Obamacare and the Tax Anti-Injunction Act

March 15, 2012 | By TIMOTHY SANDEFUR

The first day of oral argument in the Obamacare cases involves jurisdiction, and specifically, a federal statute called the Tax Anti-Injunction Act. This is a law that limits what cases federal courts are allowed to hear: specifically, it holds that federal courts cannot hear a case “for the purpose of restraining the assessment or collection of any tax,” unless the case falls within certain exceptions. Instead, those wanting to challenge taxes normally have to pay first and sue later.

The reason this matters is that the Individual Mandate provision of the PPACA is backed up by a monetary penalty that’s collected by the IRS and is based on your income. Thus the Obama Administration has off and on tried arguing that the penalty is a “tax” for purposes of the Tax Anti-Injunction Act, and therefore that the courts lack jurisdiction to hear the case. The Fourth Circuit agreed with this reasoning last fall, throwing out Liberty University’s challenge to the Individual Mandate on just these grounds. (PLF filed a friend of the court brief, authored by Prof. Steven Willis, on the issue.)

Now that the issue has reached the Supreme Court, the Obama Administration has largely abandoned this argument: its opening brief acknowledges that the penalty is not a tax, and that “Congress determined not to apply the full panoply of statutory rules governing ‘taxes,’ including the [Tax Anti-Injunction Act], to the minimum coverage penalty.” However, the Administration contends that the PPACA does include other provisions that are taxes—so that the entire PPACA does not need to fall as a whole, if just one section is invalidated (this is the “Severability” argument): “A direct pre-enforcement constitutional challenge to one of [PPACA]’s sections providing for ‘the assessment or collection of any tax’ would be barred by the [Tax Anti-Injunction Act],” the Administration argues. “So too is a challenge to one of those provisions in the form of an inseverability argument, because invalidation of a revenue program on that basis likewise would necessarily prevent the federal government from assessing and collecting its attendant taxes.” In short, the Tax Anti-Injunction Act does not block the Court from resolving the challenge to the Individual Mandate, but it does block the Court from addressing other provisions of the PPACA—and therefore the Court should not strike down the entire thing at once if it does strike down the Mandate. Obviously the plaintiffs disagree with that last bit, but they agree that the Tax Anti-Injunction Act does not block the lawsuit, because the Mandate and its penalties don’t qualify as a tax.

It seems unlikely, with both sides agreeing on this point, that the justices will rule otherwise. But it is possible, because the Court is required to weigh jurisdictional matters for itself even if the parties don’t dispute jurisdiction. For that reason, the justices appointed lawyer Robert A. Long to file a brief making the best argument possible that the Tax Anti-Injunction Act bars federal courts from hearing the case. In his brief, Long argues that the penalty for not complying with the Mandate qualifies as a tax: the PPACA says that any penalty “shall be assessed and collected in the same manner as an assessable penalty under” such-and-such a law, and that law, in turn, says “that ‘the penalties and liabilities provided by this chapter…shall be assessed and collected in the same manner as taxes.’” Since the penalty is collected in the same manner as a tax, it doesn’t matter whether or not Congress called that penalty a tax or not—the Tax Anti-Injunction Act still “must apply in order to give effect to Congress’ choice of the manner in which the…penalty is assessed and collected.”

But, Long continues, that doesn’t mean that people could never challenge the penalty: they could either pay the penalty and sue for a refund on the grounds that the Individual Mandate is unconstitutional, or they could refuse to pay it and wait for the IRS to come after them, and then also argue that the Mandate is unconstitutional.

Still, as PLF pointed out in our Virginia brief, most people would be unable to afford to sue for a refund, and the penalty is drafted in such a way as to deny people off judicial review prior to the IRS filing a lien against the person’s property. What’s more, a person could be liable to the government for the costs of such a lawsuit, further reducing the likelihood of challenging the Mandate.

In response to Long, the states argue that the Tax Anti-Injunction Act is not technically “jurisdictional,” but is only “a claims-processing rule.” That means two things: first, it means the parties can waive the issue. As I mentioned, people can’t agree to ignore the court’s jurisdictional limits. But they can agree to ignore other issues, and if the Act is not jurisdictional, then the Supreme Court can ignore it, because both the plaintiffs and the defendants agree that the Act doesn’t apply. Second, it means that the Court can hear a case which might obstruct tax collection if Congress hasn’t given people some other way to challenge a tax that they think is unconstitutional. Courts cannot come up with exceptions to jurisdictional rules. But they can apply exceptions like this to non-jurisdictional rules. And according to that exception the Court can hear this case even if the Mandate is a tax, because Congress gave people no other way to challenge the Mandate’s constitutionality. The states point to a case called South Carolina v. Regan, in which the Supreme Court allowed a lawsuit to go forward even though it would have prevented the collection of a tax, because the Tax Anti-Injunction Act only “prohibited injunctions in the context of a statutory scheme that provided an alternative remedy.” Mr. Long answers this by pointing out that in Regan, the taxpayer was the plaintiff—whereas in this case, the state, and not a taxpayer, is suing.

Finally, there’s some dispute over whether the lawsuit is about the penalty or about the Mandate. The states argue that they’re only challenging the Mandate, not the penalty, so the Tax Anti-Injunction Act shouldn’t apply in any event. But the Administration argues that the Mandate and the penalty cannot be separated. This draws us into a complicated line-drawing exercise: is the Mandate just a predicate to the collection of the penalty? Or is the penalty used to back up the Mandate as a centerpiece of Obamacare? Ironically, the plaintiffs in this case have to sometimes argue that the statute should be seen as a single unit (for purposes of the “Severability” argument we’ll talk about later) and at other times, like this, they have to argue that it’s really a machine of different moving parts. Still, the states observe that the Mandate can be separated from the penalty: after all, the Mandate does harm the states—by pushing people onto Medicaid—but the penalty does not harm them, because only individuals pay it. The individual plaintiffs likewise argue that their lawsuit is not brought “for the purpose” (the Tax Anti-Injunction Act’s language) of restraining the collection of a tax: it’s brought for the purpose of “attacking the insurance mandate that Congress intentionally created as a free-standing legal duty.”

These seem like strong arguments. It’s pretty clear on a common-sense level that the purpose of the lawsuit is not to challenge a tax. This case would probably never have been filed if it were just a dispute about a tax. It’s about Congress’ demand that people buy insurance—a demand that Congress just happened to have backed up with a penalty assessed by the IRS. If Congress had backed it up in some other way, these plaintiffs would still have filed this lawsuit; if Congress had just raised taxes and used them to fund federal health programs, they probably would not have.

In the end, the important issue as far as the Anti-Tax Injunction Act is concerned isn’t about what the word “tax” means in the Act—it’s about what “for the purpose” means. And here, the purpose of the lawsuit is to strike down the Mandate, regardless of how it’s enforced.

The Oyez Project has more on the AIA argument here.

Update: Professors Bryan Camp and Jordan Barry have more on the subject in this article.

Next, we’ll look at the constitutionality of the Individual Mandate.

Bottom line: do the federal courts have jurisdiction to hear the case?

Arguments set for: Monday, March 26

What to listen for: Is the Anti-Tax Injunction Act “jurisdictional” (meaning the Court must consider the issue) or not (meaning the Court can ignore the issue, since the parties agree that it doesn’t apply)? Also, the argument is likely to transform into an argument about standing.