JONATHAN CHAIT JUNE 17, 2011
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[Guest post by Simon Lazarus]
As summarized one month ago in a post here on Jonathan Chait’s blog, conservatives reacted with fury to an article I wrote for Slate in which I pointed out that two major components of House Budget Committee Chair Paul Ryan’s Roadmap for America’s Future closely resemble the much-demonized “individual mandate” in the Affordable Care Act. In particular, I noted that the ACA provision requiring health insurance has precisely the same kind of impact on individual purchasing decisions as Ryan’s roadmap, and is, if anything, less coercive than the Roadmap proposal to provide a tax credit to individuals who purchase health insurance, as a replacement for the current exclusion from income of employer-sponsored health insurance. The ACA imposes a tax penalty on individuals who choose not to purchase health insurance. The Ryan Roadmap, on the other hand, provides a tax credit to individuals who choose to purchase health insurance—a technical distinction, I suggested, without an economic or other real-world difference.
National Review, the Weekly Standard, and Hot Air raised various objections to this point, which was seconded by Ezra Klein in the Washington Post and by Jonathan in TNR. But recent oral arguments before federal appeals courts hearing legal challenges to the ACA should quiet such protests once and for all. In these arguments, two of the most celebrated members of the Right’s legal elite acknowledged that there is no daylight between the ACA mandate-plus-penalty and a Ryan-type tax credit universally conceded to be constitutional.
The first instance of this occurred on June 1, when Sixth Circuit Judge Jeffrey Sutton, sitting on a three-judge panel in Cincinnati in a case brought by the conservative advocacy group Thomas More Law Center, floated the hypothetical idea of a tax credit alternative to the ACA approach. The Law Center’s attorney, Robert Muise, acknowledged that “you could provide a credit for health insurance, there’s no prohibition on that.” To which Judge Sutton responded:
You think it would be just as coercive to say to people, everybody pays the same additional tax, it’s a health care tax, everybody pays it and the only people that don’t pay it, i.e. get a credit, are those with insurance, you think that would be as coercive?
Muise contended that a tax credit was different because it encouraged activity—namely the purchase of health insurance—whereas the ACA provision penalized a “failure to act.” But Sutton didn’t buy it:
If that’s your view, then just pay the penalty, pay the penalty, don’t get insurance, don’t be forced to do anything, in that sense, if you think they’re equivalent, in that sense, no one is forced to do anything, because the economic incentives are the same in both settings, you can’t say the law requires you to buy it, the law just penalizes you if you don’t.
Judge Sutton is not the first person to observe that the ACA’s allegedly freedom-destroying mandate is operationally indistinguishable from commonplace tax incentive provisions. But, apart from having actual decisional authority on the matter, Sutton enters this space with formidable ideological and professional credentials. One of the first batch of appeals court nominees picked by President George W. Bush, Sutton, though only 42 years old, earned his front rank position as the energizer bunny of the Rehnquist Court’s late 1990’s drive to shrink Congress’ domestic regulatory authority in the name of “federalism.” As a lawyer, Sutton argued and won, usually by bitterly contested 5-4 margins, a raft of decisions striking or narrowing provisions of the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Violence Against Women Act, the Clean Water Act, and regulations implementing the 1964 Civil Rights Act, among others. He famously once told Legal Times, “I really believe in this federalism stuff.” Sutton’s professional standing was unquestioned; appointed by the Supreme Court in 2001 to represent a prison inmate, Sutton won a unanimous decision and unusually explicit praise from its author, Justice Ruth Ginsburg, for “his able representation.”
Of course, Sutton’s verbal acknowledgement that the ACA individual mandate is not uniquely coercive, emphatic though it appeared, is no guarantee that he will not strike down a law that Republican orthodoxy demonizes as a drastic expansion of federal power. Nevertheless, his on-the-record statement leaves the case against the ACA mandate resting at best on a hypertechnical foundation lacking in substance.
