Hearing on the Tax Ramifications of the Supreme Court’s Ruling on the Democrats’ Health Care Law
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
COMMITTEE ON WAYS AND MEANS
WALLY HERGER, California
|SANDER M. LEVIN, Michigan
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL, JR., New Jersey
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
JENNIFER M. SAFAVIAN,Staff Director and General Counsel
Steven G. Bradbury
Partner, Dechert LLP
Chief Counsel, Policy Director, Judicial Crisis Network
Lee A. Casey
Partner, Baker Hostetler
Partner, O’Melveny & Myers LLP
Hearing on the Tax Ramifications of the Supreme Court’s Ruling
on the Democrats’ Health Care Law
U.S. House of Representatives,
Committee on Ways and Means,
The committee met, pursuant to call, at 10:35 a.m., in Room 1100, Longworth House Office Building, Hon. Dave Camp [chairman of the committee] presiding.
[The advisory of the hearing follows:]
Chairman Camp. Good morning.
Writing for the majority in the Supreme Court decision handed down last month, Chief Justice John Roberts quoted the Lopez decision, writing, and I quote, “At the very least we should pause to consider the implications of the government’s arguments when confronted with such new conceptions of Federal power.”
Whether or not one agrees or disagrees with the ruling of the Supreme Court or with the underlying law itself, the words of the Chief Justice have great meaning, particularly for the Congress and specifically for the House Committee on Ways and Means.
On June 28th, 2012, the Supreme Court narrowly ruled that the Democrat health care law’s individual mandate was constitutional. The Court rejected the Obama Administration’s argument that such power is granted under the Commerce Clause or the Necessary and Proper Clause of the Constitution. But the Court accepted another argument put forth by the Obama Administration that the individual mandate is a tax increase authorized under the Congress’ taxing power.
This holding is especially important for this committee. Under the Constitution’s origination clause, all revenue measures must originate in the U.S. House of Representatives, and the rules of the House grant jurisdiction over revenue measures generally to the Committee on Ways and Means.
That is why we are here today, to focus on the implications of the Supreme Court’s ruling that the individual mandate is constitutional on the grounds that it is a tax; and in light of the Court’s ruling Congress now has the broad power to levy taxes far beyond the historic understanding of raising revenue.
By all accounts, the discussion surrounding the individual mandate tax received only scant attention from the government’s lawyers. They devoted just a mere 21 lines of the government’s reply brief to the issue, and it was the subject of just 50 lines in the oral arguments held in March.
Yet in the majority opinion Justices Breyer, Ginsburg, Kagan, Sotomayor, and Chief Justice Roberts upheld the individual mandate as a tax. In doing so, they confirmed that the individual mandate which President Obama, Senate Majority Leader Reid, House Minority leader Pelosi, and the Obama Administration’s lawyers called essential to its health care law more than 100 times in their legal briefs is a tax and must now be pursued solely under the Congress’ taxing power.
So as Chief Justice Roberts suggested, today we pause to consider the implications. As a result of the Court’s opinion, the limits on the Congress’ taxing power are now anything but clear.
Some may argue that this ruling simply reaffirms a power that Congress has always had. However, until the Democrats enacted their health care law and until the individual mandate tax was determined to be an acceptable use of Congress’ taxing power, the power to tax had never been used to coerce people who do not purchase a specific product or service. This is the first indirect tax on inactivity in American history. In the case of the Court’s ruling that the individual mandate is a tax, both of those notions are reinforced: that absence of action is taxable and that the government can compel individuals to act.
The purpose of the individual mandate tax is to force people to do what they otherwise may not freely choose to do. In this case, beginning in 2014, the Federal Government will force individuals to purchase government‑approved health insurance. And how is this different than the government requiring Americans to purchase broccoli or pay a tax for not doing so? How is this different than the government requiring Americans to purchase low fat or low salt foods or pay a tax as a means to fight the obesity epidemic?
After all, the case put forth by the Democrats and the President was that the individual mandate was necessary to improve the Nation’s health. Under that premise, what is there to stop future Congresses from using this taxing authority to compel a similar “it’s good for the country” outcome? If one refuses to purchase the goods and services the government thinks are best for the country, the act of not purchasing can now trigger a tax.
Without a doubt the Supreme Court’s ruling that the individual mandate is a tax reveals it can only be characterized as a brave new world. And, as such, its implications might be imagined but can not be entirely known.
Chief Justice John Marshall said in the early days of the Republic, the power to tax is the power to destroy. As Congress examines this new taxing power, we must consider whether a future Congress will restrain itself from using the power to control individual lives and decisions or whether this is just a first step into that brave new world. Those are the issues we will explore today.
I welcome our panel of witness and look forward to their testimony.
I will now recognize Ranking Member Levin for the purpose of an opening statement.
Mr. Levin. Thank you.
Welcome to all of you coming ‑‑ all of you on the panel.
As everyone knows by now, the individual responsibility requirement, the so‑called mandate or the free rider provision in the Affordable Care Act, was modeled after a similar provision in Governor Romney’s health care law in Massachusetts. Obamacare is Romneycare.
The Supreme Court found the individual mandate in Federal law to be constitutional. We are here today because Republicans want to discuss what it is called. So perhaps we should take linguistic lessons from Governor Mitt Romney.
The Washington Post reported over the weekend, and I quote, “As the Massachusetts Governor and then as a Presidential candidate, Mr. Romney spent the next 6 years describing in a variety of different ways the possible punishments for ignoring the Massachusetts mandate as free rider surcharges, tax penalties, tax incentives, and sometimes just as penalties.”
The bottom line is, whatever you call this, almost no one will have to pay. That is right. Almost no one will have to pay it.
The Congressional Budget Office estimates that only 1.4 percent of Americans will pay anything for refusing to purchase insurance. And that is just about identical to the percent of people in Massachusetts who have paid the penalty under Governor Romney’s health care law, what Republicans like to call, I think very inappropriately, a brave new world.
For most people, the penalty will be about the cost of a health insurance plan, and most people would rather have insurance. That is what Mitt Romney thought. Here is how he described the mandate in 2005. I quote:
“No more free riding, if you will, where an individual says, I’m not going to pay even though I can afford it. I’m not going to get insurance even though I can afford it. I’m instead going to just show up and make the taxpayers pay for me.
“It’s the ultimate conservative idea” ‑‑ Mr. Romney continued ‑‑ “which is that people have responsibility for their own care and they don’t look to government to take care of them if they can afford to take care of themselves.”
That was in ’05.
In April, 2010, I quote: “Right now, in lots of parts of the country, if individuals do not have insurance they can arrive at the hospital and be given free care paid for by government. Our current system is a big government system. A conservative approach is one that relies on individual responsibility. But in my view, and others are free to disagree, expecting people who can afford to buy insurance to do so is consistent with personal responsibility and that is a cornerstone of conservatism.”
And it did not just start with Governor Romney. I would like to enter into the record the original Heritage Foundation report that introduced the concept of a mandate. I ask for ‑‑
Chairman Camp. Without objection.
