Cross-posted from Blue Mass Group.
I'm not a big fan of yesterday's Supreme Court decision denying taxpayers standing to contest an alleged Establishment Clause violation because it was structured as a tax break rather than a direct subsidy. I want to muse a bit on one portion of the opinion that, it seems to me, could resonate well beyond the Establishment Clause context.
In explaining that direct subsidies and tax breaks should not be treated the same for standing purposes, Justice Kennedy wrote:
Like contributions that lead to charitable tax deductions, contributions yielding STO [School Tuition Organization] tax credits are not owed to the State and, in fact, pass directly from taxpayers to private organizations. Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. That premise finds no basis in standing jurisprudence. Private bank accounts cannot be equated with the Arizona State Treasury.
My previous post discusses why this line of argument gets Kennedy exactly nowhere in terms of defending his result. But in this post, I want to discuss why it may portend rough seas for the Obama administration's preferred mode of defending the individual mandate in the health care law.
The individual mandate is enforced via the tax code, specifically, a penalty of up to 2.5% of household income if the taxpayer fails to show either acceptable coverage or an acceptable excuse for not having it. Since the passage of the health care law, the Obama administration has chosen to defend the mandate primarily as a tax. And it's easy to understand why: while there is some appeal to the Commerce Clause argument against the mandate (the notion that "regulating commerce" doesn't extend to forcing individuals to buy a product in the private market), the tax argument is harder to contest, since the government routinely uses the tax code to create positive and negative incentives for various kinds of behavior.
One version of the tax argument that I've seen numerous times goes something like this: the individual mandate is no different from the home mortgage interest deduction. In the latter case, the government is promoting what it sees as desirable behavior (owning a home) by allowing you to deduct mortgage interest from your income, thereby reducing your tax liability. In the former case, the government is discouraging what it sees as undesirable behavior (not having health insurance despite being able to afford it) by requiring you to pay more taxes if you engage in that behavior.
One might respond that there's a difference between (a) reducing a tax liability already owed based on good behavior, and (b) imposing an additional tax penalty not otherwise owed based on bad behavior. But, the response would go, surely Congress could choose to pass an across-the-board tax increase to fund health care, and then offer a tax credit for people who choose to spend money on health insurance. If Congress can do that, surely they can take the functionally equivalent step of assessing a tax penalty for not carrying health insurance.
It's this latter response that I think is potentially imperiled by yesterday's Supreme Court decision. There is, of course, no doubt at all that Congress could raise everyone's taxes and then offer a tax credit for the cost of health insurance. But today the Court told us that there is a difference - indeed, a constitutionally significant difference - between the economically identical transactions of (a) taxing you for $1,000 and then giving $50 to a religious school, and (b) agreeing to tax you for only $950 on condition that you give $50 to a religious school. (In each case, you are down $1,000, the government is up $950, and the school is up $50.) And if that's the case, it doesn't seem much of a stretch to say that there might be a constitutionally significant difference between (a) raising your taxes and then decreasing them if you buy health insurance, and (b) leaving your taxes where they are but increasing them if you don't buy health insurance. There's no economic difference, but there's no economic difference in the Establishment Clause cases either.
In both cases, the "difference" seems to be that, for some reason, it matters whether or not the taxing authority had an initial claim on the money which it then relinquished if you engaged in some favored behavior (donating to a religious school, buying health insurance, or buying a home). And, indeed, that seems to be exactly what Kennedy said today:
Respondents’ contrary position assumes that income should be treated as if it were government property even if it has not come into the tax collector’s hands. That premise finds no basis in standing jurisprudence. Private bank accounts cannot be equated with the Arizona State Treasury.
Indeed, some anti-mandate scholars have argued that the "tax" defense is a sham:
just because Congress may use its powers of taxation in these ways does not mean that anything it decides to call a "tax" is constitutional.... It is likely that the Supreme Court will find this effort to avoid political and fiscal accountability a pretextual assertion of Congress's taxation powers and therefore, unconstitutional.
Today's decision, having found a difference between two transactions that are economically identical, may offer some support to that line of thinking.
Maybe I'm making a big deal out of nothing, and maybe this issue will never arise in the health care litigation. I hope that's the case. If not, though, you read it here first.