The second acknowledgement of the ACA mandate’s kinship with uncontroversial tax incentives occurred a week later in Atlanta, at the June 8 argument before a panel of the Eleventh Circuit Court of Appeals in the case against ACA brought by 26 Republican state attorneys general and governors. During the argument, the Republicans’ counsel, Paul Clement, attempted to sound a reasonable note. He said, “There’s lots of different ways that Congress could incentivize people to get to the exact same result. They could have passed a new tax and called it a tax, and then they could have given people a tax credit for paying for qualifying insurance.”
Again, Clement’s observation was not original. But in addition to being the Republican opponents’ lawyer, Clement also served—with universally acknowledged distinction—as George W. Bush’s Solicitor General. Recently, he made headlines by resigning his 7 figure-per-year partnership in the Atlanta-based firm, King & Spalding, when the firm precipitously withdrew from representing his client, the House of Representatives, to defend the federal Defense of Marriage Act, aka DOMA.
The significance of Clement’s functional equivalence concession was not lost on Eleventh Circuit Judge Stanley Marcus. Marcus, originally named a district judge by President Ronald Reagan and subsequently to his current appellate position by President Bill Clinton, drew a logical implication subtly different from Judge Sutton’s observation that the ACA mandate is not uniquely coercive, but one that is potentially even more troublesome for the ACA opponents’ case. “Isn’t that just another way,” he asked rhetorically:
“[O]f saying they [Congress] could have done what they did better? More efficaciously, more directly, and they regulated perhaps inefficaciously, maybe even foolishly, but if it’s rational, doesn’t my job stop at the water’s edge? Isn’t it for the legislative branch to make those kinds of calculations and determinations?”
No constitutional lawyer could mistake where Judge Marcus was heading. How is it possible, he was saying, for courts to dictate which of two methods Congress must choose to implement its constitutionally enumerated powers, when both methods generate “the exact same result?” Judicial micro-managing on such a granular level, Marcus knows, violates the fundamental, black-letter standard established nearly two centuries ago by Chief Justice John Marshall. In his iconic 1819 decision, McCulloch v. Maryland, Marshall broadly interpreted the constitutional grant of authority to Congress “to make all laws which shall be necessary and proper for carrying into execution” its enumerated powers: “Let the end be legitimate,” he wrote in words memorized by first-year law students, “let it be within the scope of the constitution, all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”
To be sure, no one who listened to this Eleventh Circuit argument could predict the panels’ outcome any more confidently than could those who heard the previous week’s Sixth Circuit argument. But these unequivocal statements, by two of conservativism’s most eminent legal luminaries, that the ACA individual mandate is not a unique threat to Americans’ liberty after all, surely drain much of the juice from opponents’ legal case, and, ultimately, from their political case as well.
Simon Lazarus is Public Policy Counsel to the National Senior Citizens Law Center.
17 comments
Brilliant.
- Andy_Smith
June 17, 2011 at 2:08am
Good reporting. The tax code is filled with incentives of all sorts, many of which have nothing to do with ability to pay. If the ACA is struck down, expect the floodgates to open wide. Unless, of course, we get another one of those "Don't Cite This Opinion" opinions. And I would add, when someone else gets a tax break that I don't also share, it means I have to pay more in taxes and that penalty would also be unconstitutional under the freedom theory because it interferes with how I (just me and not them) spend my money.
- Nusholtz
June 17, 2011 at 6:33am
Thank you for the excellent post, Simon.
- liberalref
June 17, 2011 at 8:17am
I share Nusholtz's concern for another "Don't Cite This Opinion" ruling before this is all over. It has happened before, so now it's never a matter of "if", but only "when".
