This is one of a continuing series of articles the blog will publish over the next several weeks, explaining more fully the new federal health care law, and the Supreme Court’s review of the constitutionality of key parts of that law. This article deals with whether any challenger to the new law’s individual mandate should have been allowed in court to try to overturn the mandate and its attached penalty. That is an issue that potentially could postpone for at least four years a decision on the constitutionality of the mandate.
A provision of federal law that appears nowhere in the 2,700 pages of the Affordable Care Act is coming into its own as an issue in the cases the Supreme Court has agreed to review. No one, on either side of the case, believes that the provision — its name is often shortened to “Section 7421” — should have any effect on how the Court deals with the challenges to the new law. As a lawyer put it in a filing with the Justices, “section 7421 literally has no friend in court.” Because of that fact, the Court has appointed an attorney just to speak up for that provision, in the capacity of “friend of the Court.”
What is potentially so significant about the argument that Washington attorney Robert A. Long will be making in that role is that, if the Court agrees with him, it could put beyond the Court’s reach at least until 2015 a ruling on the constitutionality of the new law’s most important single feature: the mandate that virtually all Americans obtain health insurance by the year 2014, or pay a financial penalty to the federal government. The impact of Section 7421, therefore, lurks as the “sleeper issue” in the cases. Curiously, it is an issue that the Obama Administration had previously used to try to block the challenges to the mandate, but then abandoned after the argument was getting nowhere with most federal judges.
If Section 7421 has been given short shrift by the lawyers, it has drawn even less attention in the media: it is a provision of the federal tax code, and questions of tax law are not the stuff of popular conversation or routine news interest. As one federal judge remarked in discussing this very provision: “The Tax Code is never a walk in the park.” Section 7421, indeed, does take a bit of explaining. What is it, what does it actually do, how did it get into the legal and constitutional dispute over the Affordable Care Act, and why might it shut down the constitutional review of the insurance mandate until 2015 at the earliest?
Section 7421 is actually a section within the Anti-Injunction Act that traces its origins to 1867; that law is often referred to as the Tax Anti-Injunction Act to distinguish it from another congressional enactment that is similar. Both have to do with defining the powers of the federal courts. The tax version is a part of Title 26 of the code of federal laws, and Title 26 deals only with tax issues. The section’s most important words are these: “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person, whether or not such a person is the person against whom such tax was assessed.”
Before the words “no suit,” the section lists 12 exceptions to the ban that follows. None of those exceptions is involved in the health care cases, so they can be omitted from the discussion. Congress could, if it wished, eliminate the section as a potential barrier to the insurance mandate challenges, simply by passing a law to create a new exception just for that purpose; it has not done so yet, so the ban as written remains intact. It is important to note that when the section refers to “any tax” it only means any federal law, not any state law.
The quoted words of Section 7421 serve a basic goal of the federal government. As the Supreme Court put it in a 1984 decision (Bob Jones University v. Simon), “the principal purposes of this language” is “the protection of the government’s need to assess and collect taxes as expeditiously as possible with a minimum of pre-enforcement judicial interference.”
What that comment and the actual language of the section mean is that no taxpayer can file a lawsuit in court to challenge a federal tax provision if that provision has not yet actually gone into effect and been applied to a specific taxpayer. In other words, in the “pre-enforcement” setting, the taxpayer is barred at the courthouse door. To make a challenge, the taxpayer must pay the tax when it is assessed and sue for a refund on the premise that the tax is invalid, or make that same argument (without first paying up) as a defense when the Internal Revenue Service actually takes action to enforce a tax provision. For purposes of the health care law and its insurance mandate, this means that no taxpayer could challenge the mandate in court until after it has gone into effect (in 2014), the IRS has assessed a penalty for not having insurance by then, the taxpayer has paid the penalty with a 2015 federal tax return, and then seeks to get the penalty money back with a refund claim, or the taxpayer uses a constitutional challenge as a defense to the assessed penalty.
Section 7421 got into the courthouse struggle over the Affordable Care Act very soon after President Obama in March 2010 signed the bill that became that Act. When lawsuits challenging the insurance mandate began arriving in federal courts across the country, the Obama Administration’s lawyers promptly went into most of those courts in attempts to block them from going forward. By one judge’s count, the Administration filed briefs in ten different U.S. District Courts making the argument that Section 7421 barred the challenges to the mandate, arguing that the mandate and its penalty were parts of the federal tax system and, therefore, were insulated from pre-enforcement lawsuits challenging them.
For example, in a federal District Court in Lynchburg, Va., the Justice Department in August 2010 filed a brief arguing — among other points — that the Anti-Injunction Act barred that lawsuit. Since the challengers there had argued that the mandate is a form of tax, and they were trying to block it, their claims “fall within the scope of the AIA,” the brief contended. And, it added, even if they had not labeled it a tax, the AIA also reaches virtually every “penalty” if it is “assessed and collected in the same manner” as other tax penalties. The penalty spelled out in the new health care law uses those very words: it is to be collected by IRS just as any other tax penalty is.
