Taxing Power Flashcards
NFIB V. Sebelius
The individual mandate is a valid exercise of Congress’s taxing power.
Individual Mandate Rationale
First, the fine imposed by the Act has many of the features of a tax, and it has the essential feature of a tax insofar as it raises revenue for the government.
Second, the fine is more like a tax than a penalty. Penalties contain a scienter requirement (intent or knowledge of wrong-doing), and the individual mandate does not.
Third, the payment is collected solely by the IRS through the usual means of taxation.
Fourth, merely because the individual mandate is designed to regulate individual conduct and encourage the purchasing of health insurance does not mean that it cannot be a valid exercise of the taxing power. To some extent, all taxes are regulatory in nature.
Fifth, the individual mandate may be upheld as a tax notwithstanding the fact that Congress did not frame it as a tax. The mandate is in the form of a tax, and that conclusion should not change simply because Congress used the word “penalty” to describe the payment.
Lastly, a tax may be imposed for a failure to take required action. Congress’s authority is limited to requiring an individual to pay money to the federal government; the individual retains the choice whether to do or not do a certain act.
The Spending Power
- Article I, Section 8 provides that Congress shall have the power to pay debts and provide for the common defense and general welfare of the United States. The power to tax and spend for the general welfare is very broad – not limited to specifically enumerated powers. (US v. Butler).
Limitations on the Spending Power (South Dakota v. Dole)
i. First, the exercise of the spending power must be in pursuit of the general welfare. In considering whether a particular expenditure is intended to serve the general public, courts should defer substantially to the judgment of Congress
ii. Second, if Congress desires to condition the state’s receipt of federal funds, it must do so unambiguously. The condition must be clearly accepted by the states. Notice must be provided with the receipt of federal funds.
iii. Third, conditions on federal grants must have some relation to the federal interest in the program.
iv. Lastly, financial inducement to adopt a program cannot be coercive.
US v. Butler – Example of Spending Power used to Coerce
Facts: The Agricultural Adjustment Act of 1933 levied a tax on agricultural processors; the revenue from the tax was used to create a subsidy for farmers who voluntarily reduced their crop output.
Holding: This statute is unconstitutional under the Spending Clause! The federal government is coercing farmers to reduce production by offering them a subsidy. Farmers who do not accept the subsidy will be far worse off than farmers who accept the subsidy. These farmers will have less money for production and will be undercut by farmers with the subsidy who can afford to undercut prices.
South Dakota v. Dole
Facts: A federal statute directed the Secretary of Transportation to withhold a 5% of federal highway funds from states that did not prohibit the purchase of alcohol by people under the age of 21.
Holding: This statute is constitutional for the following reasons:
The statute serves the general welfare because different drinking ages in different states created incentives for young people to combine their desire to drink with their ability to drive.
The statute offers mild encouragement to the state to enact higher minimum drinking ages than they would otherwise choose, but the enactment of such laws remains the prerogative of the state. All the state would lose if it refused to adopt the 21-year old drinking age is 5% of its fund. Not coercive!
NFIB v. Sebelius – Example of Coercion
Facts: A key provision of the Patient Protection and Affordable Care Act is the Medicaid expansion. The Act increases federal funding to cover the states’ cost in expanding Medicaid coverage. If a state does not comply with the Act’s new coverage requirements, it may lose all of its federal funding for Medicaid.
Holding: The penalty imposed by the failure to comply with Medicaid is unconstitutional.
Rationale:
Congress may use its spending power to create incentives for states to act in accordance with federal policies, but when pressure turns into compulsion, the legislation is unconstitutional.
Here, Congress has crossed the line from encouragement to coercion by structuring Medicare expansion so states that refuse the new conditions will lose all federal funding for Medicaid. This is economic coercion that leaves the states with no real option but to acquiesce in the Medicaid expansion.
