Supreme Court Hears Health Care Tax Penalty Debate

The U.S. Supreme Court held the first day of a three-day hearing on the constitutionality of the Affordable Care Act, starting with a consideration of whether an 1867 law blocks consideration of taxes that have not yet been imposed.

The justices questioned three attorneys on whether the Anti-Injunction Act of 1867 bars lawsuits over penalties against people who fail to purchase health insurance under the individual mandate, and whether those penalties are in reality taxes. Both the Solicitor General for the federal government and the attorney arguing against the constitutionality of the health care reform law said the case should be allowed to proceed before the court even though the penalties do not take effect until 2015, although the Obama administration had switched its position on this question. Because both sides agreed on that issue, the court brought in another attorney to argue for a delay of three years, until the individual mandate and the penalties associated with refusing to buy health insurance take effect.

However, Solicitor General Donald Verrilli still found himself on both sides of the question, arguing that the cost of health insurance should be considered a penalty and not a tax. Justice Samuel Alito asked him during Monday’s oral argument, “General Verrilli, today you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?”

Verrilli responded, “No, Justice Alito, but the Court has held in license tax cases that something can be a constitutional exercise of the taxing power whether or not it is called a tax. And that's because the nature of the inquiry that we will conduct tomorrow is different from the nature of the inquiry that we will conduct today. Tomorrow the question is whether Congress has the authority under the taxing power to enact it and the form of words doesn't have a dispositive effect on that analysis. Today we are construing statutory text where the precise choice of words does have a dispositive effect on the analysis.”

Robert Long, the attorney assigned by the court to present the case that the lawsuits are premature, responded to questions from the justices, saying, “You must pay the tax first, then litigate.”

Justice Stephen Breyer asked him, “Now, here, Congress has nowhere used the word ‘tax.’ What it says is penalty. Moreover, this is not in the Internal Revenue Code ‘but for purposes of collection.’ And so why is this a tax? And I know you point to certain sentences that talk about taxes within the code and this is not attached to a tax. It is attached to a health care requirement, and so why does it fall within that word?”

Long responded, “Our initial submission is you don't have to determine that this is a tax in order to find that the Anti-Injunction Act applies, because Congress very specifically said that it shall be assessed and collected in the same manner as a tax, even if it's a tax penalty and not a tax.”

Justice Sonia Sotomayor pointed out to Long, “Congress is not denominating it as a tax; it's denominating it as a penalty.”

Long responded, “That's absolutely right, and that's obviously why, if it were called a tax, there would be absolutely no question that the Anti-Injunction Act applies.”

Gregory Katsas, the attorney representing the 26 states and business groups challenging the health care reform law , argued that the case should be heard. “It has to be the same challenge, Justice Sotomayor, or else South Carolina v. Regan would say the Anti-Injunction Act doesn't apply. You are right that once you pay your taxes and then file the refund action, the act of filing the taxes converts the suit from one seeking prospective relief and to one seeking money damages.”

Justice Breyer said to him, “What Congress is trying to do is to say there is a procedure here that you go through. You can get your money back, or you go through the Tax Court, but don't do this in advance for the reason that we don't want 500 federal judges substituting their idea of what is a proper equitable defense of when there should be an exception made about da, da, da for the basic rule. No. OK?”

“The Tax Injunction Act does not apply to penalties that are designed to induce compliance with the law rather than to raise revenue," said Justice Ruth Bader Ginsburg. "And this is not a revenue-raising measure, because, if it's successful, nobody will pay the penalty and there will be no revenue to raise."

The arguments on Tuesday and Wednesday are expected to get to the question of the constitutionality of the individual mandate under the Commerce Clause, whether individuals can be required to buy health insurance, and if the individual mandate can be removed without invalidating the rest of the law.

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