The AIA, the brief went on, thus operates as a bar to federal court jurisdiction: in other words, the federal courts are without authority to rule on a challenge to the mandate and penalty before they were enforced. The filing also said that the jurisdictional barrier exists even though the taxpayers had based their challenge on the Constitution.
Justice Department lawyers continued to make the same point in case after case but federal judges, in case after case, rejected it, concluding that the mandate and its penalty were not taxes or actual tax penalties, no matter how they were collected.
As the cases moved up to the next higher level in the federal courts, the regional Courts of Appeals, the Obama Administration simply changed its mind. In February of this year, the Administration filed its brief in the Fourth Circuit Court in Richmond, Va. — in the case that had come up from the federal judge in Lynchburg (in the Liberty University v. Geithner case, Circuit docket 10-2347). The document contained a footnote, saying that “the government does not challenge” the federal judge’s ruling against “the applicability of the Anti-Injunction Act.”
After the Fourth Circuit panel had held a hearing in that case last May, however, the two sides in the case were told by the panel to file new briefs to discuss whether the Anti-Injunction Act’s Section 7421 was, in fact, a barrier to the challenges to the mandate and its penalty.
The Administration brief in response again said the AIA was a jurisdictional law, and added that, if it applied in the Affordable Care Act cases, it would block the challenges to the mandate. It noted that, in the District Courts, it had “argued for dismissal of these actions under the AIA.” Then it added: “On further reflection, and on consideration of the decisions rendered thus far in the ACA litigation, the United States has concluded that the AIA does not foreclose the exercise of jurisdiction in these cases.” It gave both legal and policy arguments for its changed position.
In order to try not to give too much away in other tax cases where the AIA might come into play, the government brief asserted that there were “unique attributes” of the health care law indicating that “Congress did not intend to dictate a single pathway to judicial review” of the mandate. The brief closely examined the structure of the health care law, and made an argument that the mandate and penalty were placed in places within the law that showed they were not like normal tax penalties.
In its policy argument for letting the challenge lawsuits go forward, the brief contended that the mandate and its penalty were crucial to the new law’s expansion of health care insurance coverage for individuals, especially to providing enough customers for insurance companies that they could afford the broader coverage without sharply increasing insurance premium rates. Noting that those coverage provisions were due to take effect in 2014 along with the mandate and its penalty, the government lawyers asserted: “Congress would not have wanted to wait until after these interconnected provisions were implemented (and relied upon by millions of individuals, as well as the insurance industry) for challenges to the constitutionality of the minimum coverage provision to be resolved.”
Since Congress had delayed those provisions for a few years, according to the brief, there was time to litigate challenges to them without seriously disrupting IRS in its assessment and collection functions under the new law. IRS, the brief said, had not even set up yet its machinery for enforcing the provisions.
Although maintaining its argument that the mandate and its penalty were enacted in part under Congress’s taxing powers, in the Constitution’s General Welfare Clause (in addition to its powers in the Commerce Clause), it said that view was not inconsistent with its separate argument that the mandate is not the kind of provision that the Anti-Injunction Act was intended to shield from pre-enforcement challenge. Those two arguments, it said, involved “distinct” legal inquiries.
For that argument, the government relied upon two rulings that the Supreme Court had issued on the same day in 1922 in what were popularly called the “Child Labor Tax Cases” — Bailey v. Drexel Furniture and Bailey v. George. In the first, the Court upheld a tax refund claim and struck down a tax imposed as a penalty on those who hired children to work. In the second, it dismissed a pre-enforcement challenge to collection of that very same tax. The government brief implied that the first illustrated how the courts analyze whether a tax law is valid when it is properly before them, and the second how the courts decide whether the AIA applies to a tax provision.
Liberty University’s brief, in a separate response to the query by the Fourth Circuit panel, argued that the Anti-Injunction Act does not come into play at all because Congress passed the mandate and the penalty under the Commerce Clause, not the taxing power under the General Welfare Clause. The government, that brief contended, had “concocted” the theory of an alternative source of congressional authority after the mandate had been challenged.
The Fourth Circuit panel accepted none of those arguments. It ruled that, even though the parties had tried to put aside the Anti-Injunction Act, the court itself had a duty to examine whether that deprived it of jurisdiction to rule on the mandate. It found that it lacked jurisdiction, concluding that the mandate and its attached penalty were parts of the tax system, and thus could not be challenged before they actually were in effect and had been enforced. The Anti-Injunction Act, it said, “uses the term ‘tax’ in its broadest possible sense.”
That conclusion conflicted directly with a ruling by the Sixth Circuit Court, which had decided that the challenge to the mandate and penalty were not blocked by the anti-injunction bar.
