Jonathan H. Adler • December 6, 2012 10:40 pm
In NFIB v. Sebelius the Supreme Court upheld the individual mandate penalty as a constitutional exercise of the federal taxing power. Although little of the briefing (and even less of the oral argument) considered the question, the Court concluded the penalty did not constitute a “direct tax.” This conclusion was necessary to sustain the penalty as a tax because direct taxes must be apportioned among the states by population. But if the penalty is not a direct tax, that does not mean it is free from constitutional defect. As David Rivkin and Lee Casey write in today’s WSJ, the Uniformity Clause of Article I, Section 8 could provide the basis for another attack on the penalty. They write:
If the mandate is an indirect tax, as the Supreme Court held, then the Constitution’s “Uniformity Clause” (Article I, Section 8, Clause 1) requires the tax to “be uniform throughout the United States.” The Framers adopted this provision so that a group of dominant states could not shift the federal tax burden to the others. It was yet another constitutional device that was simultaneously designed to protect federalism and safeguard individual liberty.
The Supreme Court has rarely considered the Uniformity Clause’s reach, but it cannot be ignored.. . . And although the court has upheld as “uniform” taxes that affect states differently in practice, precedent makes clear that a permissible tax must “operate with the same force and effect in every place where the subject of it is found,” as held in the Head Money Cases (1884). The ObamaCare tax arguably does not meet this standard.
ObamaCare provides that low-income taxpayers, who are nevertheless above the federal poverty line, can discharge their mandate-tax obligation by enrolling in the new, expanded Medicaid program, which serves as the functional equivalent of a tax credit. But that program will not now exist in every state because, as a matter of federal law, states can opt out. The actual tax burden will not be geographically uniform as the court’s precedents require.
Thus, having transformed the individual mandate into a tax, the court may face renewed challenges to ObamaCare on uniformity grounds. The justices will then confront a tough choice. Having earlier reinterpreted the mandate as a tax, they would be hard-pressed to approve the geographic disparity created when states opt out of the Medicaid expansion. But that possibility is inherent in a scheme that imposes a nominally uniform tax liability accompanied by the practical equivalent of a fully off-setting tax credit available only to those living in certain states. To uphold such a taxing scheme would eliminate any meaningful uniformity requirement—a result that the Constitution does not permit.
I am not familiar enough with the relevant precedents to evaluate the strength of this claim, but it is certainly true that people with equivalent incomes will be subject to different penalties in different states. So if the Uniformity Clause has any real bite, the penalty would appear vulnerable. It’s also worth recalling that PPACA defenders have been a bit too quick to dismiss Rivkin and Casey in the past.
UPDATE: Insofar as a lack of uniformity is a real constitutional concern under current doctrine, the PPACA’s problems could be larger than Rivkin and Casey suggest. This is because that even without regard to state decisions to participate in Medicaid, the penalty is not uniform. This is because the affordability exemption is based upon the cost of obtaining qualifying health insurance, and this cost will vary across states. A potential counter-argument might be that this variation is due, at least in part, to state policy choices (e.g. mandated minimum coverage, etc.), nonetheless it would remain the case that two individuals with the same incomes living in different states would not necessarily both be subject to the same penalty. Note further that this would be true even if one does not assume (as Michael Cannon and I have argued) that the tax credits and subsidies for the purchase of health insurance are not available in states without state-run exchanges.