The SCOTUS Taxing-Power Argument That WSJ's Henninger Missed

On this afternoon's episode of Fox News' Journal Editorial Report, Wall Street Journal columnist Daniel Henninger said Chief Justice John Roberts' majority opinion upholding the health care reform legislation's individual mandate under Congress' taxing power rewrote the statute, because the taxing-power argument had "virtually not been made in the oral arguments before the court."

This is untrue. It may have been subordinate to the (ultimately unsuccessful) argument that the mandate was justified under the Commerce Clause, but Solicitor General Donald Verrilli devoted significant time to the taxing-power argument.

Here's Henninger on the Journal Editorial Report:

And here's NPR's transcript of the March 27 oral arguments before the Supreme Court -- specifically the portion dealing with the tax argument that Henninger said had "virtually not been made."

JUSTICE SOTOMAYOR: General, could you turn to the tax clause?

GENERAL VERRILLI: Yes.

JUSTICE SOTOMAYOR: I have to look for a case that involves the issue of whether something denominated by Congress as a penalty was nevertheless treated as a tax, except in those situations where the code itself or the statute itself said treat the penalty as a tax.

Do you know of any case where we've done that?

GENERAL VERRILLI: Well, I think I would point the Court to the License Tax Case, where it was -­- was denominated a fee and nontax, and the Court upheld it as an exercise of the taxing power, in a situation in which the structure of the law was very much the structure of this law, in that there was a separate stand-alone provision that set the predicate and then a separate provision in closing --

JUSTICE SCALIA: But fees, you know, license fees, fees for a hunting license, everybody knows those are taxes. I mean, I don't think there is as much of a difference between a fee and a tax as there is between a penalty and a tax.

GENERAL VERRILLI: And that, and -- and I think in terms of the tax part, I think it's useful to separate this into two questions. One is a question of characterization. Can this be characterized as a tax; and second, is it a constitutional exercise of the power?

With respect to the question of characterization, the -- this is -- in the Internal Revenue Code, it is administered by the IRS, it is paid on your Form 1040 on April 15th, I think --

JUSTICE GINSBURG: But yesterday you told me -- you listed a number of penalties that are enforced through the tax code that are not taxes and they are not penalties related to taxes.

GENERAL VERRILLI: They may still be exercise of the tax -- exercises of the taxing power, Justice Ginsburg, as -- as this is, and I think there isn't a case in which the Court has, to my mind, suggested anything that bears this many indicia of a tax can't be considered as an exercise of the taxing power. In fact, it seems to me the License Tax Cases point you in the opposite direction. And beyond that your -- ­the -- it seems to me the right way to think about this question is whether it is capable of being understood as an exercise of the tax.

JUSTICE SCALIA: The President said it wasn't a tax, didn't he?

GENERAL VERRILLI: Well, Justice Scalia, what the -- two things about that, first, as it seems to me, what matters is what power Congress was exercising. And they were -- and I think it's clear that -- that the -- the -- they were exercising the tax power as well as --

JUSTICE SCALIA: You're making two arguments. Number one, it's a tax; and number two, even if it isn't a tax, it's within the taxing power. I'm just addressing the first.

GENERAL VERRILLI: If the President said -

JUSTICE SCALIA: Is it a tax or not a tax? The President didn't think it was.

GENERAL VERRILLI: The President said it wasn't a tax increase because it ought to be understood as an incentive to get people to have insurance.

I don't think it's fair to infer from that anything about whether that is an exercise of the tax power or not.

JUSTICE GINSBURG: A tax is to raise revenue, tax is a revenue-raising device, and the purpose of this exaction is to get people into the health care risk -- risk pool before they need medical care, and so it will be successful. If it doesn't raise any revenue, if it gets people to buy the insurance, that's -- that's what this penalty is -- this penalty is designed to affect conduct.

The conduct is buy health protection, buy health insurance before you have a need for medical care. That's what the penalty is designed to do, not to raise revenue.

GENERAL VERRILLI: That -- that is true, Justice Ginsburg. This is also true of the marijuana tax that was withheld in Sanchez. That's commonly true of penalties under the Code. They do -- if they raise revenue, they are exercises of the taxing power, but their purpose is not to raise revenue. Their purpose is to discourage behavior.

I mean, the -- the mortgage deduction works that way. When the mortgage deduction is -- it's clearly an exercise of the taxing power. When it's successful it raises less revenue for the Federal Government. It's still an exercise of the taxing power. So, I don't --

JUSTICE KAGAN: I suppose, though, General, one question is whether the determined efforts of Congress not to refer to this as a tax make a difference. I mean, you're suggesting we should just look to the practical operation. We shouldn't look at labels. And that seems right, except that here we have a case in which Congress determinedly said this is not a tax, and the question is why should that be irrelevant?

