Thursday, June 28, 2012

Unlimited Authority to Compel Activity

That's the end-result of today's ruling by the Supreme Court. Chief Justice John Roberts has--probably unintentionally, or so I hope--opened the door for the Federal Government to basically compel citizens to do whatever it might deem "helpful."

In a complicated ruling, the Court held that the individual mandate in Obamacare was constitutional because it was basically a tax, even though it also held the mandate was not a tax for purposes of allowing the ruling. Sound confusing? It is. Roger Pilon at Cato lays it out nicely, though:
But Robert’s bought the administration’s second fallback argument — that the penalty for not buying insurance is a tax, even though the administration abandoned that argument during the course of litigation, and even though calling it a “tax” would seem to implicate the Anti Injunction Act, which would preclude the Court from even deciding this case until someone was forced to pay the tax, which won’t happen for another couple of years. Yet the Court apparently brushed aside that AIA impediment — talk about lawlessness — in its rush to uphold ObamaCare.
Roberts--along with Scalia, Kennedy, Alito, and Thomas--did argue that the Commerce Clause fails to provide Congress with the authority to legislate the mandate. Likewise, the same group argued that the Necessary and Proper Clause fails in a similar fashion. But Roberts--largely on island, wherein he was joined by Sotomayor, Ginsberg, Stevens, and Kagan on the issue only as a matter of convenience--authored an Opinion that gave the Federal Government an avenue to do pretty mush anything it desires, when it comes to incentivizing or de-incentivizing behavior. Roberts argues the following:
By contrast, Congress’s authority under the taxing power is limited to requiring an individual to pay money into the Federal Treasury, no more. If a tax is properly paid, the Govertment has no power to compel or punish individuals subject to it. We do not make light of the severe burden that taxation—especially taxation motivated by a regulatory purpose—can impose. But imposition of a tax nonetheless leaves an individual with a lawful choice to do or not do a certain act, so long as he is willing to pay a tax levied on that choice. 
The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax.
It is true that in the Opinion, Roberts argues for a limit with regard to what kind of "act" Congress may or may not compel an individual to perform, via some form of penalty tax formulation, but he provides no real test for such a limit, only the idea that punitive penalties suggest such a limit is being broached. That's hardly, in and of itself, a meaningful or citable precedent.

Thus, in the above, Roberts basically says that any sort of reasonable tax penalty--paid directly to the IRS--for engaging or not engaging in a specified activity is fine, is constitutional. As an example, let's consider a possible new tax involving something that has been a major political issue for years: capital gains. As it stands now, capital gains taxes are paid only when specific kinds of assets are sold at a price higher than their purchase price. The big caveat: the gains must be realized. If I purchased stock for $10,000 and it rises in value to $20,000, I stand to have a capital gain of $10,000. And if I sell the stock, that $10,000 is taxable, either at an ordinary income rate or at a capital gains rate. If I don't sell it, no taxable event takes place.

Now, politicians of a liberal/progressive sort see capital gains as a source of potential government revenue, since it's mostly the rich--in their opinions--who have capital gains (significant ones, at any rate). But one of the things the more observant members of these groups have noticed is that there is no revenue from unrealized gains, thus upping capital gains rates doesn't always increase revenue, since such an action produces an incentive to not sell investments (in order to avoid the taxes).

Imagine what a boon it would be for these politicians if they could find a way to tax unrealized gains, gains that exist only on paper. Well, Justice Roberts has now provided them with such a way. All they need do is pass a law that establishes a reasonable penalty for people who have large unrealized capital gains. Let's say--for purposes of our example--the starting point is $50,000 in unrealized gains and the penalty is 10% of those gains. The penalty--as is the case for the one involving the individual mandate--would simply be due to the IRS on tax day. It would just be another line-item on the tax form. Because--according to Roberts' reasoning--it is functionally a tax leaving people a choice to incur it or not incur it, either by selling or not selling their investments that show such gains.

Of course, either way the individual is paying the government, but such is the case with Obamacare too. So, is there any reason why--with Roberts' ruling on the books--such legislation could not be passed by Congress? Not that I can see.

It's a mind-numbingly foolish statement by Roberts; in fact, I'm quite surprised that he made it at all. But made it he has, and a precedent it will be.

Cheers, all.

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