March 16, 2012
The Supreme Court is preparing to hold oral arguments on its long-awaited consideration of the constitutionality of the health care legislation. The arguments will cover four distinct issues in three different cases and occur over three days, March 26-28. The most prominent issue, of course, is whether the “individual mandate” requiring almost everyone to have health insurance is constitutional. Additional issues are “severability” (whether the entire law must be struck down if the individual mandate provision is unconstitutional or whether other portions of the law can survive) and whether the Medicaid expansion provisions of the law are impermissibly “coercive.”
But leading all of this off on March 26 in HHS v. Florida, No. 11-398, is a tax issue – whether the challenges to the law are barred by Code section 7421, the Tax Anti-Injunction Act. Former Solicitor General Paul Clement is slated to argue the other three issues for the challengers to the law, but has left the tax issue for someone else. He remarked (tongue-in-cheek, I believe) that the Court was playing a “practical joke” on the public in its scheduling and that the folks who wait in line all night to attend the first day of arguments on March 26 are going to end up sitting through “the most boring jurisdictional stuff one can imagine.” Tax lawyers might disagree (or they might not). Either way, the section 7421 issue could hijack the case and have the effect of prolonging the uncertainty over the constitutionality of the law for several more years.
The issue is simple on its face. Section 7421 forbids federal courts from maintaining any suit “for the purpose of restraining the assessment or collection of any tax.” Rather, one generally must wait until the tax is imposed and then contest the liability through a refund claim or in defending against an enforcement proceeding. The individual mandate in the statute is enforced by imposing a “penalty” on individuals who are required to purchase insurance but fail to do so. The relevant provision is section 5000A of the Internal Revenue Code, which requires individuals to report on their tax return information about their compliance with the mandate and pay a penalty if necessary. That Code section also generally provides that the amounts owed are to be assessed and collected in the same manner as other penalties under the Code.
If the health insurance penalty is a “tax” subject to section 7421, then the current challenges to the mandate (which in essence are challenging the imposition of a penalty for failure to purchase insurance) are premature. Rather, the legality of the penalty would have to be contested after it is imposed, like other taxes. The individual mandate does not kick in until 2014, so an income tax return that self-reports penalty liability, thereby potentially triggering an assessment, would not be filed until 2015. The Fourth Circuit adopted this view and dismissed a suit challenging the health care statute, telling the plaintiffs to come back in a few years. Other circuits have disagreed, finding that, despite its presence in the Code and linkage to the assessment procedures for more conventional tax penalties (which are generally treated as “taxes”), the health care penalty has nothing to do with income tax and ought not to be governed by section 7421. Of course, the issue is not that simple. A concise and more nuanced summary of the respective arguments can be found in this article (see page eight) by our colleague George Hani.
One interesting sidelight to the Court’s consideration of this issue is that the Court had to appoint counsel to argue that section 7421 bars the suit. The challengers, of course, have argued all along that section 7421 is no bar. The government initially raised section 7421 as a defense, but later reversed course and abandoned that position because it did not want uncertainty over the legislation’s legality to linger. Thus, in the Supreme Court, both sides are arguing that section 7421 does not bar the lawsuit. The Court appointed Robert Long, an experienced Supreme Court practitioner, as an amicus curiae to brief and argue the position that section 7421 does bar the suit.
The oral argument on the morning of March 26 will proceed as follows: Robert Long, arguing as amicus for 40 minutes that the challenges are barred; Solicitor General Donald Verrilli, arguing for the government for 30 minutes that section 7421 does not bar the challenges, and Gregory Katsas, arguing for the challengers for 20 minutes also that section 7421 does not bar the challenges.
The Court has announced that a transcript and audio of the argument will be posted on its website by 2:00 that afternoon. We will be back sometime after that with some observations on the argument.
The Supreme Court briefs filed on this issue can be found here. The Court is likely to issue its decision during the last week of June.