extent of Congress's powers, not about the particulars of this case. This was a classic slippery-slope argument: Universal health care coverage might seem like a good idea, but we have to draw the line here, or they'll be telling us that we have to eat broccoli. The dissent's position does nothing to strike back against that supposedly horrible possibility. The best that one could say, perhaps, is that even the Democratic-controlled Congress in 2010 would have thought twice about passing the ACA, if it had been forced to use the word "tax" instead of the word "penalty." Certainly, President Obama and the Democrats ran like scared children from the word "tax."

Under current political circumstances, tax is a dirty word. That means that, if one side can describe the other side's policy as a "tax increase," then the electoral politics will turn against that policy. If that is the argument, however, then we are really in a through-the-looking-glass world, because the dissenters' position would amount to nothing more than reliance on the political process to limit what Congress might dare to do. After all, during her confirmation hearings, now-Justice Kagan was asked about a must-eat-broccoli law. Her answer: "Sounds like a dumb law."

This has been the response by liberals and Democrats all along: Even when the Constitution permits some crazy outcomes, the democratic process will do its job. Which brings me back to Chief Justice Roberts's proportionality test. He tries to limit the taxing power, because he thinks that the word "tax" is potentially too broad. Similarly, Roberts and the other arch-conservatives argue that we must limit the commerce power because the word "commerce" is potentially too broad. With regard to the Commerce Clause, many legal scholars have said that we should simply recognize that the commerce power has broadened, as the world has become more commercialized (and as all commerce has become interstate). The same argument should be applied to the taxing power. Tax is a broad concept, and it can be (and certainly is) limited at the ballot box.

The larger point, however, is that the dissenters evidently agree that it is ultimately all about electoral politics. Their position is most definitively not that Congress lacked the power to do what it did in the ACA. They argue that Congress merely used the wrong words. At most, this amounts to a plea to give the people the ability to stop Congress from passing "dumb laws." They already possess that ability.


Hashim said...

I think you're mischaracterizing both the Chief and the dissenters, all of whom recognized that the "formal" statutory difference between a mandate to buy insurance and a tax on being uninsured has an important "substantive" effect that implicates constitutional liberty interests.

A formal mandate leaves a law-abiding individual with no substantive choice but to comply, regardless of whether he is willing to pay the penalty. By contrast, a formal tax leaves a law-abiding individual with the substantive choice to do whatever he wants, so long as he is willing to pay the tax. The difference between the two is thus obviously about freedom and liberty: whether a law-abiding citizen retains the *choice* to remain uninsured.

This distinction is blazingly obvious in other contexts: for example, a tax of $5 on legal cigarettes versus a legal ban on cigarettes carrying a $5 penalty. No one can possibly dispute that fewer people would smoke under the ban than under the tax -- since at least some would-be smokers will abide by the law even though they would pay the $5 tax -- and that's precisely what CBO found in the ACA as well.

Thus, the fact that the dissenters concede that Congress *could have* imposed a constitutional tax is perfectly consistent with their position that Congress *instead* imposed an unconstitutional mandate, which is a greater restriction on liberty.

Finally, an aside about the Chief's proportionality test. Precisely because the substantive difference between a formal mandate and a formal tax is the freedom to choose, a formal tax that is so high that it leaves no meaningful choice must be treated as a functional mandate. (Btw, the converse doesn't exist -- no matter how low a formal mandate's penalty is, a law-abiding citizen never has the choice to violate the mandate, so a formal mandate can never be treated as a functional tax.) The Chief didn't invent this "seat-of-the-pants proportionality test": it has been recognized and reaffirmed in the caselaw for over seventy years. That said, it should have been unnecessary to even reach the issue here, since the ACA imposed a formal mandate rather than a formal tax, with the substantively unconstitutional effect on liberty outlined above.

Joe said...

A fiscal penalty and a criminal penalty are different which makes Roberts' position reasonable.

I'm not as sure about his Necessary and Proper argument. If it wasn't as "tax-like" (e.g., you could simply pay a $5 fine, like a parking ticket, and get no other negative effects, but to the Dept. of Commerce, not on your tax return, etc.), a fiscal penalty can still be "proper."

But, since the person here DOES have a choice akin to paying more for their cigarettes, the dissent is much less reasonable. They are left with form -- the right language wasn't used -- since the only actual effect of not having coverage for those targeted is a tax like penalty.