[The information follows: The Honorable Sander Levin]
Mr. Levin. Bills with an individual responsibility provision have been cosponsored by Republicans for decades. You all can run, but you can’t hide. You are essentially trying to bloody the nose of something you were for before you were against it. And so you think you have found the right cudgel, the word “tax,” but it is a cudgel that is only going to impact 1.4 of Americans who are free riding off of our health care system and in order to stop that will pay a penalty.
Republicans are also making another false claim that health care reform is a massive tax on the middle class. That is false. Seventy percent of the revenues come from three sources: industries who agree to the fees because they are benefiting from millions of new customers, free riders, and the top 3 percent of taxpayers.
What this week is all about is not taxes. It is about taking away extra protections against insurance company abuses. That is the Republican agenda this week: Repeal the preexisting conditions protection, repeal the removal of annual and lifetime limits on benefits for the very sick, repeal closing the prescription drug donut hole, repeal young adults staying on their parents’ insurance, repeal the cap on premium increases.
Middle‑class families have enough to worry about these days as they struggle to recover from the worse recession in decades. Instead of making it harder for them by putting the insurance companies back in the driver’s seat of our health care system, this committee should be focused, as a number of us have said so many times, on moving forward, on passing jobs legislation that we can all agree on, instead of blocking its arrival on the floor of the House of Representatives.
Chairman Camp. Today we are joined by a distinguished panel of constitutional scholars:
Mr. Steven Bradbury is a partner with Dechert LLP, and he has served as the head of the Office of Legal Counsel in the Department of Justice.
Ms. Carrie Severino is the Chief Counsel and Policy Director to the Judicial Crisis Network and has served as a law clerk for the U.S. Supreme Court and the Court of Appeals for the D.C. Circuit.
Mr. Lee Casey is a partner with Baker Hostetler and has served in the Office of Legal Counsel and the Office of Legal Policy in the Department of Justice.
And Mr. Walter Dellinger is a partner with O’Melveny & Myers. Mr. Dellinger has served as the Solicitor General of the United States.
You will each have 5 minutes to present your oral testimony. We do have your written statements in advance. Thank you for those. Your entire written testimony will be made a part of the record.
And, Mr. Bradbury, we will begin with you. You are now recognized for 5 minutes.
STATEMENT OF STEVEN G. BRADBURY, PARTNER, DECHERT LLP (WASHINGTON, D.C.)
Mr. Bradbury. Thank you Chairman Camp, Ranking Member Levin, and distinguished members of the committee. It is an honor to appear before you today to share some observations about the Supreme Court’s rulings on the Affordable Care Act.
First, while I believe the Court’s reasoning on the Commerce Clause is quite positive and historic, I am concerned the decision to uphold the minimum coverage provision as a tax has the potential to unleash the coercive power of the Federal Government in a different guise. When Congress enacted the Affordable Care Act, it plainly thought the individual mandate was necessary to make the law work. The mandate was intended to compel younger, healthier Americans to subsidize the insurance costs of others; and it was designed to counteract the moral hazard caused by the guaranteed issue and community rating regulations which Congress recognized create a strong incentive for people to forego buying insurance until they actually need it.
Congress thought it could use its Commerce Clause power to command people to buy insurance, and that is how the individual mandate was primarily defended at the Court. But a majority of the Court rejected this argument and concluded that the mandate exceeded Congress’ powers under the Commerce and Necessary and Proper Clauses of the Constitution. I believe that conclusion is a holding of the Court and will prove to be enormously consequential for generations to come.
At the same time, though, the Court upheld the so‑called shared responsibility payment as a tax. This ruling means the minimum coverage provision is no longer a direct legal mandate. As the Chief Justice explained, to uphold the provision under the taxing power, the Court had to read the mandate out of the statute. Instead of saying that all Americans shall maintain health insurance coverage, the law is now interpreted to say only that certain individuals must pay a tax increase if they don’t have insurance. It is fair to ask how this ruling changes the law Congress thought it was enacting and how Congress might try to toughen the tax provision in the future to preserve the original purposes of the mandate.
Back when the law was understood by everyone to include a legal mandate, the Congressional Budget Office projected that approximately 3.9 million Americans would opt to pay the penalty rather than comply with the mandate. It is logical to understand that this earlier CBO projection was based in part on the assumption that most Americans would naturally feel a strong moral imperative to comply with the law, even if it wasn’t enforced with criminal sanctions.
Now that the Supreme Court has announced to the whole world that the minimum coverage provision is not a legal mandate but only a tax assessment, it is equally logical to assume that the actual number of individuals who will choose to pay the tax rather than purchase insurance will be greater than originally projected. That result is likely because, for most people, the amount of the tax payment is currently going to be much less than the actual cost of an insurance policy.
If the number of individuals who choose to forego insurance coverage turns out to be larger than Congress thought necessary to preserve the effectiveness of the insurance reforms, we can expect Congress would try to ratchet up the tax in a renewed effort to compel more Americans into the insurance market.
Although the Court has said that a tax can’t be punitive, the Constitution grants Congress wide latitude in setting the amount of the tax, even if the tax is so high that it coerces desired behavior or squelches undesired conduct. So, for example, Congress in the past has enacted prohibitively high tax assessments on certain things it wished to eradicate, such as marijuana sales or sawed‑off shotguns. A future Congress might decide to do the same with the shared responsibility tax, and the constitutional limits on how high Congress could raise the tax are quite undefined.
Congress could also introduce the usual tax enforcement measures such as criminal prosecution for failing to pay the tax and invasive audits by the IRS, and these two would make it more draconian for people to choose the tax option rather than purchasing insurance. In other words, just when the Court has reaffirmed so resoundingly the limited nature of the commerce power, I fear we could still find ourselves in a world where the government is effectively forcing people to buy something against their will.
Thank you, Mr. Chairman.
[The statement of Mr. Bradbury follows:]
Chairman Camp. Thank you, Mr. Bradbury.
Ms. Severino, you are recognized for 5 minutes.
STATEMENT OF CARRIE SEVERINO, CHIEF COUNSEL, POLICY DIRECTOR, JUDICIAL CRISIS NETWORK (WASHINGTON, D.C.)
Ms. Severino. Thank you, Chairman Camp, Ranking Member Levin, and members of the committee. I am honored to testify before you today about the issues raised by the new taxing power recently described by the Supreme Court in NFIB v. Sebelius.
The Supreme Court’s decision upholding the Patient Protection and Affordable Care Act was surprising to Court watchers because it upheld the individual mandate based on a theory that no other Court had accepted and that the parties themselves gave short shrift in briefing and argument: that the mandate operates as a tax that individuals may choose to pay in lieu of purchasing health insurance.
When a case as major as this one is decided on a novel theory that has been so minimally argued, there is a risk that the majority had not fully considered the ramifications of their decision. Unfortunately, the new tax authority described by the Court has implications that are nearly as pernicious for our constitutional structure as the Commerce Clause arguments that got all the attention before the decision.
