In the recently decided case Virginia v. Sebelius, lawyers for Sebelius argued that the penalty for not complying with the mandate for individuals to buy health insurance is actually a tax. The rationale for this argument was to establish the constitutionality of ObamaCare by bringing it under the ambit of Congress’s taxation power under the General Welfare Clause.
In sections VI and VII of his opinion (pages 25-38), U.S. District Court Judge Henry E. Hudson dealt with the question of whether a penalty can be a tax.
On page 26, Hudson invokes a lawyerly definition of a tax as a “burden, laid upon individuals or property for the purpose of supporting the government,” and cites Sebelius’ claim that the penalty will generate revenue of $4 billion annually.
But the “individual mandate” does not generate revenue for the federal treasury unless individuals don’t abide by it. Individuals must break the law in order for the law to generate revenue. The $4 billion in projected revenue is based on the law not working. How can that be a tax? Page 31 of Hudson’s opinion: “Because the PPACA penalty is an exaction for an omission — one that if it operated perfectly would produce no revenue — it is a penalty as a matter of law.” (Emphasis added.)
Hudson concludes that since the individual mandate’s penalty “is, in form and substance, a penalty as opposed to a tax, it must be linked to an enumerated power other than the General Welfare Clause [page 36].”
Leading up to the passage of ObamaCare, President Obama told George Stephanopoulos on ABC News in no uncertain terms that the individual mandate isn’t a tax. But in Virginia his lawyers argued that it is. Four days after Hudson delivered his opinion, Rich Lowry opined in “The Tax That Wasn’t” that Obama was right the first time in rejecting “that the penalty must be a tax.”