Opinion ID: 223249
Heading Depth: 2
Heading Rank: 1

Heading: constitutionality of individual mandate under the tax power

Text: The government claims in the alternative that the individual mandate is a tax validly enacted pursuant to the Taxing and Spending Clause. The Clause provides in relevant part that Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States. U.S. CONST. art. 1, § 8, cl. 1. The government claims that the taxing power is comprehensive and plenary, and the fact that the individual mandate also has a concededly regulatory purpose is irrelevant, because a tax `does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed.' Government's Opening Br. at 50 (quoting United States v. Sanchez, 340 U.S. 42, 44, 71 S.Ct. 108, 110, 95 L.Ed. 47 (1950)). The government claims that as long as a statute is productive of some revenue, Congress may enact it under its taxing power. Id. (quoting Sonzinsky v. United States, 300 U.S. 506, 514, 57 S.Ct. 554, 556, 81 L.Ed. 772 (1937)). Furthermore, the government contends our review is limited because the constitutional restraints on taxing are few and [t]he remedy for excessive taxation is in the hands of Congress, not the courts. United States v. Kahriger, 345 U.S. 22, 28, 73 S.Ct. 510, 513, 97 L.Ed. 754 (1953), overruled on other grounds by Marchetti v. United States, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (1968); see also Kahriger, 345 U.S. at 31, 73 S.Ct. at 515 (Unless there are provisions, extraneous to any tax need, courts are without authority to limit the exercise of the taxing power.). Like every other court that has addressed this claim, we remain unpersuaded. It is not surprising to us that all of the federal courts, which have otherwise reached sharply divergent conclusions on the constitutionality of the individual mandate, have spoken on this issue with clarion uniformity. Beginning with the district court in this case, all have found, without exception, that the individual mandate operates as a regulatory penalty, not a tax. Florida v. HHS, 716 F.Supp.2d at 1143-44 (I conclude that the individual mandate penalty is not a `tax.' It is (as the Act itself says) a penalty.); U.S. Citizens Ass'n v. Sebelius, 754 F.Supp.2d 903, 909 (N.D.Ohio 2010) (concluding that the individual mandate is a penalty, agree[ing] with the thoughtful and careful analysis of Judge Vinson); Liberty Univ., Inc. v. Geithner, 753 F.Supp.2d 611, 629 (W.D.Va.2010) (After considering the prevailing case law, I conclude that the better characterization of the exactions imposed under the Act for violations of the employer and individual coverage provisions is that of regulatory penalties, not taxes.); Virginia v. Sebelius, 728 F.Supp.2d 768, 782-88 (E.D.Va.2010) (concluding that the individual mandate is, in form and substance, a penalty as opposed to a tax); Goudy-Bachman v. HHS, 764 F.Supp.2d 684, 695 (M.D.Pa.2011) (The court finds that the individual mandate itself is not a tax. . . .); Mead v. Holder, 766 F.Supp.2d 16, 41 (D.D.C.2011) ([T]he Court concludes that Congress did not intend [the individual mandate] to operate as a tax, and therefore Defendants cannot rely on the General Welfare Clause as authority for its enactment.). For good reason. The breadth of the taxing power, well noted by the government and its amici, fails to resolve the question we face: whether the individual mandate is a tax in the first place. The plain language of the statute and well-settled principles of statutory construction overwhelmingly establish that the individual mandate is not a tax, but rather a penalty. The legislative history of the Act further supports this conclusion. And as the Supreme Court has repeatedly recognized, there is a firm distinction between a tax and a penalty. See, e.g., United States v. La Franca, 282 U.S. 568, 572, 51 S.Ct. 278, 280, 75 L.Ed. 551 (1931) (The two words are not interchangeable one for the other.). The government would have us ignore all of this and instead hold that any provision found in the Internal Revenue Code that will produce revenue may be characterized as a tax. This we are unwilling to do.
