Obamacare and Federalism Both Survive

The Supreme Court has narrowly upheld most of the Affordable Care Act, including the so-called "individual mandate." 

At the same time, the Court has rejected the Obama Administration's claim that Congress had the power to impose the mandate under the Commerce Clause or the Necessary and Proper Clause.  According to five Justices (Chief Justice Roberts, and Justices Scalia, Kennedy, Thomas and Alito), the Commerce Clause does not empower Congress to force individuals, under penalty of law, to engage in commerce.  As Chief Justice Roberts put it:

"The power to regulate commerce presupposes the existence of commercial activity to be regulated." 

Moreover, the Chief Justice also rejected the unprecedented argument, made by the Obama Administration and adopted by Justice Ginsburg in dissent, that the power to regulate includes the power to "direct" an individual to engage in commerce in the first place.  If accepted, this argument would have empowered the National Government to  As the Chief Justice explained, and as previously explained on this blog, the power to "regulate" consists solely of the power to "prescribe the rule by which commerce is to be governed."  

The individual mandate, the Chief Justice said, did not constitute a regulation of pre-existing commerce and therefore exceeded Congress's commerce clause power:.  As the Chief Justice explained:

"The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority. Every day individuals do not do an infinite number of things. In some cases they decide not to do something; in others they simply fail to do it. Allowing Congress to justify federal regulation bypointing to the effect of inaction on commerce would bring countless decisions an individual could potentially make within the scope of federal regulation, and—under the Government’s theory—empower Congress to make those decisions for him."

The Chief Justice also explained that adoption of the government's theory would justify a variety of intrusive and unprecedented regulation.  For instance, and as previously explained on this blog, individuals' failure to adopt a balanced diet can impose significant costs on the health care system.  Indeed, the Chief Justice asserted that poor dietary choices impose greater costs on the health care system than the costs imposed by uninsured Americans.  Thus, the government's theory of the Commerce Clause (and, I should note, the theory endorsed by numerous pundits and legal scholars), would grant the national government breathtaking new powers:

"Under the Government’s theory, Congress could address the diet problem by ordering everyone to buy vegetables. . . . Accepting the Government’s theory would give Congress the . . . license to regulate what we do not do, fundamentally changing the relation between the citizen and the Federal Government."

Justices Scalia, Alito, Kennedy and Thomas issued their own opinion, agreeing with Chief Justice Roberts that the mandate exceeded Congress power under the Commerce Clause and Necessary and Proper Clause.  Like Chief Justice Roberts, these Justices explained that, if accepted, the government's theory would grant Congress unprecedented authority to compel individuals to engage in commerce against their will, under penalty of criminal sanctions.  Responding to Justice Ginsburg's dissenting attempt to distinguish a mandate to purchase broccoli from a mandate to purchase health insurance, these four members of the majority on the Commerce Clause question said:

"Of course one day the failure of some of the public to purchase American cars may endanger the existence of domestic automobile manufacturers; or the failure of some to eat broccoli may be found to deprive them of a newly discovered cancer fighting chemical which only that food contains, producing health care costs that are a burden on the rest of us—in which case, under the theory of Justice Ginsburg's dissent, moving against those inactivities will also come within the Federal Government’s unenumerated problemsolving powers."

At the same time, Chief Justice Roberts joined Justices Ginsburg, Breyer, Kagan and Sotomayor in holding that the penalty imposed on those who choose not to purchase health insurance is a "tax" and thus not a civil penalty imposed for failure to comply with a coercive regulatory edict to purchase health insurance.   In so doing, the Chief Justice explained that the penalty is small enough that individuals can choose not to purchase health insurance, self-insure and simply pay the tax instead.  In the same way, individuals who choose to self-finance and purchase their homes outright must pay higher taxes than those who choose to borrow money to make such purchases and thereby deduct interest payments from their income.
As a result, Obamacare survives, but so too does Federalism.    Under today's ruling Congress could not, for instance, impose fines or civil penalties on individuals who refuse to purchase health insurance.  Nor, of course, could Congress impose jail sentences on such individuals.  Thus, while Congress may encourage individuals to purchase health insurance instead of choosing to self-insure, in the same way that Congress may encourage individuals to borrow money to purchase a home, they may not compel such a purchase or compel such borrowing under penalty of law.  President Obama's effort, aided by numerous scholars and commentators, to radically alter the balance of authority between individuals and the National Government has failed, for now.

