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Obamacare: A Tax When It Needs To Be

The Supreme Court ruled 5-4 that Obamacare is a tax.

The problem with this decision is that in order to challenge a tax in court, under the Anti-Injunction Act, the tax must first be assessed.  Thankfully, to address my confusion, Chief Justice John Roberts explains, writing for the majority opinion, that it actually is not a tax, but a penalty, thus, the Anti-Injunction Act does not apply:

“The Anti-Injunction Act applies to suits ‘for the purpose of restraining the assessment or collection of any tax.’ Congress, however, chose to describe the ‘[s]hared responsibility payment’ imposed on those who forgo health insurance not as a ‘tax,’ but as a ‘penalty.’ There is no immediate reason to think that a statute applying to ‘any tax’ would apply to a ‘penalty.’

Congress’s decision to label this exaction a ‘penalty’ rather than a ‘tax’ is significant because the Affordable Care Act describes many other exactions it creates as ‘taxes,’”

This is consistent with the dissent, which argued that there is “a clear line between a tax and a penalty: “‘[A] tax is an enforced contribution to provide for the support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.’”

This is also consistent with how Congress wrote the legislation, and with how the government argued it – the statute being the individual mandate, and the unlawful act being non-compliance.

Roberts concludes that since it was not written, or intended as a tax, but as a penalty, the case may continue:

“The Affordable Care Act does not require that the penalty for failing to comply with the individual mandate be treated as a tax for purposes of the Anti-injunction Act,” writes Roberts. “The Anti-Injunction Act therefore does not apply to this suit, and we may proceed to the merits.”

Simple enough, it’s not a tax it’s a penalty, on to the merits, where we shall witness the transformation of the penalty, back into a tax.

The government’s primary argument was that the Act was a valid exercise of Congress’s authority under the Commerce Clause.

The Court rejected this claim, stating that instead of regulating commerce, “it instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce.”

This is where Roberts turns to Congress’s taxing authority:

“The most straightforward reading of the mandate is that it commands individuals to purchase insurance.  After all, it states that individuals ‘shall’ maintain health insurance.  Congress thought it could enact such a command under the Commerce Clause, and the Government primarily defended the law on that basis. But, for the reasons explained above, the Commerce Clause does not give Congress that power.

Under our precedent, it is therefore necessary to ask whether the Government’s alternative reading of the statute—that it only imposes a tax on those without insurance—is a reasonable one.

Under the mandate, if an individual does not maintain health insurance, the only consequence is that he must make an additional payment to the IRS when he pays his taxes.  That, according to the Government, means the mandate can be regarded as establishing a condition—not owning health insurance—that triggers a tax—the required payment to the IRS.

Under that theory, the mandate is not a legal command to buy insurance. Rather, it makes going without insurance just another thing the Government taxes, like buying gasoline or earning income. And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax.

It is of course true that the Act describes the payment as a ‘penalty,’ not a ‘tax.  But while that label is fatal to the application of the Anti-Injunction Act, it does not determine whether the payment may be viewed as an exercise of Congress’s taxing power.”

Roberts simultaneously views the individual mandate as a penalty for the purposes of the Anti-Injunction Act, and as a tax for the purposes of Congress’s taxing authority.

“The same analysis here suggests that the shared responsibility payment may for constitutional purposes be considered a tax, not a penalty,” he says.

To clarify, by not having health insurance, individuals will pay a “shared responsibility payment” which is a penalty for not having health insurance.

This penalty, though, is technically a tax, which, for the purposes of complying with the Anti-Injunction Act, is a penalty.

Not complying with the law, however, is not unlawful – an individual will simply have to pay a tax as a penalty for not complying with the law.

Aren’t you glad I cleared that up for you?

-Leebo

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