First, the majority’s interpretation of the taxing power creates a previously unheard of form of tax that is triggered by mere inactivity.
Taxes are primarily designed to raise revenue and only secondarily to influence behavior. With few exceptions, when Congress has deployed the taxing power to incentivize behavior, it has always been as a carrot and not as a stick. Thus, tax credits and deductions are given for such favored activities as raising children, purchasing a home, getting an education, or driving a hybrid car. And even where the Federal Government has used taxes as a stick to change behavior, such as taxing alcohol to reduce consumption, people have had to do some act in order for the tax to apply. But under the NFIB decision, for the first time Americans will have to act in order for the tax not to apply.
During the pendency of this case, many courts and commentators noted the problems of extending a Commerce Clause to allowing regulation of inactivity; and under the Constitution’s tax power the same distinction holds.
The Constitution allows taxes on activities, such as the capital gains tax, which is triggered when you sell property as a gain. It also taxes on inactivity through direct or head taxes, but the Constitution itself strictly limits direct taxes by requiring that they be apportioned among the States. Indeed, the majority opinion clearly acknowledges that the mandate affects the States unevenly and therefore could not pass constitutional muster as a direct tax.
Caught in this bind, the Court simply declared that the mandate operated as a never‑before‑seen tax, a tax on inactivity that nonetheless doesn’t need to be apportioned. This move triggers the most damaging consequence of the NFIB decision, a massive expansion of the Federal tax power. As a result, we must again consider whether the Federal Government can require people to purchase broccoli. This time by another means.
Allowing unrestricted taxes on inactivity will open the door to taxes the likes of which this country has never seen. For example, rather than leaving it to municipalities to incentivize recycling, the Federal Government could tax those who fail to do so. Because preventative services are now required to be covered by all health insurance plans without a co‑pay, Congress might tax people who failed to take advantage of them.
Legislators could even tax anyone who does not own a gun, citing studies that gun ownership reduces crime. And forget tax incentives for installing solar panels. Congress can now just impose a tax on Americans who refuse to buy them.
Whether any of these proposals are good or bad public policy is beside the point. The point is that Congress can now levy any or all of these taxes in the wake of the NFIB decision.
Finally, the new tax regime could dramatically erode democratic accountability.
The great Chief Justice Marshall recognized what the Founders were keenly aware of, that an unlimited power to attack involves, necessarily, the power to destroy. As such, the Constitution’s allocation of the taxing power to the House of Representatives was specifically designed to maximize the public accountability for this most dangerous power.
It is practically undisputed that the health care law would have died in Congress if it were acknowledged by it backers to be a tax that hit heavily on the middle class. But in the wake of NFIB Congress now has the ability to pass massive tax increases of virtually any sort without ever having to utter the “T word.” If elected officials are allowed to represent one thing to the people ‑‑ it is a penalty ‑ and another to the courts ‑‑ it is a tax ‑‑ the democratic accountability envisioned by our Founders will have been lost.
But even where Congress is acting with pure intentions, those intentions may not be respected by the courts, who may rewrite the statute in order to save it. That takes the tax power out of the branch of government that is most representative and puts it in the judicial branch, the one purposely insulated from ever having to answer to the American People.
As we approach the point where there are no judicially enforceable limits on the enumerated powers of Congress, the most important limits on future legislators will be those they are willing to impose on themselves.
[The statement of Ms. Severino follows:]
Chairman Camp. Thank you very much.
Mr. Casey, you have 5 minutes.
STATEMENT OF LEE A. CASEY, PARTNER, BAKER HOSTETLER (WASHINGTON, D.C.)
Mr. Casey. Thank you, Mr. Chairman, Ranking Member Levin, and members of the committee. It is an honor to be here to discuss these very important issues this morning.
In assessing the Supreme Court’s ruling in National Federation of Independent Business v. Sebelius, it is important to note that the decision has articulated clear limits on both the Commerce Clause and the Necessary and Proper Clause, holding that neither of these provisions can form the basis of a general police power like that enjoyed by the States. In addition, the Court also made clear that its decision in South Dakota v. Dole does have teeth. Congress cannot use Federal spending as a means to coerce the States into adopting or implementing Federal programs. These aspects of the decision are enormously significant and positive.
Nevertheless, in upholding the Affordable Care Act’s individual mandate as a tax, the Supreme Court has fashioned a breathtaking new power for Congress. The Court held that Congress can tax not only property or income or commercial activity but also the mere failure to undertake some course of action.
Congress’ power to lay and collect taxes has, of course, long been interpreted broadly. But as is the case with respect to Congress’ exercise of its commerce power, it is difficult to identify any precedent where a tax has been imposed on the simple failure to buy some good or service. Nor is it possible to articulate a neutral judicially enforceable limiting principle to keep this power from simply serving as the basis for a general Federal police power.
Nevertheless, the decision having been made, the question becomes what limits the Supreme Court is prepared to enforce on Congress’ power to lay and collect taxes. The Court continues to acknowledge that there are such limits, at least in theory. The Court restated its position that a tax which is a mere penalty will not be sustained under the taxing power, although it also declined to decide the precise point at which an exaction becomes so punitive that the taxing power does not authorize it.
As a practical matter, therefore, the real‑world viability of these limitations remains very much in doubt. This is especially the case because the NFIB Court also severely restricted application of another basic constitutional limitation on the taxing power, the requirement that direct taxes be apportioned among the States on the basis of population. The Court avoided holding the individual mandate unconstitutional as an unapportioned direct tax by narrowing the meaning of direct taxes to capitation or head taxes and taxes on real property.
Moreover, in upholding the mandate as a tax, the Court suggested that the judiciary is not bound by Congress’ own clear reliance on the commerce power in enacting that requirement. Here the Court relied on the long‑standing rule that, in determining whether or not a particular exaction is a tax, it will disregard the label Congress may have used and view its substance and application. This, of course, is based on the obviously correct premise that Congress can neither expand nor contract its enumerated powers by simple labeling.
Before this case was decided, however, that rule was never applied in a manner suggesting that Congress could not choose which of its enumerated powers to rely on in enacting legislation or that the courts were not bound by that choice once made and clearly expressed.
Arguably, this choice was not clearly expressed in the Affordable Care Act. Although it identified the commerce power as support for the mandate, the statute admittedly did not specifically disclaim reliance on the taxing power.
In the future, therefore, Congress can put some limitation on the taxing power, albeit a self‑imposed one, by stating plainly when it is and when it is not invoking its power to lay and collect taxes. Such a truth‑in‑legislating requirement would also permit the citizenry at large to accurately assess responsibility for any particular exaction. This will help to preserve the accountability the Constitution sought to guarantee by granting Congress limited and enumerated, rather than general, legislative powers.
[The statement of Mr. Casey follows:]
Chairman Camp. Thank you, Mr. Casey.
Mr. Dellinger, you are recognized for 5 minutes.