A Presidential Remedy for Obamacare

Understood the Nature of Executive Power

Ditto

Last week former Senator Norm Coleman, purportedly an advisor to Governor Romney, predicted that no President, Republican or otherwise, could repeal President Obama's Health Care Reform Legislation in its entirety.  Instead, he said, Republicans could repeal portions of the legislation while leaving other portions intact.  In so doing, he contradicted promises by major Republican candidates for President to work with Congress to repeal so-called "Obamacare" if elected to replace President Obama. 

Senator Coleman may overestimate the difficulty of eliminating "Obamacare" in its entirety.  After all, as some courts have already held (see also here), the Law's coercive requirement that individuals purchase health insurance policies designed by the National Government exceeds the authority that the Constitution confers on the Congress of the United States, by requiring individuals to engage in commerce, instead of regulating commerce.  Moreover, absent executive branch enforcement, this mandate would become a nullity, as individuals who declined to purchase such insurance would suffer no penalty.  Thus, upon taking office, a President who believed the coercive individual mandate to be unconstitutional could decline to enforce that provision of "Obamacare," thereby discharging his or her duty to "take care that the laws are faithfully executed," given  that the Constitution is, by its terms, the supreme LAW of the land.  (In so doing, the President would also "preserve, protect and defend the Constitution of the United States" as required by the Presidential Oath specified in Article II, Section 1 of the Constitution.)   For, as explained elsewhere on this blog (see also here), the text and structure of the Constitution require the President to decline to enforce statutes that he or she believes to be unconstitutional, without regard to the position taken by courts on the matter.  As James Madison explained more than sixteen decades ago:

       "As the Legislative, Executive, and Judicial departments of the United States are co-ordinate, and each     equally bound to support the Constitution, it follows that each must, in the exercise of its functions, be guided by the text of the Constitution according to its own interpretation of it; and, consequently, that in the event of irreconcilable interpretations, the prevalence of the one or the other department must depend on the nature of the case, as receiving its final decision from one or the other."

Thus, even if the Supreme Court were to err and uphold the coercive individual mandate this term, a President who believed the mandate to be unconstitutional would be duty-bound to decline to enforce that mandate.  In the same way, for instance, Andrew Jackson vetoed a bill attempting to recharter the Bank of the United States in 1832, partly on constitutional grounds, even though the Supreme Court had sustained identical legislation in McCulloch v. Maryland.  As Jackson put it:

"The Congress, the Executive, and the Court must each for itself be guided by its own opinion of the Constitution. Each public officer who takes an oath to support the Constitution swears that he will support it as he understands it, and not as it is understood by others. It is as much the duty of the House of Representatives, of the Senate, and of the President to decide upon the constitutionality of any bill or resolution which may be presented to them for passage or approval as it is of the supreme judges when it may be brought before them for judicial decision. The opinion of the judges has no more authority over Congress than the opinion of Congress has over the judges, and on that point the President is independent of both. The authority of the Supreme Court must not, therefore, be permitted to control the Congress or the Executive when acting in their legislative capacities, but to have only such influence as the force of their reasoning may deserve."

Of course, President Obama's health care reform legislation contains provisions other than the coercive individual mandate.  Moreover, some of these other provisions may not exceed the power of Congress.  Thus, declining to enforce the individual mandate would not itself repeal the legislation in its entirety.  Indeed, courts often strike down particular portions of laws, leaving other portions intact, applying the doctrine of "severability."   However, as previously explained on this blog, Congress declined to include a so-called "severability clause" in the legislation, thus weakening the argument Congress intended parts of the legislation to remain intact if other parts are struck down.  Morevoer, the Obama administration has argued that the individual mandate is a critical part of the reform legislation, without which the legislation could not serve its intended purpose.  This is not surprising.  For, as previously explained on this blog, the individual mandate requires healthy individuals to pay unreasonable rates for health insurance, thereby subsidizing the purchase of health insurance by individuals who are less healthy and thus would otherwise pay higher premiums.  Without the coercive individual mandate to purchase health insurance at unreasonable rates, healthy individuals would rationally choose to self-insure, thereby thwarting the National Government's objective of forcing insurance companies to provide below-cost health insurance to millions.   As a result, a President could rationally conclude, as did one Federal Judge, that the individual mandate is not severable from the rest of the legislation, with the result that the entire legislative reform package is void.  At the very least, the President could conclude that certain provisions inextricably intertwined with the coercive individual mandate must fall along with that mandate.

