Virginia's Decision On Obamacare Was Truly Remarkable

Only one Federal judge has found Obamacare to be unconstitutional, and two have upheld it. But the Virginia decision invalidating the individual mandate is truly remarkable.

A few months ago, the idea of any economic regulation being beyond the legitimate power of the Congress to regulate commerce would have seemed implausible. And at the height of the perceived economic emergency — when the unprecedented legal maneuvers of the GM and Chrysler bankruptcies came before the Federal courts — the thought of any Federal judge exalting individual rights over the juggernaut of Federal efforts to restructure our economy was unthinkable — to the judges themselves, no doubt.

Judge Henry Hudson was wise to issue the narrowest possible decision, consistent with his conclusion that the individual health insurance mandate was unconstitutional.

First, Judge Hudson rejected Virginia’s request for an injunction against implementation of the provisions found unconstitutional. That was easy. Since the mandate does not take effect for several years, and will undoubtedly be reviewed by other courts in the meantime, an injunction would have accomplished nothing.

Second, the Judge refused to invalidate the rest of Obamacare, finding that the invalid individual mandate was distinct and severable from the rest of the law. In reality, the entire scheme is unlikely to survive — politically if not judicially — without the individual mandate. Thus, Judge Hudson did not need to rule against the government on that issue.

Third, the Judge was clever in how he characterised the tax aspects of the individual mandate. He held that the penalty for not carrying insurance was a penalty, not a tax. He said it was not a tax either in form or in substance, but most of his analysis pertained to the fact that it was not a tax in form. That is, Congress and the Administration failed to call it a tax. Indeed, they had gone to great lengths to assure the American people that it was not a tax — since Obama had promised not to raise the taxes of moderate income Americans. Judge Hudson hoisted them on their own petard — the failure to call it a “tax.”

He also held that it was not a tax in substance. Without the latter conclusion, his opinion would have looked silly — exalting form over substance. But reading between the lines, the problem to Judge Hudson was really the form, and not the substance. He was just being careful to ground his decision on both conclusions.

My own analysis indicates that — if the individual mandate were to be redrafted and passed in the form of a tax — it would unquestionably pass muster. After all, the estate tax would collect no revenue if everyone gave their wealth entirely to charity — but it would still be a tax.

If a court with more political clout — like the Supreme Court — agrees that the individual mandate is invalid under the commerce clause, they are likely to reach a different answer on the tax issue. That is, they will conclude that the fault is only formalistic — that Congress has the right to go back to the drawing board, reenact the individual mandate, and avoid all constitutional issues by calling the penalty for non-compliance a “tax.”

I don’t know if that would be a Hobson’s choice or a Pyrrhic victory. But it would be a non-option politically for President Obama. The advantage to the Supreme Court — if they should go that way — is that it would make them look less anti-democratic (small-D) — although it would certainly make them look extremely petty and antagonistic to the Democratic Party (large-D).

Why the difference? In a typical commerce clause case the Supreme Court is pitted against the popular will. Think of the 1930’s when popular economic recovery acts were invalidated by the Supreme Court under the commerce clause. If the Supreme Court agrees with Judge Hudson on the commerce clause issue, but makes it clear that Congress is completely free to circumvent that limitation by simply re-enacting the legislation as a tax provision — they will not appear to be acting against popular will. To the contrary, they would claim that they were merely acting like a hyper-technical referee — calling for a replay — without any loss of yardage, no less.

Of course, the time on the clock would likely have run out. It would not be the concern of conservatives on the Supreme Court — should they rule that way on the commerce clause — that the votes for a corrective re-enactment — using the broader taxing power — may no longer be there.

Donald B. Susswein is a Washington lawyer who practices and writes in the areas of taxation, tax and fiscal policy, and financial institutions and products. He served as an advisor on these issues to the Committee on Finance of the United States Senate. He writes a weekly column for Benzinga every Tuesday.

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