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A Tax, Not a Penalty

So we now know that Chief Justice Roberts has joined with the four progressive members of the Court to uphold the Affordable Care Act on the ground that the “penalty” owed by any citizen violating the purchase mandate is not a penalty but a tax. As Ilya Somin notes at Volokh this is quite the surprise given that virtually every lower court judge rejected this argument.

Justice Scalia’s dissent powerfully address this point. Here are two brief excerpts:

“Our cases establish a clear line between a tax and a penalty: “[A] tax is an enforced contribution to provide for the suppport of a government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.” U. S. v. Reorganized CF&I Fabricators of Utah, Inc., 518 U.S. 213, 224 (1996) (quoting United States v. La Franca, 282 U. s. 568, 572 (1931)). In a few cases, this Court has held that a “tax” imposed upon private conduct was so onerous as to be in effect a penalty. But we have never held–never–that a penalty imposed for violation of the law was so trivial as to be in effect a tax. We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power-even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.

In further part, the dissent presses this point by observing as follows:

We never have classified as a tax an exaction imposed for violation of the law, and so too, we never have classified as a tax an exaction described in the legislation itself as a penalty.

But we have never–never–treated as a tax an exaction which faces up to the critical difference between a tax and a penalty, and explicitly denominates the exaction a “penalty.” Eighteen times in § 5000A itself and elsewhere throughout the Act, Congress called the exaction in § 5000A(b) a “penalty”

Reader Discussion

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on June 28, 2012 at 13:22:24 pm

Upon what is the tax levied?

Not income.

Thus under Art I; Section 8, and subject to:

"No Capitation, *or other direct,* Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be traken."Paragraph 4; Art I; Section 9.

How does a purported "Tax" that is levied only upon those (of a certain statutory classification) who do not comply with the statute conform to that Constitutional limitation of power?

There is, of course, the broader issue under Section 8 as to what this kind of impostion is " provide" in the intent of that Section.

Coram Nobis anyone?

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Richard Schweitzer
on June 28, 2012 at 13:25:59 pm

Correction:

What this kind of imposition is made to "provide" within the intent of that Section.

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Richard Schweitzer
on June 28, 2012 at 14:45:12 pm

To those who have challenged thata the "Tax" is "on" incomes:

The Penalty ("Tax") is *measured* by:
A set minimum
Percentage of income
Limited by the arbitrarily determined price of a service.

The "Tax" is not on incomes.

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Richard Schweitzer
on June 28, 2012 at 17:35:09 pm

The 16th Amendment (although controversial)basically was a tax on a profit or a gain of a corporation or someone in a corporate capacity. It was originally declared Constitutional in the famous Brushaber Case ,among others. When a person volunteers to obtain a Social Security Number and volunteers to fill out W2 and W4 forms,1099 Forms and 1040 Forms (among other forms) then that person legally and lawfully declares himself a "Taxpayer." Once Taxpayer status is achieved then the government has jurisdiction over the individual citizen and can "mandate" compliance involving its taxpayer rules and regulations. In essence the Social Security Number makes an individual a ward of the state and a walking corporation. If the regulations mandate buying health insurance,so be it. If a "mandate" comes about in the future where the government can tax you 100% and then send you what they want in the guise of a benefits check, they can do it. What people don't realize is that by giving up your liberty in exchange for a Social Security number you are basically volunteering into the status of a taxpayer. This volunteering allows the Government to claim that they(the government) has not violated your Constitutional Rights.,even though filling out the various tax forms provided by the government violates an individuals rights(among others the 4th,5th and 13th Amendments),as long as the information obtained is done on a voluntary basis it fits Constitutional muster. Not being able to obtain employment or start a business or open a bank account or obtain a drivers license or practice a trade or whatever without a Social Security Number is besides the point. So its all legal and lawful if you volunteer.

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libertarian jerry
on June 29, 2012 at 07:27:30 am

"We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power-even when the statute calls it a tax,"

I call BS on this. The NFA was a huge tax on commerce in specific articles, (Machine guns, 'silencers', and some other firearms related things Congress didn't want private citizens to own.) adopted for the specific purpose of suppressing commerce in those articles. It reached to 2000% of the market price of a machine gun, even higher on silencers. And the Court flatly refused to consider any argument that it was really a penalty, so long as there was any prospect of even the slightest bit of revenue being produced.

