In a setback to the Obama administration, U.S. district court judge Henry Hudson in Virginia knocked down the lynch pin of health reform, the individual mandate which forces taxpayers who don't have insurance to buy health coverage, and if they don't, pay a tax and/or face possibly jail time.
Continue Reading Below
The federal judge said the mandate "exceeds the constitutional boundaries of congressional power."
And in his ruling, Judge Hudson took the Democrats and the Administration to task for denying that the individual mandate penalty is a tax, as well as their backbreaking contortions around that argument.
Early versions of the health reform law specifically called the individual mandate payment a "tax," but the final version of the law specifically changed this terminology to "penalty" not "tax.”
The distinction between a penalty and a tax is an important one. The U.S. Constitution gives the federal government leeway to impose taxes.
Continue Reading Below
But the Administration and reform backers in Congress had argued the penalty was not a "tax" in order to avoid a “read my lips” moment for the President. A mandate tax would be a tax on the middle class, and would violate the President’s campaign promise not to raise any taxes on any person making under $200,000 a year.
The Administration and Congressional backers instead attempted to argue that the mandate was constitutional “because it was a valid exercise of Congress' power to tax,” says FOX News analyst James Farrell, even going so far as to coin a new term, ‘tax penalty.’
The mandate’s federal penalty would amount to the federal government regulating commerce across state lines, and that would be a violation of the Constitution. Even if the IRS is charged with enforcing the penalty, as the reform bill now does.
Depends On What the Meaning of the Word Tax Is
And that’s where Hudson said he started in his determination, with “the unequivocal denials by the Executive and Legislative branches that the (law) was a tax,” notes FOX Business news director Ray Hennessey.
Hennessey points out that the Supreme Court already said, as Hudson noted, that the words “tax” and “penalty” are “not interchangeable…and if an exaction is clearly a penalty, it cannot be converted into a tax by the simple expedient of calling it such.”
Moreover, Judge Hudson rejected the Administration's argument that the law is constitutional under either Congress's power to regulate commerce or Congress's power to tax in support of the general welfare.
Violates Constitution’s Commerce Clause
Under the commerce clause, Judge Hudson found that no US Supreme Court or federal appellate decision had ever upheld an effort by Congress to "compel an individual to involuntarily enter the stream of commerce by purchasing a commodity in the private market."
And, in a footnote, Judge Hudson noted that if the individual mandate penalty was in fact a tax, it would be an unprecedented expansion of Congress' taxing power because it would be the "only tax in U.S. history to be levied directly on individuals for their failure to affirmatively engage in activity mandated by the government not specifically delineated in the Constitution."
The Framers of the US Constitution never intended to let Congress regulate economic activities that were not commercial, much less interstate, because the mandate is effectively a tax on not doing anything, meaning, not buying insurance.
CBO Already Said Mandate Is Unconstitutional
I’ve reported, back in January, that the Congressional Budget Office has already said that an insurance mandate is unconstitutional. The CBO noted that when the Clinton Administration attempted health reform in 1994:
"A mandate requiring all individuals to purchase health insurance would be an unprecedented form of federal action. The government has never required people to buy any good or service as a condition of lawful residence in the United States."
The CBO added:
"An individual mandate would have two features that, in combination, would make it unique. First, it would impose a duty on individuals as members of society. Second, it would require people to purchase a specific service that would be heavily regulated by the federal government."
Never Forced to Buy War Bonds, Wheat or Cars?
Never before in the history of the United States has the federal government forced any taxpayer to buy any goods or services, say legal experts Randy Barnett at Georgetown University Law Center, Nathaniel Stewart, a lawyer at White & Case, and Todd Gaziano, director of the Center for Legal and Judicial Studies at the Heritage Foundation, a conservative DC think tank.
And as of yet, taxpayers are not forced to buy Cadillac Escalades or any other car to support the bailed out auto companies.
This is essentially Congressional coercion of taxpayers, forcing them to buy “artificially high priced policies to subsidize coverage for others, as well as an industry saddled with other government costs and regulations,” the legal experts note in a report.
Passing into law an individual mandate forcing taxpayers to buy health insurance would open up a well-packed Pandora's box, as it would give Congress unprecedented power to regulate, prohibit, mandate and tax all sorts of consumer economic choices.
The passage of this mandate would fundamentally alter the “relationship of the national government to the states and the people,” the three legal pros say, adding if it passes, there would be no boundary to “Congress's commerce power—Congress could mandate anything.”
The three law experts added that, for example: “Congress could require every American to buy a new Chevy Impala every year..because such purchases would stimulate commerce and help repay government loans.” Congress could also force taxpayer to buy, say, wheat bread to subsidize farmers, the three opine.
Judge Hudson agreed. In his decision, he wrote that elected officials who wrote the law stretched the Commerce clause, noting their reasoning "could apply to transportation, housing or nutritional decisions." He added that there is no precedent to regulate "a person's decision not to purchase a product, notwithstanding its effect on interstate commerce or role in a global regulatory scheme."
Taxing Doing Nothing
The mandate would for the first time let Congress “regulate the doing of nothing at all,” not buying insurance, which is hardly economic activity, say Barnett, Stewart and Gaziano. If you don't buy insurance, the new health-reform bill says the IRS would slap you with a fine or penalty, and possibly jail time.
Already, the Congressional Research Service said in a July 24 report that enacting a mandate, while possibly constitutional, would pose a "challenging" and "novel" question as to whether Congress can use the commerce clause "to require an individual to purchase a good or service."
Health Insurance is Not Like Auto Insurance
Supporters of the mandate will tell you that states force licensed drivers to buy auto liability insurance coverage. Meaning that in a car accident, you are required to have coverage to protect against injury to another person driving on government built public roads.
But what they won't tell you is that auto insurance is a state-regulated issue; in fact, it's connected to the states' constitutional authority to provide police protection, the three legal experts say. And the government can argue you're driving on public roads so we can force you to have coverage.
Moreover, no one forces passengers in cars driven by bad drivers to buy auto insurance. But the government would force you to buy health insurance if this reform passes.
Also, driving is a voluntary act — living isn't, the three legal pros note.
Where's the Lock Box?
Backers of the mandate contend that revenues from the individual mandate would go towards lowering health costs, though you don't hear about a lock box for these new tax revenues, so there is nothing to stop Congress from using tax revenues for pork or other spending. The penalty would be a maximum $2,085 per family without insurance. Health reform will cost an estimated $950 billion or so over the decade after it is enacted.
Already, scores of companies and unions as well as 17 states got exemptions that last for a year or so from the health bill.
What Massachusetts Said
Massachusetts got around its Constitutional criticisms of its mandate by saying that its health reform, which includes a similar mandate, does not infringe on any right protected by the state or the US Constitution because:
(a) It has a religious carve-out for people whose religious beliefs preclude them from acquiring health-care insurance, and
(b) It is not an unreasonable taking of private property because the state has a carve-out for people who can prove they cannot afford it.
Likewise, federal reform backers can argue their legislation passes constitutional muster, too, as the proposed federal insurance mandate exempts taxpayers with income below 100% of the poverty line, as well as religious objectors, incarcerated individuals and anyone determined to have suffered a hardship regarding their capability to obtain coverage, as determined by the Secretary of Health and Human Services.
Massachusetts won the only solid challenge to its law.