"So It's A Tax, Now What?"

June 02, 2013 | By TIMOTHY SANDEFUR

The latest issue of The Texas Review of Law & Politics has appeared. It includes my article, “So It’s A Tax, Now What? Some of The Problems Remaining After NFIB v. Sebelius,” in which I make the argument that if the Individual Mandate penalty of Obamacare is interpreted as a tax, as the Supreme Court did last year, it’s still unconstitutional under the Apportionment Clause, the Uniformity Clause, and the Origination Clause.

The Apportionment Clause says that Congress cannot impose a direct tax unless it’s apportioned. Apportionment is a complicated process involving a formula based on the census which makes direct taxes practically impossible. But what exactly is a “direct tax”? That has never really been adequately answered. In a case called Hylton v. United States in 1796, the Supreme Court decided that a tax on carriages wasn’t “direct” because it was not capable of being conveniently apportioned. And since the Constitutional phrase “direct taxes” refers only to those taxes that are susceptible of apportionment, then the tax couldn’t have been direct. This is absurdly illogical; the Constitution obviously contemplates the possibility of unapportioned direct taxes—in fact, it makes them illegal. It wouldn’t have done so if the only things that qualify as direct taxes are those that can be easily apportioned. Sadly, Hylton remains the law today, and last year, the Court relied on that precedent to pronounce—without any real analysis—that the Individual Mandate isn’t a direct tax.

In fact, if it’s a tax at all, it is a direct tax: it’s imposed on all Americans (with specified exceptions) not based on their activities or their use of property or their purchases or their consumption or any voluntary activity, but based simply on the fact that they’re resident Americans. It’s therefore not an indirect tax, since it can’t be avoided by your choices. And it’s not a tax on incomes. It can therefore only be a direct tax, if it’s a tax at all, since those are the only three possibilities. And since it’s not apportioned, it is therefore an unconstitutional unapportioned direct tax.

But let’s say it’s an indirect tax. If it’s an indirect tax, then it has to be “uniform,” which means that it must be imposed on Americans without regard to geography—people in state A must be taxed the same (for whatever it is that’s being taxed) as the people in state B. But Obamacare’s complicated formula for determining who’s required to buy insurance and who isn’t incorporates one’s state of residency. Since the Mandate is triggered based on the average cost of insurance plans within geographic areas (the “exchanges”), two people with exactly the same financial circumstances are treated differently under the Individual Mandate—one person is required to comply, and the other is not—depending on their state of residency.

Now, the Supreme Court has robbed the Uniformity requirement of much of its strength by saying that Congress only needs to charge the same for the same “incidence” of the tax. This means that if there’s a tax on, say, importing things through an ocean port, that tax still “uniform,” notwithstanding that there are states that have no ocean ports—because if those states did have ocean ports, they’d pay the same tax. Of course, if Congress can target taxes in that way, then every tax is uniform—a tax on having a cheeseburger on a Tuesday in Los Angeles is “uniform” if you use that trick. Still, the Court has at least said that geography can’t factor into the formula—except in a case involving Alaska where it said that the distance to those states made it reasonable to charge differently on that basis. Yet there’s no need for Congress to incorporate geography into its Individual Mandate “tax” formula. So these exceptions to the uniformity requirement shouldn’t apply.

Finally, there’s the Origination Clause. As we are arguing in our lawsuit on behalf of Matt Sissel, the Origination Clause requires that all “bills for raising revenue” must originate in the House of Representatives. Yet Obamacare originated in the Senate, through a procedural trick in which the Senate struck out all the text of a House-passed bill and replaced it with what became Obamacare. That violates the intention of the Origination Clause, which was to keep the taxing power as close as possible to the voters. And if the Court is going to allow Congress to use its tax power in this way, then it’s all the more important to enforce democratic controls over that power—including the Origination Clause.

You can read the full article here.