As in any case involving statutory construction, we begin with the plain language of the statute. Hemispherx Biopharma, Inc. v. Johannesburg Consol. Invs., 553 F.3d 1351, 1362 (11th Cir.2008) (citing Consumer Prod. Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980)). The plain language of the individual mandate is clear that the individual mandate is not a tax, but rather, as the statute itself repeatedly states, a penalty imposed on an individual for failing to maintain a minimum level of health insurance coverage in any month beginning in 2014. Title 26 U.S.C. § 5000A(a) requires [a]n applicable individual to ensure that the individual. . . is covered under minimum essential coverage. 26 U.S.C. § 5000A(a). In order to enforce this requirement, Congress stated that [i]f a taxpayer who is an applicable individual . . . fails to meet the requirement of subsection (a) for 1 or more months, then . . . there is hereby imposed on the taxpayer a penalty with respect to such failures. Id. § 5000A(b)(1) (emphasis added). Nor could we construe Congress's choice of language as a careless one-time invocation of the word penalty, because the remainder of the relevant provisions in § 5000A uses the same term over and over again, without exception and without ever describing the penalty as a tax. See, e.g., id. § 5000A(b)(3)(B) (individual with respect to whom a penalty is imposed by this section who files joint tax return shall [along with individual's spouse] be jointly liable for such penalty  (emphasis added)); id. § 5000A(c)(1) (describing [t]he amount of the penalty imposed by this section on any taxpayer for any taxable year (emphasis added)); id. § 5000A(c)(2) (describing the monthly penalty amount with respect to any taxpayer (emphasis added)); id. § 5000A(g)(1) (The penalty provided by this section shall be paid upon notice and demand by the Secretary . . . . (emphasis added)); id. § 5000A(g)(2)(A) (providing that taxpayer shall not be subject to any criminal prosecution or penalty for failure to timely pay any penalty imposed by this section (emphasis added)); id. § 5000A(g)(2)(B) (providing that the Secretary shall not file notice of lien or levy on any property of a taxpayer by reason of any failure to pay the penalty imposed by this section (emphasis added)). Thus, the text of the individual mandate unambiguously provides that it imposes a penalty. The penalty encourages compliance with the Act's requirement to obtain minimum essential coverage by imposing a monetary sanction on conduct that violates that requirement. The text is not unclear and was carefully selected to denote a specific meaning. As the Supreme Court most recently recognized in United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996), `[a] tax is an enforced contribution to provide for the support of government; a penalty . . . is an exaction imposed by statute as punishment for an unlawful act.' Id. at 224, 116 S.Ct. at 2113 (quoting La Franca, 282 U.S. at 572, 51 S.Ct. at 280). The Court further expounded upon La Franca: We take La Franca 's statement of the distinction [between a tax and penalty] to be sufficient for the decision of this case; if the concept of penalty means anything, it means punishment for an unlawful act or omission. . . . Id.; see also Dep't of Revenue of Mont. v. Kurth Ranch, 511 U.S. 767, 779-80, 114 S.Ct. 1937, 1946, 128 L.Ed.2d 767 (1994) (Whereas fines, penalties, and forfeitures are readily characterized as sanctions, taxes are typically different because they are usually motivated by revenue-raising, rather than punitive, purposes.). It is clear that the terms tax and penalty are not interchangeable one for the other. . . . and if an exaction be clearly a penalty it cannot be converted into a tax by the simple expedient of calling it such. La Franca, 282 U.S. at 572, 51 S.Ct. at 280.
