NFIB v. Sebelius and the transformation of the taxing power.

AuthorCushman, Barry
PositionIV. Chief Justice Roberts and the Taxing Power through Conclusion, with footnotes, p. 161-198
  1. CHIEF JUSTICE ROBERTS AND THE TAXING POWER

    Chief Justice Roberts was prepared to overlook the drafting features of the statute that had persuaded the lower courts that the shared responsibility payment could not be treated as a tax. It was "well established that if a statute has two possible meanings, one of which violates the Constitution, courts should adopt the meaning that does not do so." (257) Thus, "'every reasonable construction must be resorted to, in order to save a statute from unconstitutionality.'" (258) The Chief Justice concluded that "[t]he most straightforward reading of the mandate is that it commands individuals to purchase insurance." (259) Nevertheless, it was "necessary to ask whether the Government's alternative reading of the statute--that it only imposes a tax on those without insurance--is a reasonable one." (260) The question was not whether the Government's reading was "the most natural interpretation of the mandate, but only whether it is a 'fairly possible' one." (261) "Granting the Act the full measure of deference owed to federal statutes," Chief Justice Roberts concluded, the mandate could be interpreted as imposing a tax. (262)

    This resolution of the statutory construction issue accordingly led the Chief Justice to the question of whether the individual mandate presented a constitutional exercise of Congress's taxing power. Unlike some of the lower courts, both Chief Justice Roberts and the dissenting Justices treated the Child Labor Tax Case as a precedent with continuing authority. Rather than overruling the Child Labor Tax Case, Chief Justice Roberts sought in several respects to distinguish the Child Labor Tax from the shared responsibility payment imposed by the ACA. This section examines each of those distinctions.

    1. The Burden of the Exaction

      First, Chief Justice Roberts argued that the Child Labor Tax "imposed an exceedingly heavy burden--10 percent of a company's net income--on those who employed children, no matter how small their infraction." (263) By contrast, under the ACA, "for most Americans the amount due will be far less than the price of insurance, and, by statute, it can never be more. It may often be a reasonable financial decision to make the payment rather than purchase insurance, unlike the 'prohibitory' financial punishment" imposed by the Child Labor Tax. (264) Chief Justice Roberts recognized that the "shared responsibility payment," like the Child Labor Tax, was "plainly designed" to affect behavior. (265) "But taxes that seek to influence conduct are nothing new," he observed, and as Sonzinsky pointed out, "[e]very tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with others not taxed." (266) The fact that the ACA "seeks to shape decisions about whether to buy health insurance [therefore did] not mean that it [could not] be a valid exercise of the taxing power." (267) Thus, Chief Justice Roberts seemed to suggest, the fact that the Child Labor Tax sought to influence conduct was not its fatal flaw. Instead, its problem was that the levy it imposed in order to do so was "prohibitory."

      Chief Justice Taft did describe the Child Labor Tax as "prohibitory," but that seems to have been putting it too strongly. (268) There can be little doubt that the tax reduced the employment of child labor, (269) but it clearly did not prevent such labor. Recall that the Child Labor Tax imposed the excise on firms employing children under the age of sixteen in mines and quarries, and on firms employing children under eighteen in manufacturing enterprises. (270) The 1920 Census, taken the year after the tax went into effect, showed 7,191 children under the age of sixteen employed in the "Extraction of minerals" and 9,473 children under fourteen employed in "Manufacturing and mechanical industries." (271) The 1910 Census had shown 18,090 children under sixteen employed in the "Extraction of minerals," meaning that there were 10,899 fewer children so employed in 1920. (272) The 1910 Census data on children employed in "Manufacturing and mechanical industries" is less granular, reporting only that there were 260,932 children under the age of sixteen so employed. (273) The 1920 Census reflects such employment of 185,337 children, indicating a reduction in this larger category of 75,595. (274) The data do not reveal how much of this reduction in manufacturing employment should be allocated to children under fourteen. Nor is it clear to what extent these reductions in the employment of children should be attributed to the effect of the tax, and how much to other factors, such as significant improvements between 1910 and 1920 in the standards imposed by state child labor laws and state school attendance laws; advances in mechanization requiring the operation of skilled older workers; the "growth of organized labor," which opposed competition from cheap child labor; and changes in parental attitudes toward child labor. (275) What is clear, however, is that the Child Labor Tax did not eliminate the forms of labor that triggered its application. As the 1922 Report of the Chief of the Children's Bureau put it,