- GSpinks
June 17, 2011 at 10:16am
"you can’t say the law requires you to buy it, the law just penalizes you if you don’t." The issue is you CAN say, and Republicans are saying it. Imagine what would happen if instead of a mortgage interest deduction they got rid of it and instituted a penalty for everyone who doesn't own a house, the uproar would be huge. Psychologically, a deduction encourages me to buy a house, a penalty simply punishes me for, in most cases, not having enough money to buy a place. I know I might (and Might is the operative word) be paying the same in taxes but the perceived unfairness is not good for law and order. I also think the existence of the mandate will remain forever a thorny issue placing the whole operation in danger. Republicans need not repeal the ACA, they need only repeal the mandate which will cause the ACA to fall apart. Face it, Democrats truly screwed this up. They should have gone with a tax credit. We would not be having this argument at all
- blackton
June 17, 2011 at 10:49am
It's great that judges are finding holes to poke in the Republican arguments, but this argument is narrowly technical. Blackton's right, there is a huge psychological difference in a mandate versus a credit, anyone with common sense (and not a legalistic mindset) can see that. I seriously doubt a tax credit would be as effective in getting people to buy insurance as a tax penalty, even if the economics of the decision are the same. The government is making a moral, not technical, case for insurance by calling it a mandate with a tax penalty.
- polcereal
June 17, 2011 at 11:12am
P.S. The most damning argument against Lazarus: If a tax credit is just as effective as a mandate with penalty--and gets around all those tea party objections--why didn't the Democrats just use the tax credit approach in the first place?
- polcereal
June 17, 2011 at 11:15am
blackton: "Democrats truly screwed this up. They should have gone with a tax credit. We would not be having this argument at all" Perhaps it would have flown better as policy. But as a matter of constitutionality, it's hard to see why two approaches that use the tax power to achieve the same outcome should not rise or fall together. So it may be significant that some (assumed) conservative judges see the tax break/tax penalty as a distinction without a difference. And providing a tax credit without reducing revenues would have required raising taxes the size of the penalty. I don't know if conservative Senate Democrats (or others, for that matter) would have wanted to be pegged with "raising taxes," so that approach may not have been politically possible. The legislation barely scraped through as it was.
- dsimon
June 17, 2011 at 12:00pm
They may have screwed it up but as Judge Marcus implies, that's the decision of Congress not the courts.
- Pnaut
June 17, 2011 at 12:21pm
It's not quite so simple as just saying, "Hey, they should have made it a credit!" Making it a credit that is the norm rather than the exception means that the tax rate would have had to be at a higher initial threshold in order that we could then give everyone breaks from it. A higher tax threshold was never going to be an option (see 'Grover Norquist').
- Fishpeddler
June 17, 2011 at 1:12pm
dsimon: The legislation barely scraped through as it was. Democrats had 60 votes and all the enmity in the world from Republicans. At the very least they could have attached a severability clause so that if the mandate was struck down the rest of the bill would have remained intact, in which case you could be damn sure Insurers would have screamed so loud for a credit that Republicans would have caved Grover Nitwit notwithstanding.
- blackton
June 17, 2011 at 1:49pm
blackton: "Democrats had 60 votes and all the enmity in the world from Republicans." Sixty members does not mean 60 votes. Senate Democrats spend a lot of time bargaining with members of their own party--Nelson, Lincoln, Landrieu, Lieberman.... Heck, I wish there was a public option too, but the votes just weren't there even within the Democratic caucus even when they had 60 members. (And even then, they had 60 only for about 2 months from Franken's swearing in on July 7 2009 to Kennedy's death in late August, and again for 4 months from the appointment of Paul Kirk in late September to Scott Brown's swearing-in in February.) "At the very least they could have attached a severability clause...." Only one trial judge struck down the whole law, and he was pretty roundly chastised for doing so. Judges don't need an explicit severability clause to leave the rest of the law intact; apparently, the Roberts court struck down a provision of Sarbanes-Oxley even though it lacks a severability clause.