We add the truism that Congress knows full well how to enact a tax when it chooses to do so. And the Act contains several provisions that are unmistakably taxes. The point is amply made by simply looking at four different provisions: (1) an Excise Tax on Medical Device Manufacturers, 26 U.S.C. § 4191(a) (There is hereby imposed on the sale of any taxable medical device by the manufacturer, producer, or importer a tax equal to 2.3 percent of the price for which so sold. (emphasis added)); (2) an Excise Tax on High Cost Employer-Sponsored Health Coverage, id. § 4980I(a)(1)-(2) (if an employee receives excess benefit, as defined in the statute, from employer-sponsored health coverage, there is hereby imposed a tax equal to 40 percent of the excess benefit (emphasis added)); (3) an Additional Hospital Insurance Tax for High-Income Taxpayers, amending id. § 3101(b) (as part of Federal Insurance Contributions Act, providing that there is hereby imposed on the income of every individual a tax equal to 1.45 percent of the wages . . . received by him with respect to employment (emphasis added)); [130] and (4) an Excise Tax on Indoor Tanning Services, id. § 5000B(a) (There is hereby imposed on any indoor tanning service a tax equal to 10 percent of the amount paid for such service . . . whether paid by insurance or otherwise (emphasis added)). It is an unremarkable matter of statutory construction that we presume Congress did not indiscriminately use the term tax in some provisions but not in others. See Duncan v. Walker, 533 U.S. 167, 173, 121 S.Ct. 2120, 2125, 150 L.Ed.2d 251 (2001) (It is well settled that where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion. (quotation marks and alteration omitted)). We have little difficulty concluding that Congress intended § 5000A to operate as a penalty. The very nature of congressional findings about the individual mandate further amplifies that Congress designed and intended to design a penalty for the failure to comply and not a tax. The source of the power, asserted by Congress, to create the mandate is directly pegged to the Commerce Clause. See, e.g., 42 U.S.C. § 18091(a)(1) (The individual responsibility requirement provided for in this section. . . is commercial and economic in nature, and substantially affects interstate commerce.. . .); id . § 18091(a)(2)(B) (Health insurance and health care services are a significant part of the national economy.. . . Private health insurance spending. . . pays for medical supplies, drugs, and equipment that are shipped in interstate commerce. Since most health insurance is sold by national or regional health insurance companies, health insurance is sold in interstate commerce and claims payments flow through interstate commerce.). Indeed, the findings make clear that the goal of the individual mandate is not to raise revenue for the public fisc, but rather to, among other things, reduce the number of the uninsured and to create what Congress perceived to be effective health insurance markets that make health insurance more widely available. Id. § 18091(a)(2)(C)-(I); see also id. § 18091(a)(2)(J) (The requirement is essential to creating effective health insurance markets that do not require underwriting and eliminate its associated administrative costs.). The argument that Congress need not employ the label of tax or expressly invoke the Taxing and Spending Clause in order to enact a valid tax is surely true, insofar as it goes. See Woods v. Cloyd W. Miller Co., 333 U.S. 138, 144, 68 S.Ct. 421, 424, 92 L.Ed. 596 (1948) ([T]he constitutionality of action taken by Congress does not depend on recitals of the power which it undertakes to exercise.). The problem with the claim, however, is not that Congress simply failed to use the term tax, or declined to invoke the Taxing and Spending Clause when explaining the constitutional basis for enacting the individual mandate. Rather, Congress repeatedly told us that the individual mandate is a penalty and expressly invoked its Commerce Clause power as the foundation for the mandate. The two are not the same thing. Ultimately, we are hard pressed to construe the statute in a manner that would require us to ignore the plain text of the statute, the words repeatedly employed by Congress, well-settled principles of statutory construction, and well-settled law emphasizing the substantive distinction between a tax and a penalty.
Even if the text were unclearalthough it is notand we were to resort to an examination of the legislative history, we would still find more of the same thing: Congress intended to impose a penalty for the failure to maintain health insurance. Prior to the passage of the Act, earlier bills in both houses of Congress proposed an individual mandate accompanied by a tax, as the district court noted. See Florida v. HHS, 716 F.Supp.2d at 1134. Thus, for example, Section 401 of the America's Affordable Choices Act of 2009, H.R. 3200, 111th Cong. (2009), which was introduced in the House of Representatives on July 14, 2009, provided that there is hereby imposed a tax on any individual who does not meet the requirements of [maintaining minimum health insurance coverage] at any time during the taxable year. A later version of the