Outside the Beltway

Federal Court Of Appeals Rejects New Constitutional Challenge To Obamacare

A Federal Appeals Court has rejected a challenge to Obamacare based on a somewhat obscure provision of the Constitution.

Doug Mataconis · Tuesday, July 29, 2014 · 19 comments

While much attention was paid last week to the dueling opinions from the Court of Appeals for the District of Columbia and Fourth Circuits regarding the issue of whether or not the subsidies provided for under the Affordable Care Act applied to policies purchased through the exchanges established by the Federal Government rather than the states, there was another case pending in the D.C. Circuit that has the potential to gut the entire PPACA in one fell swoop. At the root of this case is a provision of the Constitution called the Origination Clause, sometimes also the Revenue Clause, which is set forth in Article I, Section 7, Clause one, which provides that “[a]ll Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills.” In other words, all bills that raise taxes must originate in the House of Representatives and, if they don’t, they are null and void, although as we’ll see below there are several exceptions to that general rule.

In the case that was pending before the D.C. Circuit Court of Appeals, the Plaintiff made the argument that the PPCACA was invalid under the Origination Clause because the final bill that Congress passed actually originated in the Senate and then was voted on by the House. Since the Affordable Care Act contains a provision that includes the raising of revenue in the form of the tax penalties that would be imposed on people who did not purchase insurance, as well as as tax on medical devices and other forms of revenue intended to finance the health care reform package, the suit argues that the law is null and void because it failed to comply with the requirements of the clause.

What actually happened leading up to the  passage of the PPACA in March 2010 is a bit more convoluted than that, but still appears to have been done in a way that satisfies the requirements of this somewhat obscure Constitutional provision. In late 2009, the Senate took a House bill on another issue that had been pending in the Senate and amended it to strip out the language that had been passed by the House and replace it with the language of the Senate’s version of what eventually became the PPACA. That Senate bill was sent back to the House for consideration and, after a long debate, the House passed both the original bill that the Senate had passed and an Amendment bill called the Health Care And Education Reconciliation Act that included both changes to the Senate bill and additional unrelated items that were used as inducements to get support in the House for the core Senate bill. Because Scott Brown had been elected to replace Ted Kennedy in January 2010, thus meaning that the Democrats had lost their filibuster proof majority in the Senate, it became necessary to craft the second bill to allow the Senate to pass it under the Reconciliation process, which limits amendments and the ability to filibuster. Ultimately, both bills were passed with Amendments and President Obama signed them into law. (To the extent you’re interested, you can find more details about the legislative history of the PPACA and the HCERA at the links provided.)

Previously, the Federal District Court in Washington, D.C. had rejected the Origination Clause arguments made by the Plaintiff in this case, an Iowa artist who claimed to be damaged by the passage of the act due to the costs it would impose on him. Today, a three-judge panel of the Court of Appeals agreed with the District Court and ruled that the Origination Clause was not a bar to the Affordable Care Act:

WASHINGTON — President Obama’s health care law survived a long-shot challenge Tuesday when a federal appeals court panel tossed out a lawsuit that contested the way it was enacted by Congress.

The three-judge panel ruled unanimously that Congress did not violate the Constitution’s Origination Clause, which requires “bills for raising revenue shall originate in the House of Representatives.”

In the case of the health-care law, the Senate in 2010 took a House revenue bill, erased everything but the bill number, and inserted the health-care law. But the appeals court panel said that was irrelevant, because the law’s requirement that individuals purchase health insurance does not make it a tax bill.

“It is beyond dispute that the paramount aim of the Affordable Care Act is ‘to increase the number of Americans covered by health insurance and decrease the cost of health care,'” Judge Judith Rogers said. She was joined by Judges Cornelia Pillard and Robert Wilkins, both named to the court by Obama

“Where, as here, the Supreme Court has concluded that a provision’s revenue-raising function is incidental to its primary purpose, the Origination Clause does not apply. The analysis is not altered by the fact that the shared responsibility payment may in fact generate substantial revenues.”

Lyle Denniston has more detail on the opinion:

Under the phrase in the Constitution known as the “Origination Clause,” a federal bill to raise revenue must originate in the House, rather than the Senate. In Sissel’s lawsuit, he contended that the ACA individual mandate was a revenue-raising bill — because it has the potential of bringing in about $4 billion in penalties for those who don’t obtain health insurance — and thus had to begin its Capitol Hill journey in the House.