- dsimon
June 17, 2011 at 3:00pm
The argument that penalties and credits are coercively equivalent so long as they are the same size, is tantamount to denying the diminishing marginal utility of wealth. X amount of dollars does not mean the same thing to everybody in all circumstances. Of course the wealthy will find it hard to distinguish between losing or gaining $5,000, but this is not at all true for those of more limited means. One with $15,000 in annual resources who loses $5,000 will likely experience a degree of hardship that is vastly more weighty than the happiness they would have gained with an additional $5,000. Thus, for the majority of people, multi-thousand dollar penalties and credits are not coercively equivalent. This is not theory, this is a fact recognized by economists on the left, right and center. Indeed, the only people who deny the diminishing marginal utility of wealth are a small subset of libertarian cranks. Therefore, I am not all that surprised if a few right-leaning wealthy lawyers are oblivious to the distinction as they may be oblivious as to how the other half live, but what is Chait's or Lazarus' excuse. Are they so hell bent on defending the ACA against any and all criticism that they are blinded to the main policy rationale for progressive government, once again, the diminishing marginal utility of wealth. In trying to save the ACA's bacon, they are actually making an extremely retrograde argument when they pretend that a thousand dollars is just a thousand dollars, up, down, rich or poor.
- jkodak
June 19, 2011 at 12:07am
I don't think Lazarus' point is that the Dems did it the right way in terms of what would be more palatable psychologically, but that the tax-penalty approach is nevertheless constitutional, and that the concession by conservative jurists and lawyers that it is functionally the same as a tax credit reinforces the position that it is constitutional. But I also think the point is well made that doing it as a tax credit would require increasing the tax base, which was not politically feasible. Blackton, dsimon is correct. There is no need of a severability clause for the Court to strike down only the mandate. But that would EFFECTIVELY mean the dismantling of the ACA because the insurance industry could not survive if required to insure all comers regardless of risk, while consumers of insurance are permitted to wait until they have a significant need for medical services to purchase insurance. Dhurtado
- NR143296
June 19, 2011 at 11:29am
Sorry for being a bit thick, jkodak, but I am not grasping the applicability of your argument to the tax-pentaly/tax-credit issue. With either approach, the tax bill (or tax refund) at the end of the year will be greater or smaller depending on whether the taxpayer has purchaed qualifying insurance. The difference is that the the taxpayer potentially will have had more taxes withheld from their paycheck during the course of the year, whether or not they have purchased insurance. But if the increased tax based is subsidized by the wealthy rather than by most workers, there will be no additional tax burden on the non-wealthy. Dhurtado
- NR143296
June 19, 2011 at 11:40am
Dhurtado, The legal argument pressed by Lazarus and Chait is that a tax penalty is no more freedom depriving than a tax credit; that they exert the same amount of coercion only one use a stick and the other a carrot. I made the point that this ignores the diminishing marignal utility of wealth and that a penalty of a certain size is more coercive than a benefit of the same size. Another point that I should have made is that that a government that bribes you is far less sinister than a government threatening to leave you destitute. If tax penalties require no due process, than the potential for oppression becomes very real. Imagine a situation where the government charges $2,500 in taxes for not doing one of 10 different things. If you choose not to do those 10 things and you make $25,000 a year, you are left with nothing. If you forgo a tax credit of the same size for those 10 things, then you may be $25,000 poorer than another tax payer who chose to do those 10 things but you still have your $25,000. The equivalence argument is manifest nonsense.
- jkodak
June 19, 2011 at 6:03pm
jkodak- I see your point and I would agree if the tax rate for each individual remained the same for either the tax-penalty approach or the tax-credit approach. But I think the equivalence theory assumes that under a tax-credit approach, the base tax for each individual would be increased, at least in theory, commensurately with the amount of the potential credit. That way, the impact will be the same in either approach. One's tax liability at the end of the year will be greater or smaller in the amount of the credit/penalty. Now, I certainly agree that either the penalty or the credit would fall far more heavily the on middle class than on the wealthy. And that may very well be a policy argument against the mandate. A better approach might be to have the wealthy subsidize the credit for the middle class. Dhurtado
- NR143296
June 20, 2011 at 1:56pm