What’s in a name? That which we call a rose by any other name would smell as sweet.  And that which we call a penalty by any other name would still be charged.  But what if we called it a tax?  Is there a difference between a penalty and a tax?

Penalty is: a punishment imposed or incurred for a violation of law or rule; or a loss, forfeiture, suffering, or the like, to which one subjects oneself by nonfulfillment of some obligation.

Tax is: a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc.; or a burdensome charge, obligation, duty, or demand.

Our representatives who wrote the new Affordable Care Act deemed that which must be paid by those who don’t have health insurance a “penalty.”  In fact, Chief Justice Roberts, who wrote the recent Supreme Court majority opinion upholding the law, relied on this label as the reason the High Court could hear this case in the first place.

There is another law called the Anti-Injunction Act which prohibits suits to prevent the collection of a tax.  Under this law, you must first pay the tax and then sue to get it back.  Because no one has yet paid a penalty for not having health insurance, there is an argument that if the penalty is really a tax, then this suit against the law cannot be maintained until after someone has had to pay.  Roberts said that the legislature labeled it a “penalty” and therefore intended that the Affordable Care Act not be impacted by the Anti-Injunction Act.

So, what the legislature called a penalty is a penalty, right?  Well, only for that first part.  Then it became a tax.  You see, a penalty is unconstitutional.  The Constitution, which grants Congress the power to regulate commerce, assumes there is some commerce to regulate.  It does not grant Congress the power to create commerce to regulate.  If I buy health insurance, that is commerce and Congress can regulate it.  But, if I decide not to buy insurance, there is no commerce to regulate.  And so the individual mandate portion of the Healthcare Act, the decree that I must buy health insurance is unconstitutional.

Or is it?  Well, under the Commerce Clause it is.  But Congress also has the power under the Constitution to “lay and collect taxes.”  But, this isn’t a tax, it was dubbed a penalty by the drafters of the statute.  Roberts concluded, that despite the label, if it can be construed a tax, then it should be a tax (remember, he already concluded it is a penalty or else the Anti-Injunction Act would prevent the suit altogether).

Roberts cited: 1) the penalty is not so much that there really is no choice but to buy health insurance; 2) the payment is not limited to willful violations, as penalties for unlawful acts are; 3) the IRS collects the penalty; and 4) that failing to buy health insurance is not really unlawful.  Thus, he concluded that the penalty has all the indicia of really being a tax, and it is possible to fairly interpret the payment as a tax,  and thus deferred to the intent of the legislature in upholding the law.

Those four premises, I submit,  are flawed.  First, the penalty is not so much that there really is no choice but to buy insurance, assumes that it really ever was a choice in the first place.  Who doesn’t want health coverage?  It’s always been a matter of cost.  Now, we’ve simply made those who can’t afford it pay for something else they can’t afford.  Chief Justice Roberts likened it to the “tax” on cigarettes to explain how a tax can not only be revenue-generating, but behavior-influencing.  However, that example, and all of his others, deals with a penalty for purchasing, not for not purchasing.  So, while he said the individual mandate is unconstitutional, this is the first legislation that imposes a tax or a penalty on not doing something.  Like it or not, we’ve now entered  “open season” on individual mandates.

Second, the argument that the payment is not limited to willful violations as penalties for unlawful acts are is simply not true.  Have you ever been unintentionally speeding and received a traffic citation?  Did you get out of it by saying, “I didn’t mean to be going so fast?”  Of course not.  Penalties for unlawful acts are not limited to willful violations.  Thus, unintentionally being too poor to buy health insurance is still a violation.

To Chief Justice Roberts’ fourth point, it is still a violation of the law.  The Affordable Care Act IS a law.  Failing to adhere to the individual mandate is a violation and whether, like a speeding ticket, it subjects you only to a fine (oh, no – another possible word – is it a penalty, a tax or a fine?!?), you will still be in violation of a law.

Lastly, so what if the IRS collects it?  If you are late paying your taxes, the IRS also collects the “penalty” and “interest.”  Is that just more tax?  Or is it a penalty?  It is a violation of law to not pay your taxes.  We believe it is a penalty – and the IRS collects it.

The bottom line here is that, whether a penalty (I think we should defer to how the drafters defined it– they got that part right) or a tax, or a fine, or a tariff, or a levy, or a toll, it is the first time in history it is imposed as a result of NOT doing something.  Perhaps it is better for all Americans if everyone provides an accessible wireless internet connection so that we can connect from wherever we are.  Perhaps there should be a penalty (read: tax) for not providing a public hotspot at our homes and businesses.  Perhaps it is better for all Americans if everyone owned a dog or cat (I read somewhere that pet owners have reduced stress and live longer).  Perhaps there should be a penalty (read: tax) for not owning a dog or cat.

Take a look back at the definitions provided above.  Is the money we will have to pay for not buying health insurance “a punishment imposed or incurred for a violation of law or rule; or a loss, forfeiture, suffering, or the like, to which one subjects oneself by nonfulfillment of some obligation” or is it “a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc.; or a burdensome charge, obligation, duty, or demand.”  Smells more like a penalty to me.

Perhaps Roberts should read Shakespeare.  A rose by any name would smell as sweet.  And a penalty by any name is now a license to impose individual mandates, and it stinks.

 

Do you have a question about what the Affordable Care Act means for you or your business?  Perhaps The McHattie Law Firm, LLC can help.

(Jack Baldini)