The lawsuit argued that the mandate was something that originated in the Senate, because the Senate in 2009 took a House-passed bill dealing with something else entirely and used that as the vehicle to enact the massive new health care law, including the individual mandate.

The D.C. Circuit did not rule on whether, in fact, the mandate had originated in the Senate instead of the House, because it opted instead to rule that the measure did not even come under the Origination Clause because its purpose was to expand health care coverage for millions of Americans, rather than to raise federal revenues.

The court of appeals relied on a series of prior Supreme Court precedents — which, it said, stand for the principle that the Origination Clause applies only when the primary purpose of legislation is to raise money for the government, and thus does not reach a bill that only incidentally would produce some revenue.

Circuit Judge Judith W. Rogers wrote the opinion, joined by Circuit Judges Cornelia T.L. Pillard and Robert L. Wilkins. The ruling could be challenged in a request for rehearing before the full D.C. Circuit or review by the Supreme Court.

Timothy Sandefur, who represents the Plaintiff/Appellant in this case, obviously disagrees with the ruling:

Today’s decision, written by Judge Judith Rogers and joined by Judges Cornelia Pillard and Robert Wilkins, holds that while the mandate may be a “tax,” it isn’t a “bill for raising revenue,” and is therefore exempt from the Origination Clause.

What’s the difference between a tax and a bill for raising revenue? Some court decisions have held that there are things that may appear to be taxes but are actually only penalties designed to enforce other kinds of laws. For example, in a 1943 case called Rodgers v. United States, the court of appeals said that a tax that was imposed on people for growing more wheat than the government allowed (that’s the same wheat law that was at issue in the infamous Wickard v. Filburn) wasn’t really a tax, but just an enforcement penalty or a fine. Such penalties aren’t “bills for raising revenue,” so they don’t have to start in the House.

The problem with that line of argument is that in NFIB v. Sebelius, the Supreme Court said that the individual mandate, whatever else it might be, is not a penalty or a fine. That’s just why Chief Justice Roberts concluded that it was a tax! And that means that no such exemption should apply.

Today’s D.C. Circuit decision acknowledges this, but holds that there is another variety of tax that isn’t a “bill for raising revenue.” And that is, taxes whose “main object or aim” is something other than generating income for the government. According to this “purposive approach,” the court says, the court should look to “the primary aim” of the bill to decide whether the Origination Clause applies—without regard for whether it will “generate substantial revenues.”

But the Supreme Court has never endorsed this vague “purposive approach,” and for good reason. Laws often have many “objects or aims”—particularly in an era of massive omnibus bills. The ACA is over 2,000 pages long, with provisions on all sorts of different subjects. Which one is its “main” object? What is the “main” object of a “stimulus package” or a general appropriations bill? What about a tax imposed to support the military? Is its “main object” to raise money—or to support the military? If judges are free to decide what the “main object or aim” of a bill is, and to apply the Constitution or not accordingly, then they should at least have some objective criteria for making that call…and the court can point to none. That’s because the Constitution makes no distinction, and the constitutional analysis does not hinge on what the “main object or aim” of a bill is. Instead, the question is whether the bill levies a tax, and puts that money into the general treasury for Congress to spend at will—which Obamacare’s individual mandate tax does.

Worse, the vague “purposive approach” creates a loophole that the Senate can easily walk through to originate revenue-raising bills. All it needs to do is originate a tax by saying that its main purpose is some other thing.

The Court addressed the arguments that Sissel made, though:

Sissel contends, however, that the Supreme Court cases rejecting Origination Clause challenges merely embody “two exceptions” to the general “presumpt[ion]” that “[a]ll taxes” are subject to the Clause. Appellant’s Br. 14; Reply Br. 6-7. He maintains that the Affordable Care Act does not fall within either exception because the Section 5000A payment neither funds a particular governmental program, as was true in Munoz- Flores, 495 U.S. at 397-98, nor enforces compliance with a statute passed under some other (non-taxing) constitutional power, as in Millard, 202 U.S. at 433. Yet even assuming Sissel is correct that the precedent can be classified in one or both of his categories, neither the Supreme Court nor this court has held that a statute must be so classifiable to avoid the requirements of the Origination Clause. All Sissel has demonstrated is that the Affordable Care Act’s mandate does not fall squarely within the fact patterns of prior unsuccessful Origination Clause challenges, not that his challenge should succeed.