GENERAL VERRILLI: I don't think that that's a fair characterization of the actions of Congress here, Justice Kagan. On the -- December 23rd, a point of constitutional order was called to, in fact, with respect to this law. The floor sponsor, Senator Baucus, defended it as an exercise of the taxing power. In his response to the point of order, the Senate voted 60 to39 on that proposition.

The legislative history is replete with members of Congress explaining that this law is constitutional as an exercise of the taxing power. It was attacked as a tax by its opponents. So I don't think this is a situation where you can say that

Congress was avoiding any mention of the tax power.

It would be one thing if Congress explicitly disavowed an exercise of the tax power. But given that it hasn't done so, it seems to me that it's -- not only is it fair to read this as an exercise of the tax power, but this Court has got an obligation to construe it as an exercise of the tax power, if it can be upheld on that basis.

CHIEF JUSTICE ROBERTS: Why didn't Congress call it a tax, then?

GENERAL VERRILLI: Well -

CHIEF JUSTICE ROBERTS: You're telling me they thought of it as a tax, they defended it on the tax power. Why didn't they say it was a tax?

GENERAL VERRILLI: They might have thought, Your Honor, that calling it a penalty as they did would make it more effective in accomplishing its objective. But it is -- in the Internal Revenue Code it is collected by the IRS on April 15th. I don't think this is a situation in which you can say -

CHIEF JUSTICE ROBERTS: Well, that's the reason. They thought it might be more effective if they called it a penalty.

GENERAL VERRILLI: Well, I -- you know, I don't -- there is nothing that I know of that -- that illuminates that, but certainly -

JUSTICE SOTOMAYOR: General, the problem goes back to the limiting principle. Is this simply anything that raises revenue that Congress can do?

GENERAL VERRILLI: No. There are certain limiting principles under the -

JUSTICE SOTOMAYOR: So there has to be a limiting principle -

GENERAL VERRILLI: -- taxing power, and they -- and I think, of course, the Constitution imposes some, got to be uniform, can't be taxed on exports, if it's a direct tax, it's got to be apportioned. Beyond that, the limiting principle, as the Court has identified from Drexel Furniture to Kurth Ranch, is that it can't be punishment, punitive in the guise of a tax. And there are three factors of Court has identified to look at that.

The first is the sanction and how disproportionate it is to the conduct; the second is whether there is scienter; and the third is whether there is an -- an -- an administrative apparatus out there to enforce the tax.

Now in -- in Bailey v. Drexel Furniture, for example, the tax was 10 percent of the company's profits, even if they had only one child laborer for one day. There was a scienter requirement, and it was enforced by the Department of Labor. It wasn't just collected by the Internal Revenue Service.

Here you don't have any of those things. This -- the -- the penalty is calculated to be no more than, at most, the equivalent of what one would have paid for insurance if you forgone. There is no scienter requirement, there is no enforcement apparatus out there. So, certain -

JUSTICE ALITO: Can the -- can the mandate be viewed as tax if it does impose a requirement on people who are not subject to the penalty or the tax?

GENERAL VERRILLI: I think it could, for the reasons I -- I discussed yesterday. I don't think it can or should be read that way. But if there is any doubt about that, Your Honor, if there is -- if -- if it is the view of the Court that it can't be, then I think the -- the right way to handle this case is by analogy to New York v. United States, in which the -- the Court read the shall provision, shall handle the level of radioactive waste as setting the predicate, and then the other provisions were merely incentives to get the predicate met, and

JUSTICE SCALIA: You're saying that all the discussion we had earlier about how this is one big uniform scheme and the Commerce Clause blah, blah, blah, it really doesn't matter. This is a tax and the Federal Government could simply have said, without all of the rest of this legislation, could simply have said everybody who doesn't buy health insurance at a certain age will be taxed so much money, right?

GENERAL VERRILLI: It -- it used its powers together to solve the problem of the market not --

JUSTICE SCALIA: Yes, but you didn't need that.

GENERAL VERRILLI -- providing for the -

JUSTICE SCALIA: You didn't need that. If it's a tax, it's only -- raising money is enough.

GENERAL VERRILLI: It's justifiable under its tax power.

JUSTICE SCALIA: Extraordinary.

GENERAL VERRILLI: If I may reserve the balance of my time.