The Federal Power to Tax
The Issues: How far does the power of Congress "to lay and collect taxes" extend?
The United States is a government of enumerated powers. Congress, and the other two branches of the federal government, can only exercise those powers given in the Constitution.
The powers of Congress are enumerated in several places in the Constitution. The most important listing of congressional powers appears in Article I, Section 8 (see left) which identifies in seventeen paragraphs many important powers of Congress. In this section, we consider how the enumerated power of Congress "to lay and collect taxes" has been interpreted.
Article I, Section 8 gives Congress the power to "lay and collect taxes, duties, imports, and excises." The Constitution allows Congress to tax in order to "provide for the common defense and general welfare." The Court has flip-flopped on the issue of whether Congress has the constitutional power to tax in order to accomplish regulatory goals that would otherwise be outside of the scope of its enumerated powers. In Bailey vs Drexel Furniture (1922). the Court invalidated a 10% tax on the annual profits of employers who knowingly employ child labor. The tax, imposed after an earlier attempt to block the interstate transportation and sale of products produced by child labor was struck down in Hammer. was seen by the Court as an unconstitutional attempt to make an end-run around its earlier decision. In 1925, in Linder v United States. the Court reversed the conviction of a doctor who had given three cocaine tablets to a patient to relieve an addiction. The conviction, based on a law that imposed a $3 tax on doctors who prescribed cocaine, rested on the theory that the law limited the prescription of cocaine to the treatment of diseases, not addictions, and that the defendant had given cocaine tablets to an addict. The Court concluded that the law could survive only as a revenue measure, and that the Taxing Power gave Congress no authority to regulate directly
the practice of medicine--that is, to tell doctors who had paid the required tax what they can or cannot do for their patients.
The Court reversed its ban on taxes serving primarily regulatory (rather than revenue-producing) goals in Steward Machine (1937). which upheld a tax on employers designed to encourage states to enact unemployment compensation schemes. In Kahriger (1953). the Court upheld a law requiring bookies to register and pay on tax on all wagers--even though the tax had the regulatory goal of wiping out bookmaking operations and could not be expected to produce significant revenue.
The Affordable Health Care Act ("Obamacare") survived, mostly, when five justices found "the individual mandate" to be within the taxing power of Congress.
In perhaps the most significant taxing power case ever decided, the Court ruled in National Federation of Independent Business v Sebelius (2012) that the so-called "individual mandate" (generally considered a requirement that individuals purchase health insurance) contained in the Affordable Care Act could be sustained as a tax, even though the requirement was outside of Congress's power to regulate commerce. Writing for five members of the Court, Chief Justice Roberts held that even though proponents of the Act consistently said a penalty, not a tax, would apply to individuals who failed to purchase insurance, it still operated as a tax and that a functional analysis should control. The Court noted that failure to purchase insurance required a payment to the IRS, that no criminal penalties attached to failure to purchase insurance, and that the cost of the tax would, in most cases, be less than the cost of buying insurance. In sum, the law did not make it unlawful to purchase insurance, allowing individuals a choice of paying a tax instead. Roberts also reaffirmed that the Congress may seek to achieve regulatory goals through its taxing power that it might not be able to achieve under its other Article I powers. Justices Kennedy, Alito, Scalia, and Thomas dissented, arguing that the taxing power could not sustain the mandate.