House bill, the Affordable Health Care for America Act, H.R. 3962, 111th Cong. § 501 (2009), passed the House of Representatives on November 7, 2009, and similarly referred to the individual mandate's enforcement mechanism as a tax. On the Senate side, the America's Healthy Future Act, a precursor to the Act, also used the term tax. See S. 1796, 111th Cong. § 1301 (2009) (If an applicable individual fails to [maintain minimum health insurance coverage] there is hereby imposed a tax . . . .). Notably, however, the final version of the Act abandoned the term tax in favor of the term penalty. This is no mere semantic distinction, as [f]ew principles of statutory construction are more compelling than the proposition that Congress does not intend sub silentio to enact statutory language that it has earlier discarded in favor of other language.  INS v. Cardoza-Fonseca, 480 U.S. 421, 442-43, 107 S.Ct. 1207, 1218, 94 L.Ed.2d 434 (1987) (emphasis added) (quotation marks omitted). The government relies on different pieces of the legislative history, particularly the statements of individual legislators, speaking both for and against the Act, who at various times referred to the individual mandate as a tax. See Government's Opening Br. at 54 (citing 156 Cong. Rec. H1854, H1882 (daily ed. Mar. 21, 2010) (statement of Rep. Miller); 156 Cong. Rec. H1824, H1826 (daily ed. Mar. 21, 2010) (statement of Rep. Slaughter); 155 Cong. Rec. S13,751, S13,753 (daily ed. Dec. 22, 2009) (statement of Sen. Leahy); 155 Cong. Rec. S13,558, S13,581-82 (daily ed. Dec. 20, 2009) (statement of Sen. Baucus); 155 Cong. Rec. S12,768 (daily ed. Dec. 9, 2009) (statement of Sen. Grassley)). These assorted statements of individual legislators are of precious little value, because they are in conflict with the plain text of the statute and with more reliable indicators of congressional intent. See Huff v. DeKalb Cnty., Ga., 516 F.3d 1273, 1280 (11th Cir.2008) (`The best evidence of [legislative] purpose is the statutory text adopted by both Houses of Congress and submitted to the President. Where that contains a phrase that is unambiguousthat has a clearly accepted meaning in both legislative and judicial practicewe do not permit it to be expanded or contracted by the statements of individual legislators or committees during the course of the enactment process.' (alteration in original) (quoting W. Va. Univ. Hosps., Inc. v. Casey, 499 U.S. 83, 98-99, 111 S.Ct. 1138, 1147, 113 L.Ed.2d 68 (1991))). The government argues nevertheless that the individual mandate is still a tax in both administration and effect. Government's Opening Br. at 54. It claims that in passing on the constitutionality of a tax law, we should be concerned only with its practical operation, not its definition or the precise form of descriptive words which may be applied to it. Id. (quoting Nelson v. Sears, Roebuck & Co., 312 U.S. 359, 363, 61 S.Ct. 586, 588, 85 L.Ed. 888 (1941)). That the individual mandate will produce some revenue and will be enforced by the Internal Revenue Service is enough, they say, to transmute the individual mandate's penalty provision into a tax. We remain unpersuaded. Even on the government's own terms, the individual mandate does not in practical operation act as a tax. See Nelson, 312 U.S. at 363, 61 S.Ct. at 588. The government specifically claims that the individual mandate has the character of a tax because it will produce revenue. This argumentwhich relies on undisputed projections by the CBO that the individual mandate will generate some four to five billion dollars in annual revenue by the end of this decade [131] does little to address the distinction between a penalty and a tax. This is because [c]riminal fines, civil penalties, civil forfeitures, and taxes all share certain features: They generate government revenues, impose fiscal burdens on individuals, and deter certain behavior. Kurth Ranch, 511 U.S. at 778, 114 S.Ct. at 1945. The Supreme Court has thus recognized, as indeed we must, that in our world of less than perfect compliance, penalties generate revenue just as surely as taxes. Nor does the amount of projected revenue that will be collected under the individual mandatea significant sum, to be surerender the mandate a tax. The Supreme Court has never understood the amount of revenue generated by a statutory provision to have definitional value. In Sonzinsky, the Court considered a converse of the situation we face here, where a provision imposing a $200 annual license tax on firearms dealers was challenged as not a true tax, but a penalty imposed for the purpose of suppressing traffic in a certain noxious type of firearms. 