STATEMENT OF WALTER DELLINGER, PARTNER, O’MELVENY & MYERS LLP (WASHINGTON, D.C.)
Mr. Dellinger. Thank you, Chairman Camp, Ranking Member Levin, and members of the committee.
You have my written statement, so I would like to begin by responding to the comments made by this very thoughtful group of colleagues I have with me here today.
First of all, I want to respond to the notion that this was ‑‑ the provision in question, 5000A, was a heavy tax increase on the middle class. I think that is clearly incorrect. As Ranking Member Levin noted, this provision only applies to somewhere between 1 and 2 percent of the public. It is a modest financial incentive that is imposed ‑‑ that is $95 first year and never exceeds 2 and a half percent of income. It is imposed only on that very small part of the population that chooses to go without insurance and thereby to impose the risk of the cost of illness or injury on fellow citizens.
Obviously, it does not apply to anyone who is on Medicare or over 65, it doesn’t apply to anyone who has insurance through their employment, it doesn’t apply to those who have insurance through the Medicaid program, it doesn’t apply to those who have insurance through their college, it doesn’t apply to those who have individual policies, but only to those who choose not to do so. That is a very small percent. And in upholding it the Court said it leaves people with a real choice.
There is no mandate here. You pay a modest financial penalty, never to exceed the cost of insurance and never to exceed 2 and a half percent if you choose not to have insurance.
And what role does it play? Think how critical it is to what this bill does accomplish. This is legislation which guarantees to 100 million Americans that they will never have to worry about lifetime caps on their insurance. That tells 5 million young people that they can stay on their parents’ insurance policy until they are 26. It tells more than 5 million senior citizens that they do not have to worry about higher cost of prescription drugs in the donut hole and that expands coverage to perhaps as many as 30 million people who will be able to see a doctor when they are sick or can go to see a doctor when they have a child who is ill.
Finally, and most critically, it says no one can be turned down for health insurance because they have a preexisting condition, which could have been asthma, it could have been birth by cesarean. No one will have to face an extraordinary jump in their premiums because they have a child born with a birth defect.
But if you do that, if you guarantee people the right to have insurance when they need it, you have to have an incentive for those people to buy insurance before they need to. And that is why the Massachusetts model was used here, to give a financial incentive through a tax penalty on those who fail to have insurance.
I think it is completely unremarkable ‑‑ and I for one at least expressed the thought that Chief Justice Roberts might uphold this under the tax power ‑‑ a completely unremarkable application of settled precedent about the authority of Congress to exercise its power under the clause, giving it the right to raise revenues through taxes, excises imposed, and through other revenue devices.
It was, to me, unremarkable that the Court upheld this. And indeed any other decision, in my view, would have serious implications for the self‑government of the American People through their elected representatives.
As the Chief Justice noted, the tax power is subject to all the constraints of the Bill of Rights. You can’t tax one party or one religion more than another. And if you actually have something which coerces people into activities that they would choose not to, it is so punitive an amount the Court will police the outer boundaries of that.
But to have the Court second‑guess the Congress on whether an incentive is too great an incentive I think substitutes the judgment of five people who have never been elected for the judgment of the elected representatives of the people.
And for the Court to say we are going to leave to the Congress of the United States the determination within these constitutional boundaries of how and whether to encourage people or discourage people from engaging in activities through the revenue raising powers, when they say we are going to defer to the judgment of Congress, that means we are going have government of the people, by the people, and for the people and not government by judiciary.
[The statement of Mr. Dellinger follows:]
Chairman Camp. Well, thank you, Mr. Dellinger.
Thank you all for your testimony.
The Constitution requires that tax measures originate in the House of Representatives, and this committee is the only House committee authorized to consider such measures. At the outset, I think it is critical for us to understand what kind of tax is the individual mandate tax. And the Constitution contemplates only two forms of taxation: direct taxes, such as capitation and property taxes, which are subject to apportionment requirements, as well as income taxes authorized under the 16th amendment, and indirect taxes, such as duties imposed and excises. And based on that power and the Court’s opinion I would like to ask each one of our panel of experts just what kind of tax is this.
Mr. Bradbury, I will start with you.
Mr. Bradbury. Well, before the Supreme Court’s ruling, I would have said it is a direct tax. It doesn’t fall into any of the other categories we are used to seeing. Even though it is paid on an income tax return, it is not an income tax. It is a specified surcharge. The Court said it is not a direct tax.
I would like to have seen a lot more briefing on that question. I think that is a very hard question, at a minimum.
Chairman Camp. All right. Ms. Severino.
Ms. Severino. Yes, the dissent in this case points out that this is a difficult constitutional question.
The first impression, this is a tax that doesn’t look exactly like the other direct taxes we have seen. The Chief Justice is correct in that point. But it also looks nothing indirect taxes we have seen before. It is clearly not an income tax. It is not an excise. It is not a duty. And the question is, is it more is it like a direct tax or indirect tax?
I think, given the fact that it is operating on inactivity, it seems much more like a direct tax to me than it does an indirect tax. Unfortunately, the Court I think went on with the dissent called a lick and a promise and just said, close enough, it doesn’t look like the direct taxes we have seen before; we’ll call it indirect.
But I think the problem is it doesn’t look like anything we have seen before in terms of a tax. So we could use a lot more discussion on that question.
Chairman Camp. Mr. Casey.
Mr. Casey. I agree with that.
To the extent that this provision ever looked like a tax before the Court decided that that is what it was, it was a direct tax that had not been apportioned, or at least that is what it looked like. The Court has now said it is not a direct tax. That was necessary to upholding it. Because, otherwise, the tax would have been invalid as not being apportioned. So the Court has told us that it is an indirect tax.
Chairman Camp. Mr. Dellinger.
Mr. Dellinger. Well, the face of the statute says it is a penalty enforceable under the Tax Code. The taxing power includes the authority to have penalties for failure to pay in a timely fashion. There are a range of things that can be done under the tax power. In this case, it is measured in part by income. It is on the face of an amendment to the Internal Revenue Code.
It provides that you pay an additional $95 that increases to 2 and a half percent if you don’t maintain adequate insurance coverage. That to me seems no different than the fact that your tax bill is higher if you engage in the “inactivity” of not putting aside funds for your children’s education.
It operates no differently than the tax incentives in the law of which there are many and of this committee is well familiar. The amount you pay to the government goes up or down depending upon a number of matters, like whether you can take deductions for a home mortgage. If you simply do nothing, if you don’t get a home mortgage, your tax is higher. If you don’t put aside money for your children’s education or for your own professional development, you pay a higher amount to the Federal Government. I think it is in fact no different from that and unremarkable in that respect.
Chairman Camp. So is it direct or indirect, in your opinion?
Mr. Dellinger. Well, it is not a direct tax because the Court ‑‑ the Court has never held anything to be a direct tax for a very good reason. This was done to protect the slave States by making sure that the property and slaves could not be taxed in a way that was disproportionate. And what the Court has held, that direct taxes consists of taxes on capitation, that is on every single person like a poll tax or taxes on property or the proceeds from property, this is none of those. So it does not have to be apportioned.
