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How — or will — the health tax be enforced? (UPDATED)

UPDATE 7:12 p.m.: Some additional thoughts have been added at the end of the post.


Politicians and pundits are deeply bothered about whether the new government-imposed penalty for failure to obtain health insurance by 2014 is a tax or is not a tax.  As is often true, that political debate will have no noticeable legal consequences; it might change some votes.   The reality is that it is a tax, because the Supreme Court said so last week; otherwise, it is unconstitutional.   But a tax, one ordinarily thinks, is going to be enforced if it is not paid.  That may not be true of the health tax.

It is true, of course, that Chief Justice John G. Roberts, Jr., in declaring that the tax is a tax, seemed to accept that those who do not pay it will be in trouble with the tax collector, the Internal Revenue Service.  Individuals, the Chief wrote, will have a choice: buy insurance, or pay the tax.  “The only thing they may not lawfully do,” his opinion added, “is not buy health insurance and not pay the resulting tax.”

Is that so?  Notice that Roberts said that those subject to the insurance mandate may not “lawfully” do neither.  But if something is not lawful, is it punishable?   That could be a problem for the health tax, because Congress was deeply wary of actually compelling Americans to pay up, or else.

The tax is actually called, in the Affordable Care Act, a “shared responsibility payment,” and that is because it is politically unpleasant for Congress to require the people to pay a new tax.  As Judge Jeffrey S. Sutton of the Sixth Circuit Court (who said the tax was not a tax, and gave a lot of reasons) remarked in an opinion: “Elected officials are not known for casually discussing, much less casually increasing, taxes.”

When it comes time, in April of 2015, for those who are subject to the health insurance mandate (there are some exceptions) to file their tax returns, that is when they are supposed to pay the tax if they haven’t obtained an insurance policy by then.   As government lawyers reminded the Supreme Court in a brief in the Affordable Care Act proceeding, America’s federal tax system is one in which those who owe taxes “self-declare” what income and deductions they have, and calculate the tax they believe is due. So it will be with the health tax.

That brief added: “The penalty imposed under the [mandate] will be self-declared on the taxpayer’s income tax return in the same way.”  In the first instance, then, the IRS is counting on those who do not buy health insurance to confess, on their returns, that they have not.   (It is expected that Form 1040 will have a line on which the taxpayer will indicate whether they do owe the tax because they don’t yet have health coverage.)

But the government brief also noted that the IRS will get some help with this aspect of collecting the new tax.  Health insurance companies are under obligations, the Court was told, to file reports about who has insurance, and this “will assist the IRS in identifying non-compliant taxpayers.”

Assume, then, that Taxpayer A does not buy health insurance, and does not “self-declare” on the return filed in 2015 that he or she owes the tax.   And assume, further, that the IRS finds out that, indeed, Taxpayer A was “non-compliant.”  Now comes the enforcement part.   Congress was rather explicit about that in the ACA.

After first declaring that the health tax is to be “paid upon notice and demand” by the tax collector, it created two exceptions from the normal way that taxes are enforced on “non-compliant” taxpayers.

First, for the failure to pay the health tax when due, the law says, “such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.”  No taxpayer who fails to buy insurance and opts not to pay the tax will go to jail, apparently.   Supposedly, though, that leaves open some form of “civil” enforcement.

The second proviso, though, limits civil enforcement.  It says that the IRS may not file a claim against “any property of a taxpayer” who has not paid the health tax, and IRS cannot actually take such property (perhaps, one’s wages) as a way of enforcing the tax.

What does that leave, if anything?  The government told the Court that, once the IRS finds out that a taxpayer is “non-compliant,” it can subtract the amount due from any refund the taxpayer has coming — provided, of course, that a refund was due (more than eight out of ten individual taxpayers usually get refunds).   But, if that won’t work, the government added, IRS employees can write a letter or make a telephone call to a “non-compliant” taxpayer.   Those collection methods, the federal brief said, “are consistently some of the most productive tools in the federal tax collection process as measured by total dollars collected.”

But there’s more.  The government brief noted that the U.S. Attorney General “has general authority to file civil suits for unpaid tax liabilities.”  Would it do so against an individual taxpayer who only owed, say, $95 ?  That’s the first-year cap imposed by the ACA; it goes up from there.  What is the threshold of tax avoidance that will bring on a lawsuit?

Some tax experts, from outside the government, have suggested that the IRS may have some back-up authority for the “non-compliant” taxpayer who is really a determined law-breaker.  Suppose Taxpayer A “self-declares” that he or she bought health insurance, but actually did not?  That might amount, those experts have said, to criminal fraud; prosecution for that would not be for failure to pay the penalty, but for lying to the IRS.

Overall, perhaps it is no wonder that the Eleventh Circuit Court, whose ruling on the ACA the Supreme Court reviewed last week, had expressed skepticism that the tax would be enforced the way a tax normally is.  That skepticism was part of that court’s proof that the health tax is not a tax.   But that part of the Eleventh Circuit Court got reversed.

UPDATED 7:12 p.m.   The following has been added to this post, based on comments from a reader:

For now, because of the Supreme Court’s view of the mandate and its limited enforcement mechanisms, the law will go into effect largely as written unless Congress could muster the votes — as Republicans will try to do — to repeal the entire act.   So long as President Obama is in the White House, however, a repeal bill almost certainly would be vetoed.

But assume two things, and the future of enforcement of the health tax becomes much cloudier.  Assume first that Congress does not repeal the mandate and its attached tax, but that Mitt Romney, the likely Republican nominee, is elected President on November 6.  He is hostile to the entire law, including the mandate and its enforcement mechanism.  Once in the White House (almost a year ahead of when the mandate and health tax are set to go into effect), could he simply order the IRS not to take any steps to enforce those provisions?

His legal advisers, perhaps, would tell him that he could, and they could cite quite good authority.  U.S. Circuit Judge Brett M. Kavanaugh, who took part in the D.C. Circuit Court’s ruling on the Affordable Care Act, discussed that very possibility.  Without in any way referring to the 2012 election contest, the judge wrote that “the President might not enforce the individual mandate provision if the President concludes that enforcing it would be unconstitutional.”  And the judge then dropped a footnote explaining that the Constitution gives the President just that authority.

That, almost predictably, would lead many Americans — perhaps many millions of them — to conclude that, if they really don’t want health insurance, why should they bother?  It wouldn’t even cost them $95 to stay out of the health insurance market.






Recommended Citation: Lyle Denniston, How — or will — the health tax be enforced? (UPDATED), SCOTUSblog (Jul. 5, 2012, 3:39 PM),