Hopefully a newly-elected President will heed the views of Madison and Jackson and rid the country of the individual mandate, unless the Supreme Court does so first.

Has George Will Tripped on Federalism?

?

Today George Will praises the proposed Public Employee Pension Transparency Act, the title of a bill introduced by Congressman Devin Nunes (R-California). As Will describes it, the bill would perform two main functions. First, the Act would enhance the transparency of state and local pension systems, by requiring states to disclose the full extent of their pension liabilities as well as the nature of the financial assumptions used to calculate those liabilities. Second, the Act would, Will says "stipulate that state and local governments are entirely responsible for their pension obligations and the federal government will provide no bailouts."

As Will points out, states and localities together labor under nearly $4 Trillion in unfunded pension liabilities. Given these facts, encouraging fiscal responsibility by spendthrift states is a laudable objective. At the same time, there are two possible objections to the bill as Will has described it.

First, Congress cannot, as a matter of Constitutional Law, bind future Congresses not to bail out insolvent states, even states whose insolvency is the result of reckless spending. So, for instance, the new incoming Congress could not enact a tax cut and at the same time provide that "no future Congress shall repeal this reduction in tax rates." Allowing one Congress to bind future Congress's would entrench the decisions of today's representatives, and the people they represent, depriving citizens of their ability to alter the course of national policy by electing different representatives in the future.

Hence, while it might make sense as a matter of policy in this particular instance for Congress to bind itself in this manner, future Congresses would properly feel perfectly free to ignore such an effort and thereby address any request for a bailout "on the merits" of such a request. I hasten to add that, like George Will, your humble blogger cannot imagine an instance in which the national government should bail out a state that has become insolvent due to its own fiscal profligacy.

Second, some might wonder why the National Government should be attempting to induce states to disclose additional information to their own citizens about pension liabilities. In particular, devotees of federalism can justly ask why Will, a prominent conservative, would advocate such national interference with states' inner political workings. As this blog has previously noted, in a federal system, states compete with each other for citizens and capital; states that adopt inefficient rules will lose capital and citizens to other states. Moreover, presumably a state's own citizens have a greater interest in that state's solvency than citizens in other states. Given these assumptions, there is no apparent reason why a national government would be in a better position to determine the appropriate level of public pension transparency than state governments subject to these competitive and democratic constraints. It should also be noted that individuals, including large institutional investors, have significant incentives to ascertain the actual liabilities of states and localities that issue debt before purchasing such debt, with the result that states that decline to provide such information my find themselves paying higher rates of interest, other things being equal, than those that do.

Will and, for that matter, Congressman Nunes, have anticipated such an objection. For, as Will points out, the Act would not require ANY state to adopt the sort of disclosure he describes. Instead, the Act would "merely" encourage states to do so by withdrawing the tax exemption for interest on debt issued by those states that decline to comply. In other words, states that declined to comply with the Act's disclosure provisions would be placed at a competitive disadvantage in the capital market compared to those states that did, in fact comply.

To be sure, subsidizing the issuance of state debt via exempting its interest from taxation is questionable practice. Moreover, withdrawl of a tax exemption is not equivalent to the outright coercive imposition of such rules. Moreover, Congressman Nunes should be praised for showing some sensitivity to federalism concerns. At the same time, use of the tax system to induce states to pass legislation they otherwise would not enact still, in the view of this blogger, requires some showing of a national interest that justifies such attention to the disclosure practices of individual states. While there may be such an interest, Will has not provided one, leaving the case for such legislation as of yet unproved.