Chairman Camp. It is an indirect tax then, in your opinion?
Mr. Dellinger. I am not ‑‑ the nomenclature battle about whether you call this a tax or a tax penalty or a penalty strikes me as completely unfruitful. It is like asking whether a Member who goes fishing is a congressman or a fisherman. The law says it is a penalty paid under the tax power as part of your income tax. It says exactly what it is for on the face the bill and exactly what the conditions are and exactly what the amount is.
Chairman Camp. Thank you.
Both the original House version as well as the original Senate Finance Committee version of the Democrats’ health care law would have allowed the IRS to assess fines, file liens, levies, pursue criminal prosecution, and even impose jail time for failure to buy government‑approved health insurance or pay this new tax. These enforcement measures were eventually limited in the Senate version of the legislation by the addition of subsection G which prohibits the IRS from using these specific tools to enforce the individual mandate tax.
Mr. Bradbury, could a future Congress strip subsection G of the individual mandate just as easily as it was put in place? If this were done, would the IRS then be empowered to fine individuals who do not buy government‑approved health insurance, seize property, and even put them in jail if they don’t pay the new individual mandate tax?
Mr. Bradbury. Yes. If it is a constitutional tax as the Court has said, Congress can use all of its enforcement powers.
Chairman Camp. And there would be nothing to bind a future Congress from removing that subsection if they so chose?
Mr. Bradbury. Absolutely not.
Chairman Camp. Following the Supreme Court’s ruling, the Obama Administration and congressional Democrats have argued that only 4 million Americans will be forced to pay the individual mandate, as if this were somehow a trivial number. But it is actually a larger number than this. The Congressional Budget Office has predicted that an additional 16 million Americans who would not have otherwise purchased health insurance would do so because they are forced to because of the mandate in the law. And this figure is quite a bit higher than we have seen from the administration.
This brings the total number of people who are directly affected by the individual mandate to about 20 million Americans, which is greater than the population of all but two States, California and Texas, and I think hardly an insignificant number.
There are also hundreds of millions of Americans who are indirectly affected by the mandate. As I recall, there are only a few people who are free of the new mandate tax, including illegal aliens.
Mr. Bradbury, aren’t the overwhelming majority of Americans subject to the individual mandate one way or another?
Mr. Bradbury. Yes, many of us, hundreds of millions, will need to check a box on our tax returns certifying that we have had the insurance required for each month of the tax year. And that covers not just the tax filers but all their spouses and independents. So that affects our economic choices. If we choose to drop the insurance we currently have, we will subject ourselves to tax. So, potentially, hundreds of millions of people are subject to the tax.
And the point I was trying to make is that I think the CBO’s $16 million figure suggests if there isn’t a legal requirement, a direct legal mandate, a lot more people will choose to pay the tax than buy insurance, thereby undercutting the purpose for the mandate that Congress had in mind and leading I believe to a strong impulse in Congress to try to raise the level of the tax and the penalties that apply to enforce it.
Chairman Camp. So, as I inquired, not only could the imposition of penalties be changed by a future Congress but certainly, since it is a tax now, the level of the tax could be changed by a future Congress as well, as you point out.
Mr. Bradbury. Yes. And the Constitution is very unclear as to how high that can go.
Chairman Camp. Even under the current law as written, the IRS will have certain tools available to it to make sure that there is compliance. What would some of those be, for example?
Mr. Bradbury. Well, they are limited under the current strategies ‑‑ so they cannot use the full panoply of its criminal enforcement and other powers, but others may know better than I under the current law what specific tools IRS can use to encourage payment of the tax.
Chairman Camp. Is there anyone ‑‑ Ms. Severino, do you know?
Mr. Dellinger. I think, Mr. Chairman, that ‑‑
Chairman Camp. ‑‑ could still audit, right?
Mr. Dellinger. ‑‑ under present law, I believe the only tool that is available is to withholding parts of a refund.
Chairman Camp. And certainly auditing a return to make sure that you have checked the correct box and that you actually have, quote, unquote, government‑approved insurance, wouldn’t that be a tool that still would be available to the IRS?
Mr. Dellinger. Yes.
Chairman Camp. Thank you.
Mr. Dellinger. Could I answer your ‑‑ you asked two very good questions: Aren’t those directly affected considerably more than the 4 million who will choose to pay the penalty? Isn’t the estimate that an additional 15 million people will purchase insurance because of the incentive of this tax penalty and doesn’t that affect hundreds of millions?
I just want to briefly say, to me, I think the theory of the law is and what Congress passed is it is a good thing that 15 million additional people will obtain health insurance, and that does have a very significant effect on the rest of the country because the rest of the country has been on the hook for those people’s medical bills. And we have a very inefficient system for people who don’t have health insurance. They wind up in emergency rooms, and the costs get paid in other people’s premiums.
So it is estimated that other American’s insurance premiums will go down precisely because there will be 15 million more Americans who have health insurance because of the incentives created by this law. And the judgment of Congress would say that is a good thing, not a bad thing.
Chairman Camp. I think the issue there would be at what cost, but we are not really getting into that now.
I yield to Mr. Levin at this point to inquire.
Mr. Levin. Well, thank you for coming. I think all of us have a lot of respect for your talents, and I don’t suggest this is why you are here.
I think that it is important that no one be able to scare the American people by suggesting the sky is falling or that some wolf will be at their door. The law restricts what can be done to implement it. There can’t be jail and all of that. And to suggest that Congress is going to use this authority to run wild I think sells short the abilities and the talents and the judgment of this institution.
We have been wrestling with the issue of health insurance for over 70 years ‑‑ for over 70 years, even longer ‑‑ and this Congress by a majority vote decided to chart a course where more and more people would be covered, now 50 million who are not. That was with a small D, a democratic decision. We did not spend endless hours deciding whether it was the Commerce Clause or the taxing authority. We thought we had the authority to respond to the needs of the American People.
So I know you are not here to scare us or scare the American People, and I hope you won’t let anybody force you into that position. It is possible, I suppose, to come up with legal theories as to what might happen. You know, Social Security, everybody has to pay taxes, everybody. There is a small exception I think in terms of a religious view. So anybody who works pays taxes.
And you can talk about this in terms of activity or inactivity. Everybody wants to earn a living and wants to work; and if they do, they pay FICA taxes.
And I haven’t gone back and looked at Supreme Court decisions ‑‑ how many years ago now ‑‑ 70, 80 years ago. I am sure there was an issue as to whether this institution had the power to say to everybody, you work, you pay. And essentially what we have said here was, you are all part of a health structure in this country. And if you go ‑‑ you are going to go at some point in most every instance and receive health care. So you should participate, and you should not be free riders.
That is what was said by Mitt Romney in Massachusetts. Mr. Neal is shaking his head. He said, no free riders, and you pay a penalty if you don’t have insurance under the taxing authority. That is what the Supreme Court said.