Anyway, the ACA's coverage provision is a valid commercial power regulation & as with jury service (but potentially less fiscally burdensome) is not a substantively unconstitutional burden on liberty.

Some sort of mandate might be but Ginsburg's opinion spells out that this is not one.

Neil H. Buchanan said...

"This distinction is blazingly obvious in other contexts: for example, a tax of $5 on legal cigarettes versus a legal ban on cigarettes carrying a $5 penalty. No one can possibly dispute that fewer people would smoke under the ban than under the tax -- since at least some would-be smokers will abide by the law even though they would pay the $5 tax -- and that's precisely what CBO found in the ACA as well."

The distinction is not at all obvious, much less blazingly so. In fact, there is no meaningful distinction at all. One can easily dispute both that fewer people would smoke under a ban than under a tax, and that that is even the right question. If Congress gives people the choice of smoking or paying $5, no matter the words that Congress uses to describe it, the choice is the same. Asserting that the different words have different effects on liberty doesn't make it so.

Hashim said...

Under your theory, Congress has given companies the "choice" to discriminate on the basis of race and to pollute the environment, so long as they're willing to pay the "price" of compensatory or statutory damages. Indeed, under your theory, insurance companies still have the "choice" under the ACA to deny coverage to sick people, so long as they're willing to pay the "price" of whatever penalties the ACA imposes for non-compliance.

That's preposterous. The relevant statutes make it *unlawful* to engage in the relevant conduct. While that might be irrelevant if one is making the *purely economic decision* whether to engage in the conduct regardless, that is not how most, let alone all, normal human beings operate: law-abiding citizens take into account whether the law has forbidden their conduct or merely taxed it.

You can try to deny that common-sense and empirical reality about the effect of the law on personal freedom, but CBO found the precise opposite in the context of the ACA. I recognize that *some* people will treat legal penalties as "prices" no different than taxes. But not everyone will, because some people obey the law for its own sake. In fact, I defy you to provide even a scintilla of empirical evidence that the choice between banning conduct and taxing conduct has *no* effect on the overall amount of such conduct, holding constant the amount of the so-called "price."

Neil H. Buchanan said...

Hashim misreads my comment to say that nobody responds to framing effects. Nothing that I said even comes close to that absurd assertion.

"[E]mpirical reality about the effect of the law on personal freedom" is not what CBO found. It found that some people would change their behavior under the mandate, as they are free to do. It did not find that more or fewer people would have changed their behavior under a different frame. Moreover, even if different numbers of people would exercise their choices differently under different labels, that does not inform the analysis of Congressional power.

Hashim said...

You are ignoring my central point: are you really claiming that companies are legally "free" to discriminate on the basis of race, pollute the environment, and deny insurance to sick people, just because they have the "choice" to pay the "price" of statutory penalties?

If you answer "yes," then your reasoning is at least consistent, but I think you're probably a minority of one.

If you answer "no," then I'm at a loss as to why you think that individuals were "free" to violate the individual insurance mandate, but that companies are not equally "free" to violate those other mandates. [And if your implicit premise is that those federal laws have other enforcement measures besides statutory penalties, that's non-responsive: most people in this country would think that companies are not "free" to violate those federal laws regardless of the particular enforcement measures that Congress chose.]

Justin said...

I do think Neil is somewhat missing Hashim's point, though I also think Hashim's point is incorrect (or more accurately, incongruent). What makes the $5 tax different than the $5 penalty is the enforcement mechanism. If you make the penalty for smoking a $5 fine, then people will be dragged before a judicial system for violating the law (and, indeed, they may be arrested and processed under the texas seat belt case). Moreover, the law will likely look askance at sellers of cigarettes, so that they will not be prominently or publicly available. On the other hand, if the $5 "penalty" was payable by a voluntary point of sale transaction, and the law made it clear that it was legal to sell or smoke cigarettes (or give away, etc.), then I think the fact that the statute called it a penalty and not a tax would have no impact on smoking rates.

And I do think Neil's arguments against Hashim's penalty-vs-tax distinction go too far - people do tend to obey the law for the law's sake. However, if we start enforcing things in ways we don't generally enforce penalties - for instance, by allowing one to voluntary pay the penalty through an IRS audit - people are not going to treat the prohibition as a prohibition, regardless of what the statute says.

Justin said...
This comment has been removed by the author.
Justin said...

And while I don't have stats on hand, I think that this point has been somewhat empirically established, as someone reviewed state insurance mandates and found that in those states where the penalty/tax for noncompliance was insufficiently small, the mandate failed to accomplish its goals. This sure sounds like a tax than a prohibition. Unfortunately, I don't remember where I saw the study.