The Senate Stands for Federalism

The Daily Press of Hampton Roads has penned a superb editorial praising the Senate for rejecting a bill that would have required states, localities and municipalities to allow the unionization of their public safety employees, even if such unionization was otherwise contrary to state law. As the Daily Press points out, states that allow such unionization are laboring under the financial yoke of the resulting collective bargaining agreements, struggling to locate the funds necessary to pay the often-inflated salaries and benefits, including pensions, that unions negotiate on behalf of their members, backed up by the threat of a strike or work slowdown.

As the Daily Press puts it:

"From California to Massachusetts, localities are raising taxes, borrowing money, cutting services and eyeing bankruptcy to pay for the police and fire union contracts that have driven up costs, in some cases to the point where the average firefighter costs $170,000 a year in pay and benefits."

Of course, proponents of unionization would invoke various purported benefits of allowing workers to "bargain collectively" (that is, form cartels). Moreover, your humble blogger has previously rebutted some of these arguments. However, as the Daily Press points out, and as this blogger has previously pointed out, there is no apparent rationale for allowing the National Government to impose the benefits of mandatory collective bargaining against the will of individual states. That is to say, if allowing the unionization of public safety employees advances the public interest, then states --- who are uniquely interested in the public safety of their own citizens --- will presumably allow for such unionization themselves. As James Wilson put it, in statement previously quoted by this blog:

"Whatever object of government is confined in its operations and effects, within the bounds of a particular state, should be considered as belonging to the government of that state; whatever object of government extends, in its operation or effects, beyond the bounds of a particular state, should be considered as belonging to the government of the United States."

The decision whether to allow unionization of local public safety workers plainly falls into Wilson's first category --- an "object of government confined in its operations and effects, within the bounds of a particular state" and should thus be left to that state.

Indeed, the Daily Press put this point in Constitutional terms.

"The Constitution reserves to the states all powers not specifically assigned to the federal government. Among those would seem to be the power to manage relations with their own workers. Virginia decided it doesn't want to deal with unions in the government sector, and that works well here."

The Daily Press is plainly referring to the 10th Amendment to the U.S. Constitution, which provides:

"The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Because the Constitution does not authorize Congress to determine the working conditions of state and local employees, the argument goes, the 10th Amendment reserves such issues to individual states.

To be sure, there are some Supreme Court decisions suggesting that Congress has the authority, employing the power to regulate interstate commerce, to regulate the terms and conditions of the employment of state and local employees. See Garcia v. San Antonio Metropolitan Transit Authority, 469 U.S. 528 (1985). However, Garcia rested upon the assumption --- controversial to be sure --- that the political process would protect states from undue intrusions on their sovereignty, there, the wages and other working conditions of transit workers. It would therefore seem that members of Congress would have a special responsibility in this context to give voice to the sort of federalism values that animate the 10th Amendment and the more general limitation on Congressional powers.

Of course, the Garcia doctrine only comes into play when Congress might otherwise possess the authority to regulate the activity in question. Since 1937, the Supreme Court has rarely struck down a federal statute because it exceeds the scope of the commerce power. In part, this track record reflects judicial deference to Congressional determinations that particular activities in fact have a substantial impact on interstate commerce thereby justifying regulation. Here again, the prospect of such deference demands legislative sensitivity to the sort of federalism concerns that led the founders to place limits on the power of the national government, what John Marshall called "the genius of the whole system."

Kudos to Senator Mark Warner for displaying such sensitivity to federalism concerns in this case and protecting the sovereignty of Virginia against such unjustified intrusion into the state's authority.

More fundamentally, decisions by the Supreme Court are not the final word on the meaning of the Constitution, as Andrew Jackson, Abraham Lincoln, James Madison, and Ronald Reagan understood. That is, individual citizens and political actors, when acting within the sphere of their authority, are free to take a different view of the Constitution than that taken by the Supreme Court. So, for instance, in his first inaugural address, President Lincoln announced his opposition to the infamous Dred Scott decision. Moreover, both Andrew Jackson and Ronald Reagan vetoed legislation on constitutional grounds despite Supreme Court precedents holding that such legislation was valid. Public officials take an oath to the Constitution and not to the Supreme Court. Perhaps some Senators believed that the proposed bill exceeded the scope of their authority, properly construed.