So I very much respect your talents, your integrity. I just hope this hearing doesn’t turn into essentially saying the sky is falling when it isn’t. Essentially what we decided to do is to place some kind of a floor under health insurance so that more and more people would receive it and that people would not be penalized because of preexisting conditions or because there were caps there were caps on how much they could receive, et cetera.
Chairman Camp. Thank you.
Mr. Herger is recognized for 5 minutes.
Mr. Herger. Ms. Severino, did President Obama’s Solicitor General Verrilli in his briefs and at oral arguments ask the Supreme Court to consider the individual mandate as a tax?
Ms. Severino. Yes, they have made that argument since the district court level.
Mr. Herger. So the Obama administration argued before the Supreme Court that the individual mandate was a tax. This highlights a concern I have. The President and congressional Democrats clearly went out of their way during the legislative debate to hide the fact that this is a tax. The President himself said it was “absolutely not a tax increase.” Next, they asked the Court to consider it a tax; and now they are telling the American people it is not a tax. What does this do to the system of checks and balances and, more broadly, what does this do to government accountability by hiding the ball from the American people?
Ms. Severino. Yes, I agree, Representative Herger. This is what I was trying to talk about when I was looking at the accountability problem. We have a system where the tax power has been interpreted very broadly by the Supreme Court in part because there is a strong democratic check on the tax power. Because no one likes to see their representatives raising their taxes, and so we assume the American people will be holding representatives accountable.
This is why the Founders purposely put the taxing power in the House of Representatives where individuals represent the people proportionately and where everyone is subject to more frequent elections. So you have to answer at least every 2 years to the people if you raise taxes.
That system of accountability only works if we actually can trust what our Members of Congress are telling us. If they tell us, we are raising taxes, here is what we need to do it, you have listed lots of good policy reasons you might want to impose a tax to enforce this kind of health care law, that is one thing. But it undermines the accountability of our system to say it is not a tax and you are passing it and when the American people are holding their people accountable to it and then afterwards to say, now it is a tax. Or, as the President is doing, to say it is not stated in Court and to go back the next day in the press and say it is not.
Mr. Herger. Mr. Bradbury, the President has repeatedly stated that he would not raise taxes for individuals earning less than $200,000 and married couples earning less than $250,000. However, there are more than a dozen tax increases contained in Obamacare that would hit the same individuals that the President claimed he would protect.
According to the Congressional Budget Office, roughly 75 percent of those expected to pay the individual mandate tax would be individuals earning less than $59,000 per year or families of four earning less than $120,000 per year. Doesn’t this break the President’s pledge?
Mr. Bradbury. Well, Congressman Herger, I think I will beg off from commenting on the President’s pledge directly. But I will say that it is clear that, under the terms of the statute, the shared responsibility tax has to be paid by any taxpayer for whom the price of the average policy is less than 8 percent of their income; and that is a lot of people below the levels that you described. And as the CBO said, it is expected that millions of people in those income categories for their own independent economic decisions will choose to pay the tax rather than purchase insurance. So it will apply to them.
And I will say that there are other provisions in the law ‑‑ taxes and other cost increases through the regulations ‑‑ that are likely to cause, as I understand it, employer‑sponsored health plans to get more expensive.
And now that there is no direct legal mandate that requires everyone to have insurance, additional people may choose to drop their employer‑sponsored health policies because they are getting too expensive and choose to pay this tax instead. So the numbers could be greater. And I think that is reflected in the 16 million additional people who can be expected, according to CBO, to drop their insurance and pay the tax instead. I have to think that that could even be greater.
Mr. Herger. Thank you.
Chairman Camp. Thank you.
Mr. Rangel is recognized.
Mr. Rangel. Thank you, Mr. Chairman.
I couldn’t believe I was listening to Mr. Herger complain about the President’s or the administration’s ambiguity about the penalty tax or both. I have to tell you as one politician to the other I find the position we find ourselves in as Democrats a hell of a lot easier to deal with than the one Mr. Romney is presenting. But after you conclude one way or another whether the administration has made up its mind whether it is penalty or tax, I hope you come with me and help me figure out where Mr. Romney is on that very same question.
In any event, I think we did make a lot of mistakes as Democrats in not really being able to sell the benefits of this program.
I also believe that inherently people are not excited about help that they don’t really need. I think the fact that most all Americans are fortunate enough to have health insurance is a little difficult when you are talking about a tax or penalty to get excited about someone who doesn’t have it. But I think the administration has not made the case that uninsured people get health care.
Mr. Dellinger, I wish you could share the fact that, notwithstanding the fact that we have 30, 40 million people that don’t have health insurance, that it doesn’t mean they are not getting health care and that this health care that they get is not free. It has to be paid for. And that once we find some way to take this burden off of the existing policyholders and other people, it is actually a reduction in the cost for almost all Americans.
Could you make that argument, that this is a reduction in costs for the millions of Americans and 98 percent ‑‑ that only 40 million people who are getting free health care will have to pay for this? Could you share that view?
Mr. Dellinger. Mr. Rangel, you are exactly right. Our present health care system is quite dysfunctional, and there is a strong conservative case to be made for supporting this kind of health care reform.
Here is what happens with the 30, 40 million Americans or more who are uninsured. First of all, they go without care and treatment for themselves and their children in many instances. In other instances, they show up in the emergency room, which is a highly inefficient way to do it. Thirdly, they get health care far too late. It is much cheaper to pay for mammograms than it is to deal with metastasized breast cancer. And fourthly, what happens is the cost is shifted to other people, and it is reflected in other Americans’ premium.
That is why if we do succeed in expanding coverage to tens of millions of more Americans, then the average premium goes down for Americans by a $1,000 or so. So there, it does have that effect of making it a more effective system.
And unlike the single payer plan favored by many Democrats, this is the option that gives people an incentive to have private health insurance.
Mr. Levin was correct in reminding us that Social Security was challenged very much in the same way in 1937. The challenger said if you can set the retirement age at 65, Congress can set it at 25. They set a minimum wage of $5 an hour, it could be increased to a minimum wage of $5,000 an hour, but the court rejected that kind of second guessing and left those decisions to Congress, as I think it did at the end of the day with this provision.
Also, Mr. Herger, if I can respond to your very good question about whether this is ‑‑ there is some bate and switch going on. This tax or penalty or tax penalty or whatever you want to call it, this provision was right on the face of the statute. It says, on April 15, as an amendment to the Internal Revenue Code, when you calculate your Federal income, if you don’t have insurance, you have to pay an additional $95. That goes up. There was never any doubt about that. And the Solicitor General made that argument clear.
But the reason that Governor Romney and President Reagan ‑‑ I am sorry ‑‑ Governor Romney and President Obama, both were said to have increased taxes. Both of them said we didn’t increase taxes, because not a single person in Massachusetts or America has to pay 1 cent more in taxes if you will just have adequate health insurance and not put that cost on others. In that sense, it was not a tax increase in Massachusetts, and it is not an increase in the United States.
