Obama’s tax plea gets rude reception
Trying to justify health care law
While the fate of President Obama’s health care law remains an open question, the Supreme Court was far more clear on one issue Tuesday: The law’s backers won’t be able to justify the individual mandate to purchase health insurance by pointing to Congress’ taxing powers.
To be or not to be a tax turns out to be a crucial question when it comes to whether Congress had the power to pass such an expansive law, and even some of the court’s more liberal members were not making things easier for Mr. Obama on Tuesday.
“Here we have a case in which Congress determinedly said this is not a tax,” Justice Elena Kagan said, as she and the other justices prodded the government’s chief attorney over the issue.
The Obama administration’s chief justification for the law is that it regulates the health care market, which it justifies under the Constitution’s clause granting Congress powers over interstate commerce. But as a backup argument, the administration has also said the penalty on those who don’t buy insurance — administered by the Internal Revenue Serivce — amounts to a tax, and that means the mandate that all Americans buy health insurance is constitutional under the taxing power.
“The provisions of the Constitution needed to be interpreted in a manner that would allow them to be effective in addressing the great crises of human affairs that the framers could not even envision,” said Solicitor General Donald B. Verrilli Jr. “But if there is any doubt about that under the commerce clause, then I urge this court to uphold the minimum coverage provision as an exercise of the taxing power.”
The taxing power is viewed as much broader, and courts have been more reluctant to question what Congress does under that power.
The court gave the argument a solid look in this case, but the questions were all skeptical.
“A tax is to raise revenue, tax is a revenue-raising device,” Justice Ruth Bader Ginsburg said. “This penalty is designed to affect conduct. The conduct is [buying] health protection, [buying] health insurance before you have a need for medical care. That’s what the penalty is designed to do, not to raise revenue.”
The law’s critics said the handwriting is clear.
“The tax argument isn’t going to fly,” said Carrie Severino, policy director for the Judicial Crisis Network, who watched the proceedings from the courtroom. “Even Justice Kagan, who is quite solidly in the administration’s camp on the individual mandate issue, had a hard time buying that.”
The lower courts — even those that have upheld the health care law — have also been skeptical of the tax justification, and backers doubted the Supreme Court would end up relying on it.
Simon Lazarus, policy counsel at the National Senior Citizens Law Center, said the tax arguments received more serious attention over the past two days of arguments than many observers would have expected, but he said the case still likely comes down to commerce clause issues.
“I still think the rubber hits the road with the commerce power and the ‘necessary and proper’ power,” he said. “I’ve been a supporter of the act and I feel the commerce clause justification and the necessary and proper clause justification for the mandate under existing law, and really going back to Chief Justice John Marshall at the beginning of the 1800s, is so strong that if the justices or the court wants to shove that aside, they’re not going to justify the mandate on the basis of the taxing power.”
A chief problem for the administration is that the law’s architects have been schizophrenic on the issue.
During legal arguments Mr. Obama’s attorneys have argued the penalty is indeed a tax, and therefore subject to less constitutional scrutiny from courts because it fell under Congress’ much broader taxing powers.
But when he was still pushing Congress for action in 2009 and 2010, Mr. Obama vehemently denied it was a tax, and even mocked ABC News host George Stephanopoulos when he read the Merriam-webster definition of “tax” to the president during an interview.
“For us to say you have to take responsibility to get health insurance is absolutely not a tax increase,” Mr. Obama said at the time.
Mr. Verrilli on Tuesday said Mr. Obama wasn’t denying it was a tax, but that it should be considered both a tax and a penalty.
“The president said it wasn’t a tax increase because it ought to be understood as an incentive to get people to have insurance,” he said. “I don’t think it’s fair to infer from that anything about whether that is an exercise of the tax power or not.”
For several of the court’s justices, that argument strained credulity.
“You’re telling me they thought of it as a tax, they defended it on the tax power. Why didn’t they say it was a tax?” Chief Justice John G. Roberts Jr. said.
Mr. Verrilli speculated that Congress might have thought calling it a penalty would gain more compliance than calling it a tax.
Paul D. Clement, who argued on behalf of the 26 states suing to overturn the law, said even if the law did qualify as a tax, it would be a “direct tax” on individuals, which the Constitution specifically prohibits unless it is an income tax.
“The framers would have had no doubt that a tax on not having something is not an excise tax but a forbidden direct tax,” he said. “That’s one more reason why this is not proper legislation — because it violates that.”
As lawyers, lawmakers and legal scholars handicap the arguments on President Obama’s health care law before the Supreme Court, Wall Street investors have been placing their own bets on the likely winners and the losers in a battle that could transform the national market for health care.
“People can adapt either way to whether it stands or it doesn’t stand,” said Barry James, president and CEO of James Investment Research Inc. “There’ll be winners and losers on both sides of the equation.”
Generally speaking, he added, “the very large companies who have had a lot of input in the bills have made sure of their survival, and the smaller companies are generally adaptable.”
Leading up to the Supreme Court showdown, the Standard & Poor’s index of leading health care and healthrelated stocks looked a little bleak, as the sector underperformed in the opening two months of 2012 compared with a strong performance in 2011.
Reflecting investor uncertainty, the New York Stock Exchange index of health care stocks has risen just 3.6 percent since the beginning of the year, compared with almost 11 percent for the market as a whole.
But the economic impact of the court’s ruling, expected to be handed down in June, will take some time to analyze. Complicating the market’s calculations is the fact that the high court could uphold the law, strike down it down entirely or hand both sides a partial victory.
“The markets are very good about anticipating things,” Mr. James said. “Some of the pieces are already in place and it would really screw things up for people who have already adapted if it gets overturned. There’s good and bad both ways.”
According to a Goldman Sachs research note, some 70 percent of 200 institutional investors in a private poll said they expected the court to uphold the Affordable Care Act — but that was before Tuesday’s arguments were heard.
The top health care stocks revealed a predictable flux that Mr. James said he had anticipated, although investors had the debate over the Obama health plan in their crosshairs long ago.
“With the situation as it is now, we’re going to be in a state of flux because no one will probably know until June whether it stands this particular test or not,” Mr. James said. “Uncertainty is the least-favored option.”
Out of the top 10 health care stocks, five closed higher Tuesday, despite widespread news reports that the Obama administration’s attorney received a rough grilling from key court justices in Tuesday morning’s arguments.
S&P analysts said that based on their data, they could not speculate on any outcome nor its potential consequences.
Health care stocks may or may not be an indicator into how investors think the court may rule, but the online political “prediction market” called Intrade.com buys and sells “stock” in predictions on various topics. From predictions on the Dow Jones industrial average to the 2012 presidential race to whether Iran will be bombed by 2013, Intrade “investors” can place bets on the eventual outcomes.
Intrade.com’s prediction that “the U.S. Supreme Court to rule individual mandate unconstitutional” before the end of the year was up $1.87 to $5.67 late Tuesday, with the investors forecasting that the chances the health care law would be overturned as high as 58 percent. The market was the most active on the trading website Tuesday.
“The overarching view that we have is that it adds a layer of complexity,” Mr. James said about the fiscal impact of the health care law.
UNJUSTIFIABLE: Kathy Hansen, a family practice doctor in Houston, protests President Obama’s health care law outside the Supreme Court on Tuesday. The justices were listening to arguments on the law’s individual mandate.
Lauren Kurtz (left), a George Washington student who supports President Obama’s health care law, and Keli Carender, a Seattle resident against the law, demonstrate outside the Supreme Court on Tuesday. The justices were hearing arguments on the law’s individual mandate.