      The returns from the 1920 census, taken at the beginning of a period of industrial depression and with the Federal child labor tax law discouraging their employment, show fewer children under 14 and under 16 gainfully employed than did the census of 1910; but the decline is much less than it should be.... (276) As the New York World editorialized when the tax was being considered by Congress:

      [W]e can see no objection except that the proposed Federal tax is too small. Ten per cent, on the value of the products of enslaved childhood is not enough to emancipate the youth of the South or to curb the greed of its employers or to correct the depraved public sentiment against which the levy is aimed. (277) The fact that the tax was not in a strong sense "prohibitory" is reflected in the fact that it actually generated revenue. For the fiscal year ending June 30, 1920, the Annual Report of the Commissioner of Internal Revenue indicated $2,380.20 in revenue from the tax, derived from assessments in Delaware, Maryland, and South Carolina. (278) As the Commissioner explained, "[l]ittle tax could be collected during 1920, as the law provides that the taxpayer shall be given two months after the completion of his business year in which to make a return of the amount of tax due. Furthermore, an audit of the return is necessary in every instance." (279) Accordingly, some of the taxes owed due to employment of children during the fiscal year ending June 30, 1920, were in fact collected during the following fiscal year. This was reflected in the Commissioner's report for the fiscal year ending June 30, 1921, which reported revenue from the tax totaling $24,223.67, derived from assessments in Georgia, Mississippi, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Vermont, and Virginia. (280) And for the fiscal year ending June 30, 1922, the Commissioner reported revenue of $15,224.99, derived from assessments in Delaware, Maryland, Mississippi, Missouri, New Jersey, North Carolina, Oklahoma, Pennsylvania, Tennessee, and Wyoming. (281) The tax thus raised more annual revenue than did the provision of the National Firearms Tax unanimously upheld in Sonzinsky, (282) which in 1934 was paid by twenty-seven dealers resulting in revenue of $5,400, and in 1935 was paid by twenty-two dealers resulting in revenue of $4,400. (283) Receipts under the Child Labor Tax also exceeded collections under the Marihuana Tax of 1937--unanimously upheld in Sanchez (284)--which, for example, produced revenue of $4,538 in 1939 and $4,703 in 1940. (285)

      Thus, the taxes that the Court has upheld cannot be distinguished from the Child Labor Tax on the ground that the former have produced "some revenue" (286) while the latter did not. The Child Labor Tax did produce "some revenue," indeed more than was produced by some of the taxes that have been upheld. Contrary to the view sometimes expressed, therefore, it is plain that the supposed distinction between constitutional revenue-raising and unconstitutional regulatory taxes (287) was never an organizing feature of the Court's taxing power jurisprudence--for the paradigmatic unconstitutional regulatory tax--the Child Labor Tax--was itself a revenue-raiser, ff the Child Labor Tax Case is still good law, therefore, it must be true that the production of "some revenue" is at best a necessary condition, and not a sufficient condition, for a tax to be constitutional. (288) Indeed, Chief Justice Roberts's own formulation indicates that this is his understanding--he observes that the "'[s]hared responsibility payment'" (289) bears "the essential feature of any tax: it produces at least some revenue for the Government." (290) The Child Labor Tax also exhibited this "essential feature."

      Indeed, there is a feature of the Child Labor Tax that may in some instances have made it even less coercive of behavior than were some of the taxes that the Court has upheld--for under the Child Labor Tax, it was possible to engage in the activity that was subject to taxation and nevertheless escape payment of the tax. This is because the Child Labor Tax imposed an excise of ten percent on the "net profits" of the firm employing child labor. (291) In computing the net profits of the business, the statute allowed deductions for a variety of expenses, including the "cost of raw materials;" interest paid on loans; taxes; uncompensated casualty losses; depreciation; and "[r]unning expenses, including rentals, cost of repairs, and maintenance, heat, power, insurance, management, and a reasonable allowance for salaries or other compensations for personal services actually rendered." (292) The availability of these deductions, which reduced net profits, provided opportunities for strategic tax avoidance. An...

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