Business & Economics

The Supreme Court’s health care decision and the problem with relying on the taxing power

David Gamage

Yesterday (June 28th), the Supreme Court finally revealed its decision in the health care cases.  A majority of the Justices voted to uphold the constitutionality of most of the Affordable Care Act (aka, “Obamacare”).

There are many summaries and analyses of the decision available online.  I won’t attempt anything approaching a summary here.

Instead, I’ll take this opportunity to make an observation about the potential implications of the decision for tax policy.  Contrary to the expectations of many, a majority of the Justices ruled that the individual mandate was not valid under the commerce clause and that the Medicaid expansion could not be fully supported by the spending power.  Instead, the Chief Justice joined with the four “liberal” Justices to uphold the individual mandate as an exercise of the taxing power.  Even the four dissenting Justices agreed that the Affordable Care Act (ACA) would clearly have been valid if Congress had more explicitly called the individual mandate a “tax” instead of a “penalty.”

Consequently, while the ACA remains valid law, the Court created new limits to Congress’s ability to enact future social welfare programs based on either the commerce clause or the spending power.  It remains to be seen whether these new restrictions turn out to be significant or minor.  Yet Congress might well respond to these new limitations by relying even more on the taxing power when enacting future social welfare legislation.  This is particularly likely to be true if the Supreme Court further restricts the use of the commerce clause and spending powers in future cases, entrenching what some have called “the new federalism.”

The past few decades has seen Congress increasingly enacting social welfare programs through the tax code.  The Supreme Court’s decision is likely to exacerbate this trend.  The controlling opinion viewed it as an important factor in sustaining the ACA that the individual mandate is part of the tax code and is to be administered by the IRS.

There are many reasons to worry about Congress increasingly enacting social welfare programs through the tax code.  There is a general consensus that the tax law is already more complicated than we would like it to be.  Intermingling social welfare purposes with revenue raising undoubtedly makes the tax code more complex.  Beyond the code itself, the IRS is a small and overburdened agency as compared to the massive responsibilities it is charged with.  When the IRS is given additional administrative duties, it is rarely given sufficient additional resources to carry out those duties.  When Congress charges the IRS with administering provisions related to politically contentious social welfare legislation, these problems become all the more worrisome.  The IRS often finds itself in a damned-if-you-do, damned-if-you-don’t scenario in these instances.  There is no way for the IRS to administer politically contentious programs without offending some powerful actors, and those actors all too often respond by threatening the resources the IRS needs to carry out its core task of raising revenues.

I am thankful that the Supreme Court upheld the constitutionality of the ACA.  The Supreme Court’s decision is great news for the supporters of healthcare reform.  And the decision is especially good news for Americans with preexisting conditions who will now be able to purchase affordable health insurance, and who might have been denied coverage had healthcare reform been ruled unconstitutional.  Nevertheless, I worry about the way in which the Supreme Court upheld the ACA – relying on the taxing power, while limiting Congress’s powers under the commerce clause and spending powers.  Although the Supreme Court’s decision is good news for health care policy, I worry that it will prove to be bad news for tax policy.

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Comments to "The Supreme Court’s health care decision and the problem with relying on the taxing power":
    • Alvin Heik

      The power to regulate interstate commerce includes everything as defined by the Supreme Court. Whether rulings issued under a Presidential threat of court-packing should be valid, we may defer for another time.

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    • Charles L. Harrington

      Supreme Court decisions in the era of the New Deal greatly expanded the power of Congress to regulate interstate commerce, and correctly so in my opinion. But you seem to think the power to regulate interstate commerce includes the power to create social welfare programs. I know about Wickard v. Fillburn and that decision extending the interstate commerce clause to cover things “affecting” interstate commerce, but thought that meant affecting already existing legislation which was within the interstate commerce.

      I suppose social welfare programs have some affect on commerce, but isn’t it a stretch to say that the power to regulate interstate commerce includes the power to enact social welfare programs?

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    • Sam Thomson

      I share your concern over the complexity of the tax code and using it to advance social preferences, but write to note that it’s not really “insurance” if a party is forced to pay for a condition existing prior to negotiation, premium setting and contract.

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