Chairman Camp. Thank you. Time has expired.
Mr. Johnson is recognized.
Mr. Johnson. Thank you, Mr. Chairman.
I would like to ask all of you really, have we ever in the history of our country had a tax imposed on an individual for failing to engage in an activity? A simple yes or no.
Mr. Bradbury. Not that I know of, no.
Ms. Severino. I am not aware of any.
Mr. Casey. I don’t believe so.
Mr. Dellinger. I think the answer is yes, we have in the form of higher tax bills, higher tax bills if you don’t engage in certain activity like putting money aside for retirement, for college education, for home stuff. I don’t know of any instance where it is not done by a tax deduction or a tax incentive, but I don’t think it is ‑‑
Mr. Johnson. Okay. It is not a deduction. As Chief Justice John Marshall once said, the power to tax involves the power to destroy. Doesn’t this ruling in effect destroy the individual freedom to abstain from government‑mandated activities, say to buy an electric vehicle or install energy‑efficient windows or eat broccoli? Yes or no. Just the first three of you, please. Yes or no, please.
Mr. Casey. I think that is correct.
Ms. Severino. I agree.
Mr. Johnson. Mr. Bradbury, in your testimony, you say, in addition to raising the amount of the tax itself, Congress has a host of coercive tax enforcement mechanisms that it could also introduce to ensure greater compliance with the tax requirement. Would that include the IRS seizing American homes and bank accounts?
Mr. Bradbury. Yes.
Mr. Johnson. Thank you.
Mr. Bradbury, I am holding a copy of the handwritten note from the chief of staff of the Joint Committee on Taxation, Mr. Barthold, and I ask unanimous consent that it be entered into the record.
Chairman Camp. Without objection.
[The information follows: The Honorable Sam Johnson]
Mr. Johnson. Mr. Barthold wrote in this note to then‑Senator John Ensign during the Senate Finance Committee markup of the health care law in late September 2009 ‑‑ at the time, the Senate bill included the enforcement mechanisms associated with income tax. Senator Ensign and some others began asking if Americans could be thrown in jail for refusing to purchase health insurance.
Dear Senator Ensign, Section 7203 of the code provides that if there is a wilful failure to file, pay, maintain, appropriate records and the like, that the taxpayer may be charged with a misdemeanor with a penalty of up to $25,000 and not more than 1 year in jail. Felony tax evasion provides for restitution and a fine up to $100,000 for an individual and up to 5 years in jail. Sincerely, Thomas Barthold.
The enforcement mechanisms mentioned by Mr. Barthold that could be used against individuals who refuse to purchase health insurance were later removed from the bill, but given that they are in fact mechanisms to enforce a tax, not a penalty, the ruling of the court allows these to be put back in if Congress chooses to do so.
Mr. Bradbury, would you comment on that?
Mr. Bradbury. As you indicate, Congressman, it would require an amendment in the statute. But given Congress’ broad authority to enforce constitutional taxes, a future Congress could amend the statute to include those kinds of enforcement mechanisms.
Mr. Johnson. So the bottom line is that a future Congress can change the law to send Americans who fail to buy insurance to jail, true or false?
Mr. Bradbury. Who fail to buy insurance and fail to pay the tax. They can set the tax very high to try to force them to buy the insurance, but if they choose not to buy the insurance and fail to pay the tax, Congress could add criminal enforcement mechanisms to the statute for those who attempt to avoid paying the tax.
Mr. Johnson. Thank you, sir.
I yield back.
Chairman Camp. Thank you.
Mr. Stark is recognized.
Mr. Stark. Thank you, Mr. Chairman, and I thank the witnesses for their participation.
I just wanted to check with Ms. Severino, I think in the past, once or twice you have indicated that the only recourse that you would have here is, if you didn’t like this program, would be to move to another country, and I wonder if you know of any other country that you could move to that did not have universal health coverage paid by the taxpayers.
Ms. Severino. I certainly don’t think that the United States is the only country in the world that does not have that.
Mr. Stark. If you could find one, I would probably take up a collection to get you a one‑way ticket there. But I would be interested in knowing where that might be.
Mr. Chairman, I would like to yield the balance of my time to Mr. Doggett.
Mr. Doggett. Ms. Severino, do you have health insurance yourself?
Ms. Severino. Yes, I do.
Mr. Doggett. And Mr. Casey, are you covered by a group health insurance policy.
Mr. Casey. I am sorry by?
Mr. Doggett. By a group health insurance policy?
Mr. Casey. Yes, I am.
Mr. Doggett. And Mr. Bradbury, are you also covered by group health insurance?
Mr. Bradbury. Yes, sir.
Mr. Doggett. I would like to put a chart up and ask Mr. Dellinger, are you covered by health insurance, sir?
Mr. Dellinger. Mr. Doggett, I am eligible for Medicare, thank you. I think I was ‑‑
Mr. Doggett. I am impressed by that as I am by all of your testimony, and you really made the point of this chart. But I wanted to demonstrate it graphically because all three of the experts who have offered insight this morning that were summoned here at the request of our Republican colleagues are in the same situation as 98.8 percent of the American people in that they will not have to pay the tax of which they complain.
And you have just pointed out again a really big segment of our population, Mr. Dellinger, who, like yourself, there is not a single person who is on Medicare or about to come on Medicare by the time that this act becomes fully effective who would be subject to this tax, right.
Mr. Dellinger. That is correct.
Mr. Doggett. And anyone who is covered by a group health insurance policy, whether public or private employer, they won’t be affected by this tax.
Mr. Dellinger. I have always been struck by the notion that this relatively modest incentive to have insurance coverage was seen as the sort of end of liberty as we know it. If you go to work in the economy and you earn $18,000 a year and are subject to Federal income taxes and FICA taxes, you are told you have to pay 7.5 percent for Social Security for your old‑age sustenance. You are told you have another percentage to pay for Medicare for your health care after age 65, and if you don’t have insurance coverage, you are going to have to pay up to 2.5 percent as an additional sum to be paid. Why would anybody look at that and say, well, the 7.5 percent for Social Security is fine, the percentage for Medicare is fine, but this last percentage I would have to pay is the end of liberty as we know it. And I would have to move to another country.
I welcome your presence, let me say for myself, in the United States, and I hope that you remain engaged in these debates.
Mr. Doggett. Well, Mr. Dellinger, your point is so significant, and you have made it previously that while the names may have changed on the groups, this same crowd, the same thinking that opposed Social Security, that opposed Medicare, is the same crowd that is out there opposing the Affordable Health Care Act, even though less than 2 percent of the American people would be directly affected by what Justice Roberts, President Bush’s appointee to the Supreme Court, said was a tax rather than a penalty.