Sissel’s interpretation of the taxing power also fails to adhere to Supreme Court precedent. In emphasizing that in NFIB the Court upheld Section 5000A solely as an exercise of  Congress’s taxing power, see NFIB, 132 S. Ct. at 2600, Sissel contends that the Section 5000A tax is presumptively subject to the Origination Clause because it “serves no constitutional purpose other than to raise revenue pursuant to Congress’s taxing power.” Reply Br. 7. This implicitly assumes that all exercises of the taxing power are necessarily aimed at raising revenue. In fact, “the taxing power is often, very often, applied for other purposes[] than revenue.” 2 JOSEPH STORY,  COMMENTARIES ON THE CONSTITUTION OF THE UNITED STATES § 962, p. 434 (1833), cited in NFIB, 132 S. Ct. at 2596.  In United States v. Sanchez, 340 U.S. 42 (1950), the Supreme Court stated:

It is beyond serious question that a tax does not cease  to be valid [under the taxing power] merely because it regulates, discourages, or even definitely deters the activities taxed. The principle applies even though the revenue obtained is obviously negligible, or the revenue purpose of the tax may be secondary. Nor does a tax statute necessarily fall because it touches on activities which Congress might not otherwise regulate. Id. at 44 (emphasis added; citations omitted).

That view was reiterated in United States v. Kahriger, 345 U.S. 22 (1953), where the Court upheld “a tax on persons engaged in the business of accepting wagers,” id. at 23, notwithstanding the argument that “the sole purpose of the statute is to penalize . . . illegal gambling in the states through the guise of a tax measure,” id. at 28, abrogated on other grounds by Marchetti v. United States, 390 U.S. 39 (1968). Because not all of Congress’s exercises of the taxing power are primarily aimed at raising revenue, and a measure is a “Bill[] for raising Revenue” only if its primary purpose is to raise general revenues, some exercises of the taxing power are not subject to the Origination Clause. The Supreme Court’s decisions in Nebeker and Millard confirm this point: Not all “taxes” are “Bills for raising Revenue.” See Nebeker, 167 U.S. at 202; Millard, 202 U.S. at 436-37.

Because the Court ruled that the mandate penalty, although it is a tax for the reasons that the Supreme Court determined in 2012, is a tax it is not a bill for raising revenue as the Origination Clause states. While his may seem like a hyper-technical distinction to the lay observer, I’d suggest that it actually makes sense given the text of the Constitution. Elsewhere in Article One, for example, Congress is given the power to tax, and the word “tax” is specifically used. Arguably, the Founders had wanted the Origination Clause to apply to every bill that touched upon taxation then they could have used language to that effect. They didn’t, and instead referred to bills for “raising revenue,” thus strongly suggesting that the clause is only intended to apply to a very specific set of bills. Given the fact that the purpose of the clause was meant to be to ensure that the most representative branch of Congress have control over bills that would raise taxes, it is logical to conclude that the clause was only meant to apply to bills whose primary purpose is to raise revenue, not every bill that may increase some tax incidental to its primary purpose. As the Court of Appeals notes, this is what the limited number of cases that have dealt with the issue have said.

Since it ruled that the PPACA was not a bill for raising revenue and thus exempt from the Origination Clause, the Court did not reach the issue of whether or not the clause was actually violated here. Indeed, there does not to be very much case law on that subject or testing the question of whether or not the rather common practice of gutting a random House bill and amending it like the Senate did in December 2009 complies with the clause’s requirements. My guess, though, is that a Court would be very reluctant to rule that this long-standing legislative practice is unconstitutional under these circumstances. In general, the Federal Courts have always been reluctant to rule on the propriety of the rules and practices of the Legislative Branch and, while the process used here is somewhat convoluted, it seems to me that it would be a stretch to say that it is unconstitutional.

Where this case goes from here is largely up to Sissel and his attorneys. The natural course would be an appeal to the Supreme Court, but they could also decide to request a hearing before the entire D.C. Circuit Court of Appeals, both of which are entirely discretionary. In either scenario, though, the matter would eventually end up before the Justices, who would first have to decide whether or not to take the case. Given that there is no Circuit split on this issue, they could simply decide to decline the appeal and avoid the issue. However, given the likelihood that they are also likely to be dealing with appeals on the subsidy issue from the D.C. Circuit or the Fourth Circuit, and most likely both, they could decide to accept this case as well and thus set up yet another scenario in which the fate of Obamacare will be on the line at the Supreme Court. On this issue, though, I’d be pretty surprised if the Court ended up ruling in favor of the Plaintiff.

Here’s the opinion:

Sissel v. HHS by Doug Mataconis