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Health Care Reform:

Health Insurance & Affordable Care Act

U.S. Supreme Court Debates Whether Individual Mandate Penalty Is a Tax

Health Care Hearings: Day 1 Focuses on Tax

When a Penalty Is Not a Tax continued...

In what may seem like an about face -- but is instead more of a legal high-wire act -- Verrilli will argue Tuesday the opposite: that the penalty is indeed a tax. Here’s why: Tuesday’s hearings will focus on whether the law’s individual mandate, which requires nearly all Americans to buy health insurance, is constitutional.

To make its case, the Obama administration will say that apart from the tax act, the mandate operates as a tax law, which strengthens its argument that the mandate is justified under Congress’ constitutional authority to tax.

In other words, the penalty is a penalty is a tax.

The justices saw this seeming incongruity coming.

“Today you are arguing that the penalty is not a tax,” Justice Samuel Alito Jr. said. “Tomorrow you are going to be back and you will be arguing that the penalty is a tax. Has the court ever held that something that is a tax for purposes of the taxing power under the Constitution is not a tax under the Anti-Injunction Act?”

Verrilli replied that he could not point to a case, but added that the Supreme Court has held in other cases that “something can be a constitutional exercise of the taxing power whether or not it is called a tax.”

Can the Punishment Be Separated From the Crime?

Like the administration, the officials from 26 states who are challenging the law in the Supreme Court case also do not consider the individual-mandate penalty a tax.

They agree that the penalty is truly a penalty.

However, Gregory Katsas, an attorney for the state officials, told the Supreme Court today that the issue is a moot one since they are challenging the mandate itself, not the penalty.

The health reform law, Katsas noted, distinguishes between the two issues. For example, some categories of Americans are subject to the mandate, but not the penalty. One such category is the very poor.

Chief Justice John Roberts Jr. challenged Katsas on his reasoning.

“The idea that the mandate is something separate from whether you want to call it a penalty or tax just doesn't seem to make much sense,” said Roberts. “It seems very artificial to separate the punishment from the crime. ... Why would you have a requirement that is completely toothless?”

Katsas replied that “Congress reasonably could think that at least some people will follow the law precisely because it is the law.”

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