I don't think this was a good ruling, but Scalia's history was a bit incomplete.

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Brett Bellmore
on June 29, 2012 at 09:45:53 am

But --- Scalia, et al. are right, this is a *direct* tax.

The issue becomes a "a 'Tax' on what?"

It is not a tax upon the production, distribution or possession of any material thing; nor upon the extraction or exploitation of any resource.

It is not a tax upon any specific form or quality of affirmative conduct (for ill or good).

Of course, Sect. 5000A (PPACA) does not *order* or *command* any action.

Of course that wording can be construed "reasonably" to contain the genetic marking of taxation - to produce revenue.

But, the Constitution limits the ways in which revenue may be produced; and, even as modified, purports to limit the purposes for the exercise of the power to ". . . Lay and collect . . . ."

If the wording of 5000A proposes to lay and collect a *direct* "Tax" in a manner that is in direct contravention of the provisions of Art I; Sect 8, and not authorized be Amendment XVI, then that provision, whatever its label, is in contravention of the Constitution, and fails as "law."

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Richard Schweitzer
on June 29, 2012 at 09:50:06 am

Correction to last paragraph:

. . . in direct contravention to the provisions of Art I; Sect 9 . . .

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Richard Schweitzer
on June 29, 2012 at 10:09:06 am

Brett,

Those taxes were on lawful commerce. Scalia's point is about penalties for unlawful behavior.

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Squid
on June 29, 2012 at 17:18:48 pm

As an electrical and software engineer I appreciated delving into the details. But I am not a student of your field. So I am momentarily lost. Can someone explain the defining line between a tax and a penalty and how it applies to this SC ruling. I understand that Roberts save the law from the rocks of the commerce clause authority, and punted it to the taxing authority of Congress. So is this law just a big old tax?

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Robert Carr
on June 30, 2012 at 12:00:13 pm

Robert Carr:

While it is subject to some carping nad niggling, the dissent of Scalia will give you what you ask, I think. Fines and penalties also generate revenues, but their applications are specific to conduct prescribed or proscribed by laws that do not contravene the provisions of the Constitution.

Yes, this was a "punt."

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Richard Schweitzer
on September 24, 2012 at 09:12:17 am

the majority dcoisien points out that at least for tax deductions the normal mechanisms work perfectly well; someone could, for example, challenge a tax break given to one type of newspaper but not to all newspapers under freedom of speech, which may not work for directly funding. So, yes, there are plenty of ways to challenge this sort of tax break (even if that challenge wouldn’t apply to this one).I'm confused about what you mean by saying they could challenge a tax break to one type of newspaper under freedom of speech. (First of all, freedom of speech doesn't ban biased subsidizing of some kinds of newspapers, but that's beside the point.) How is saying that sort of law should be challenged under freedom of speech different from saying this should be challenged under the establishment clause ? The establishment clause is in no way specific to monetary expenditures it would apply to any preferential treatment.Furthermore, majority dcoisien is wrong about there being other ways to challenge it, and you admit this when you say even if that challenge wouldn't apply to this one . In this case (and you could imagine others) no one will be left with standing. The standing rules don't come from the Constitution they come from common law and the court making up rules. That's fine, but it seems that they've obviously done that badly when there is a policy that no one is even allowed to bring a case about.If these conditions aren’t met, they don’t have standing. A very shallow reading suggests that they may not have met the conditions. So, then, who’s reasoning is bad?You're right, a very shallow reading would lead to the majority dcoisien. An actually reasonable reading, however, would not. The court has already found that spending to aid religion counts as the sort of spending that is beyond the constitutional limitations mentioned and that it qualifies. So the only question left is whether this is (or is equivalent to) spending. It obviously is. End of story.Also, you're right about tax deductions in general, but in this case (at least, if I'm understanding the New York Times article correctly) it's a 100% tax rebate of the amount spent.

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Amanda
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20/20 Tax Resolution
on July 27, 2015 at 11:34:03 am

A tax isn’t the same as a fine!
You are wrong!
A tax can be rotten off against ones income at tax time but fines cannot!

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StufedBear
on July 27, 2015 at 11:35:16 am

Sorry, it should say written off not rotten.

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StufedBear

Law & Liberty welcomes civil and lively discussion of its articles. Abusive comments will not be tolerated. We reserve the right to delete comments - or ban users - without notification or explanation.