Obama’s tax plea gets rude re­cep­tion

Try­ing to jus­tify health care law

The Washington Times Daily - - Front Page - BY STEPHEN DINAN

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.

BAR­BARA L. SAL­IS­BURY/THE WASHINGTON TIMES

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.

BAR­BARA L. SALISBURG/THE WASHINGTON TIMES

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.

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