300 U.S. at 511-12, 57 S.Ct. at 554-55. The tax was productive of some revenue, but not much. Id. at 514 & n. 1, 57 S.Ct. at 556 & n. 1 (observing that 27 dealers paid the tax in 1934, and 22 paid in 1935). That did not stop the Supreme Court from upholding the provision as a tax. The Supreme Court later interpreted Sonzinsky as standing for the proposition that a tax does not cease to be valid merely because it regulates, discourages, or even definitely deters the activities taxed, and that proposition applies even though the revenue obtained is obviously negligible . Sanchez, 340 U.S. at 44, 71 S.Ct. at 110 (emphasis added). While the government views these cases as supportive of its argument, because they demonstrate the breadth of Congress's taxing power, the cases merely hold that an Act of Congress which on its face purports to be an exercise of the taxing power is not any the less so because the tax is burdensome or tends to restrict or suppress the thing taxed. Sonzinsky, 300 U.S. at 513, 57 S.Ct. at 556 (emphasis added). Thus, once Congress has expressly and unmistakably indicated that a provision is a tax, courts will not [i]nquir[e] into the hidden motives which may move Congress to exercise a power constitutionally conferred upon it. Id. at 513-14, 57 S.Ct. at 556. But that is not this case. Here we confront a statute that is not on its face a tax, but rather a penalty. What's more, the district court correctly noted that the government lacks any case precedent squarely on point. Florida v. HHS, 716 F.Supp.2d at 1140. Even ignoring Congress's deliberate choice of the term penalty, the individual mandate on its face imposes a monetary sanction on an individual who fails to meet the requirement to maintain minimum essential coverage. 26 U.S.C. § 5000A(b)(1). As we see it, such an exaction appears in every important respect to be punishment for an unlawful act or omission, which defines the very concept of penalty. CF & I Fabricators, 518 U.S. at 224, 116 S.Ct. at 2113; see also Virginia v. Sebelius, 728 F.Supp.2d at 786 (The only revenue generated under the [individual mandate] is incidental to a citizen's failure to obey the law by requiring the minimum level of insurance coverage. The resulting revenue is `extraneous to any tax need.' (quoting Kahriger, 345 U.S. at 31, 73 S.Ct. at 515)). The government also suggests that the individual mandate operates as a tax because it is housed in the Internal Revenue Code and is collected through taxpayers' annual returns. It is true that the individual mandate is located under the section of the Code titled Miscellaneous Excise Taxes. Yet the Code itself makes clear that Congress's choice of where to place a provision in the Internal Revenue Code has no interpretive value: No inference, implication, or presumption of legislative construction shall be drawn or made by reason of the location or grouping of any particular section or provision or portion of this title. . . . 26 U.S.C. § 7806(b); see also Florida v. HHS, 716 F.Supp.2d at 1137 (citing same). More significantly, not every provision in the Internal Revenue Code is a tax. Indeed, Congress placed in Chapter 68 of the Internal Revenue Code a panoply of civil penalties, running the gamut from broadly applicable (filing frivolous tax returns [132] or making unreasonable erroneous claims for a tax refund or credit [133] ) to highly industry-specific (tampering with or failing to maintain security requirements for mechanical dye injection systems, [134] or selling or reselling adulterated diesel fuel that violates environmental standards [135] ). In addition, the mandate's penalty is not treated like a tax because, as noted above, the IRS may not place liens, or levy or initiate criminal prosecution or impose any interest or criminal sanctions. All the IRS, practically speaking, may do is to offset the penalty against a tax refund. 26 U.S.C. § 5000A(g)(2)(A)-(B). Although it is irrelevant for our purposes precisely where in the Internal Revenue Code Congress decided to place the individual mandate, id. § 7806(b), we observe that other chapters of the Internal Revenue Code include penalty provisions as well. See, e.g., id. § 5761(a) (imposing a penalty of $1,000 on any personprimarily manufacturers, importers, and retailerswho willfully fails to comply with a variety of statutory duties and taxes under Chapter 52 of the Internal Revenue Code related to tobacco products and cigarettes). And Chapter 75 of the Internal Revenue Code sets forth criminal penalties, which permit courts to impose substantial fines. Id. § 7206 (providing that those who commit tax fraud in a variety of ways shall be guilty of a felony and, upon conviction thereof, shall be fined not more than $100,000 ($500,000 in the case of a corporation), or imprisoned not more than 3 years, or both, together with the costs of prosecution). While the entire list of penalties in the Internal Revenue Code is far too long to exhaust here, it is apparent that the placement of the individual mandate in the Internal Revenue Code is far from sufficient to convert the individual mandate into a tax and has limited value, if any at all, in determining whether the individual mandate is a tax or a penalty. After careful review of the statute, we conclude that the individual mandate is a civil regulatory penalty and not a tax. As a regulatory penalty, the individual mandate must therefore find justification in a different enumerated power. See Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 393, 60 S.Ct. 907, 912, 84 L.Ed. 1263 (1940) (Congress may impose penalties in aid of the exercise of any of its enumerated powers.); Virginia v. Sebelius, 728 F.Supp.2d at 788; Florida v. HHS, 716 F.Supp.2d at 1143-44. The individual mandate as written cannot be supported by the tax power.