Neil H. Buchanan said...

I have been ignoring what Hashim now claims is his central point, because it is irrelevant. Justin's comment helps to clarify matters, but only in a way that makes it clear that "functional equivalence" has a more nuanced meaning than "exactly the same number of dollars changing hands." As Justin's example notes, there can be other costs to non-compliance. As the CJ pointed out in his opinion, however, none of those are present here.

Note that the argument was, in Hashim's previous comment, that we can see the loss of freedom by looking at the CBO's estimate that 4 million people would pay the exaction/penalty/tax. But even ignoring the lack of a comparison, that says only that 4 million people are expected to feel free to ignore the mandate.

Even accepting the inapt framing, one would have to ask whether similar numbers of businesses feel free to discriminate on the basis of race. Or, if the claim is that businesses don't feel free to violate pollution laws, why do so many do just that? Few companies discriminate these days (we hope), but many violate air and water (and safety) laws. What this has to do with determining loss of freedom is anyone's guess.

This discussion has gone meta. We were describing what Congress has the power to do under the Constitution -- no matter how popular or unpopular, and no matter how well crafted the law might be to fit Congress's purposes. Now, we're talking about freedom as if it can be measured by whether people or businesses knowingly violate laws that carry financial consequences for non-compliance. I would have thought that libertarians would be the last people to claim that a law's constitutionality depends on how well Congress manages the public's perception of its laws.

Hashim said...

Because I'm a glutton for punishment, I'll try to make my point one last way:

Comparing a tax of $X on lawfully polluting to a legal ban on pollution enforced by a penalty of $X, there will be *relatively more* pollution under the tax, because *some* law-abiding businesses will comply with the legal ban for its own sake, even though they otherwise would have been willing to pay the tax and pollute.

Likewise, comparing a tax of $x on lawfully remaining uninsured to a legal ban enforced by a penalty of $x, there wil be *relatively more* uninsured people under the tax, because *some* law-abiding people will comply with the legal ban for its own sake, even though they otherwise would have been willing to pay the tax and remain uninsured.

The *amount* of the difference in compliance is irrelevant. So long as there is *any* difference--which there surely is--then there is a meaningful substantive difference between Congress imposing a tax and imposing a mandate: the latter is a greater infringement on freedom, because some law-abiding citizens obey the law for its own sake.

That, of course, does not itself answer the question whether Congress is barred from imposing a mandate. But it does demonstrate that a tax is different than a mandate, and so the power to tax cannot justify the power to mandate. And that demonstration is sufficient to refute your claims that the dissenters were relying on formalisms that had nothing to do with substantive liberty.

Joe said...

The law at stake is set up to supply a tax penalty to certain people w/o health insurance.

If you don't have health insurance, you do not get a "fine" akin to pollution. You get a tax -- Roberts spells out why it is reasonable to call it a tax. Some law professors etc. did so under less duress.

The OP seems to have a broader argument but one of his replies on the habit of compliance seems to touch upon this in a way.

Since it is now officially by SCOTUS a tax, a person can not pay the tax w/o feeling like s/he is breaking the law. A polluter does not feel this way. There it is a fine. Again, I realize the OP seems to be making a broader economic point but that is enough to save this law.

Again, the dissenters relied on formalism in regard to taxation. Since it acts like a tax, like a fine like polluters, this matters.

Joe said...

similarly, there are various tax exemptions, for instance, if you use an energy saving device.

If the law set up a "tax," the law does not say "you are a criminal for not having an energy saving device."

Roberts argued the point:

"Indeed, it is estimated that four million people each year will choose to pay the IRS rather than buy insurance. See Congressional Budget Office, supra, at 71. We would expect Congress to be troubled by that prospect if such conduct were unlawful. That Congress apparently regards such extensive failure to comply with the mandate as tolerable suggests that Congress did not think it was creating four million outlaws. It suggests instead that the shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance."

If some people are just going to ignore this, fine, but I don't know why we shouldn't assume the objector observer here knows the law.

Justin said...


It seems like by claiming that the amount of difference is irrelevant, you have a rather formalist definition of what is and what is not formalist. If the amount is negligible, then it seems like focusing on it - particularly to invalidate an entire law based on a novel understanding of the commerce clause (and a confusing understanding of the N&P clause) is itself formalist.

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