The individual mandate which is at the heart of ObamaCare insists that everyone buy health insurance in every state.
Once the mandate was challenged by opponents after passage, however, the Obama regime quickly began defending its penalties as a tax, which it was loathe to do in selling the law to the public for political reasons. While the law contains tax provisions, the penalty associated with not securing coverage is not a tax.
The tax argument raises important constitutional questions of fairness and substance. If the penalties really are taxes, aren't also the premiums, since the penalties take their place? And will everyone in every state pay the same premium tax for coverage? If some pay only the penalty, which is low compared to the premium, doesn't the law enjoin inequity?
Another question is whether anyone can avoid the tax. This in turn touches on the distinction between direct and indirect taxation. If the tax can be avoided, it is an example of indirect taxation which is permissible, but which must still be uniform. If it cannot be avoided, then the tax must be apportioned according to population so that everyone, rich and poor alike, everywhere pays the same tax, which would be easy for the rich, but not for the poor. But presumably under ObamaCare plans will vary from state to state as they do now, with premiums which vary according to coverage, so Americans will be forced to pay, and pay unequally.
Consider the income tax. If you take no ordinary income in the form of salary and wages, you are not liable to pay it. Wealthy individuals regularly take income in the form of capital gains, which is taxed under different rules with lower rates than ordinary income. The same avoidance obtains when taking income from municipal bonds and other tax-free bond investments. In important respects the federal income tax is thus indirect, and therefore does not need to be apportioned according to population.
Similarly with excise taxes. If you choose to drink wine over spirits the tax you pay per bottle will be substantially less for wine. You pay the tax on the wine, but you have avoided the tax on the bourbon. But if you drink neither at all, you avoid the excise taxation altogether. Hence the popularity of stills.
Some of these points get an interesting airing
here as they apply to Obamacare:
The legal wrangling over whether a particular tax is direct or indirect, as Willis and Chung discuss, has been complicated and persistent for more than two centuries. In 1794, for example, Congress passed a tax on carriages, which opponents considered a direct tax and thus invalid because it was not apportioned by population. The Supreme Court found it was an indirect tax on the use of carriages, valid so long as it was uniform.
Obamacare imposes an annual penalty of $95 per adult, or 1 percent of income, whichever is greater, in 2014. The annual penalties are the greater of $325 or two percent of income in 2015 and the greater of $695 or 2.5 percent of income in 2016 and subsequent years.
Willis and Chung argue these are not indirect, but instead direct taxes, unconstitutional because they are not apportioned by population. It could also be argued, though, this provision is a mixed bag. The fixed annual penalty portion, for example, could be viewed as indirect and uniform and thus constitutional, while the income percentage amounts could be deemed direct but not apportioned and thus unconstitutional.
The tax could therefore be unconstitutional for those who pay income percentages but constitutional for those who pay a fixed penalty. This may be a ridiculous and unprecedented view, but it does illustrate the complexity of this issue—leaving us with a tangled legal web indeed.
The ruling of the Supreme Court is expected next June after oral arguments in March 2012.
Fireworks are expected.