When the rulings from the courts of appeals began reaching the Supreme Court, none of the parties would argue that the Fourth Circuit had been right in barring the challenges. Every one on all sides wanted the Supreme Court to go forward and decide the merits of the mandate and its penalty. But the Justice Department, while telling the Justices that it held to its changed view on the issue, did suggest that the Court name a lawyer for the sole purpose of defending what the Fourth Circuit had concluded.
The need for the Justices to confront the Anti-Injunction Act angle had already gained strong support from two former IRS commissioners, Mortimer Caplin and Sheldon Cohen, in an amicus brief in one of the ACA cases (Thomas More Law Center v. Obama, Supreme Court docket 11-117). Even if the challengers in the cases could overcome other procedural barriers to their claims in court, that brief contended, the anti-injunction barrier could not be overcome.
The two former tax collectors’ brief contended that “Congress expected the usual rules for the enforcement and collection of taxes and penalties under the [Tax] Code would be followed,” unless one of the specified exceptions applied, and none did. What that means, the brief noted, was that taxpayers could either pay an assessed penalty, and sue for a refund, or refuse to pay the penalty with their tax return and then defend themselves when IRS sought to collect by challenging the validity of the assessment.
As the Supreme Court was preparing to take its first look at the pending cases, the D.C. Circuit Court in Washington weighed in on the health care law challenges. By a 2-1 vote, in the case of Seven-Sky, et al., v. Holder, et al. (Circuit docket 11-5047), that court ruled that the challenges were properly in court (but then the majority upheld the mandate and penalty as within Congress’s powers). The opinion for the majority was written by one of the most conservative judges in the federal judiciary, Senior Circuit Judge Laurence H. Silberman. That, however, was not the only significant impact of what the D.C. Circuit had done.
The dissenting member of the panel, Circuit Judge Brent M. Kavanaugh, a widely respected conservative jurist, wrote an exhaustive, 65-page opinion concluding that the Anti-Injunction Act barred the challenges. He summarized his conclusion with what he called a “straightforward chain of logic.” He wrote: “Taxes are insulated from pre-enforcement suits by the Anti-Injunction Act. In order for the Affordable Care Act penalties to be assessed and collected ‘in the same manner as taxes,’ the assessment and collection of these Affordable care Act penalties likewise must be insulated from pre-enforcement suits by the Anti-Injunction Act.”
Those in Congress who wrote the new health care law, and their staffs, are familiar with the Anti-Injunction Act, and they did not choose in the health care law to permit lawsuits to challenge the penalties in the Affordable Care Act, Judge Kavanaugh wrote. He added: “Unless Congress creates an exception for these Affordable Care Act cases — which Congress could still do at any time — this suit cannot be decided by the federal courts until 2015.”
While the dissenting judge conceded that some observers had said that the prudent thing to do would be to go ahead and rule on the constitutional challenges, Kavanaugh said that “prudential considerations cannot trump the text of a statute setting forth limits on a court’s jurisdiction. In any event, in my judgment, the relevant prudential considerations favor our waiting until 2015.”
Kavanaugh sought to buttress his argument by noting that the Anti-Injunction Act has a foundation in the Constitution itself, as a mechanism for keeping separate the taxing powers of Congress, the law-enforcing powers of the Executive Branch, and the judging powers of the federal courts. It has been Congress’s habit, he said, to “zealously guard” its taxing authority, and in doing so it has not allowed the Executive Branch to forfeit the anti-injunction bar, and has commanded the courts to abide by that bar. Thus, he said, the government’s choice not to rely on that bar could not give the courts permission to do the same. He rejected the majority on the panel’s decision to defer to the Administration view on that question.
In conclusion, Judge Kavanaugh said he would leave “for another day…these momentous constitutional issues” about the validity of the mandate and its penalty enforcement mechanism. Indeed, he said, because of potential changes that may occur between now and 2015, the day of constitutional reckoning on those provisions “may never come.”
Six days after that ruling came down, deepening the split among federal appeals courts on the Anti-Injunction Act question, the Court granted review of the government’s appeal in one of the cases (along with two other appeals) and added a question for counsel in the government case: whether the anti-injunction law barred the challenges to the mandate and its penalty. And, last Friday, the Court chose Washington attorney Long to “brief and argue” that very question. Long will make his oral argument, opposing lawyers for the federal government and for state governments, during a one-hour argument that will be held with other arguments in the cases next March.
Judge Kavanaugh’s comments about separation-of-powers concerns, and his suggestion that the “prudent” thing for a court to do is to wait for another day to rule on the mandate and its penalty, could have an impact on the Justices as they ponder the non-legal question of whether they should rule on those issues during the current Term, knowing — as they surely will — that their decision probably will come down in the midst of the 2012 presidential and congressional election campaign. The Anti-Injunction Act question provides a credible alternative basis for a ruling.
Next in this series: A discussion of challenges to two Justices’ participation in ruling on the new law.