Now, with reference to that tax, I understand Mr. Bradbury’s testimony to be that even for the less than 2 percent of the people that are covered, the tax is so low, so modest, that Congress may choose to raise it in the future. Is it overall ‑‑ it is I believe in the first year, your testimony, $95 is the total amount of the tax if you are among the 2 percent who choose not to buy insurance, even though you have the capacity to afford it and prefer to shift your health care costs to somebody else?
Mr. Dellinger. That is ‑‑ that is correct.
Mr. Doggett. And with reference to the estimate, of course, of 1.2 percent, that was done by the independent Congressional Budget Office on the final bill as it became law after it passed the Senate. So perhaps it goes up or goes down a little bit. It is only an estimate, but is a very small number of people that are affected.
And I yield back.
Chairman Camp. Thank you.
Mr. Ryan is recognized.
Mr. Tiberi is recognized.
Mr. Tiberi. Thank you, Mr. Chairman.
Let us follow up on Mr. Doggett’s point about the 2 percent.
Ms. Severino, let’s set the record straight. I wasn’t going to go there, but let’s go there. Two percent, that is just a guess. Because tomorrow when this ‑‑ or next year, when this goes into effect, your employer could be determined not to be in compliance by some Federal bureaucrat with the insurance coverage that your employer is giving you, and thus, a married couple who has insurance today could end up being forced to pay this tax penalty because they don’t comply, their insurance doesn’t comply, with what the Federal Government determines is appropriate; isn’t that correct?
Ms. Severino. Yes, and actually, given some of the religious freedom concerns that are involved in the mandatory coverage as well, we may be facing that situation ‑‑
Mr. Tiberi. So this is potentially much bigger, depending on what the Federal Government determines what is an appropriate level of coverage; not just this 2 percent, could apply to people who have insurance today and are happy with that insurance.
Ms. Severino. That is correct.
Mr. Tiberi. Mr. Dellinger, I have got to go there, too.
Let’s just assume that I have a gas‑guzzling SUV and you have an electric‑powered wonderful automobile, and a future Congress determines, you know what, I am a bad guy because I am contributing to a very poor environment with my gas‑guzzling SUV, and society is paying for that, while you, I determine as a future Congress, are complying and are paying for my sin.
Couldn’t I, as a Congress, under this provision ‑‑ I would love to hear what others have to say ‑‑ say, you know what, we are going to penalize Mr. Tiberi for driving a gas‑guzzling SUV. And we are going to install a penalty of ‑‑ we will make it low at first, $10,000, to buy an SUV. Isn’t that true under this proposal, under this ruling?
Mr. Dellinger. Sure.
Mr. Tiberi. Sure?
Mr. Dellinger. Well, not under this ruling.
Mr. Tiberi. No, under the Chief Justice’s ruling.
Mr. Dellinger. I understand that. But it is true that that is correct under the Chief Justice’s ruling.
Mr. Tiberi. Thank you.
Mr. Dellinger. But it would have also been correct before the Chief Justice’s ruling.
Mr. Tiberi. I would like.
Mr. Dellinger. If I may answer the question. Congress may make my tax bill ‑‑
Mr. Tiberi. He answered it. He answered it. I only have a limited amount of time.
Chairman Camp. Mr. Tiberi has the time.
Mr. Tiberi. I would like the other three to comment as well. Yes or no answers.
Mr. Casey. Ah, yes.
Ms. Severino. Yes they do.
Mr. Bradbury. Yes.
Mr. Tiberi. Mr. Levin mentioned earlier about Social Security, and we are all forced to pay Social Security, and that is not true. There are police officers, firefighters, city workers, township trustees, township workers, State workers, library workers, public university workers, bus drivers in Ohio that do not pay into Social Security. They pay into a public employee retirement system.
Mr. Levin. Because they have an alternative system. They have to pay into a system.
Mr. Johnson. Order.
Chairman Camp. Mr. Tiberi has the time.
Mr. Tiberi. Mr. Levin, I was just saying, you said all Americans pay into Social Security. The State of Ohio has a different system, and it just came to me as he was saying that, and I don’t know, Mr. Bradbury, if you are familiar with that system or not in Ohio, maybe Mr. Casey is, since he works for an Ohio law firm, would this, Mr. Casey, have, would it, would it make it easier for us on the Ways and Means Committee to compel those I would argue or have the ability to do it, but would this make it easier under the Chief Justice’s ruling to allow for us to force those people who are now outside of Social Security to be put into Social Security?
Mr. Casey. Well, I think it certainly, you could certainly conceive of circumstances where that could happen but the fact is, the way the Chief Justice read the law suggests that if Congress wanted to achieve something like that and didn’t really necessarily want to have it obvious that that was going on, that indeed you could do that and the courts would indeed uphold it.
Mr. Tiberi. Mr. Bradbury, under this ruling, the IRS obviously is going to be tasked with the charge of making sure we all comply as Americans to this ruling. They clearly don’t have the ability to offer civil penalties today. They can only do it, as Mr. Dellinger said, through a refund. How likely is it that a future Congress under this ruling could impose criminal penalties through the IRS, further auditing abilities or other impositions through the Internal Revenue Code?
Mr. Bradbury. Well, it would simply take a majority of Congress to do that, and the point of my testimony was the original CBO estimates of how many will choose to pay the tax I think are now off kilter, given the court’s ruling that there isn’t in fact a direct mandate, and that I think it is logical to assume that more people under the current low level of tax assessment in the law will choose, will make a rational economic decision not to purchase insurance and instead to pay the tax.
Chairman Camp. Time has expired.
Mr. McDermott is recognized.
Mr. McDermott. Thank you, Mr. Chairman.
Mr. Dellinger, I think this is sort of an interesting hearing because it is the first time I have ever heard the Republican Party argue for irresponsibility and flagrant throwing irresponsibility off on somebody else. The party of individual responsibility is saying here that people should not be forced, even though we know they are going to get sick, they should not be forced, and they should be allowed to do whatever they want.
Have you ever heard before that argument made in any case? And I would like you to answer Mr. Tiberi, he cut you off because I think we have, we had that power before the Chief Justice made the ruling. So please.
Mr. Dellinger. Right, I think with all due respect to Mr. Tiberi’s question is a good one. Does Congress have the power to create incentives through its tax against spending power favoring one kind of automobile over the other? The answer is, of course, they have always had that power. Whether they do it in forms of a tax credit for people who buy one kind of vehicle or a tax penalty on those who don’t; economists will tell you there is no difference. And the government has weighed in heavily both the Federal Government and the States by taxing gasoline, by taxing cigarettes.
We have always, the Supreme Court, as I said, even in 1903, upheld a higher tax on yellow oleo margarine. Those are decisions entrusted to the Congress, and we may disagree with those. And the question of whether Congress may use its powers to enforce the revenue laws in various ways in the future is, of course, a matter generally entrusted to Congress within the outer boundaries. What surprises me even more than the argument that it is a good thing that people not have insurance knowing that other people have to pay their, their medical costs, what is even more surprising is the undertone of the hearing that we should, that Members of Congress want the court to engage in a much more active second guessing of what Congress does with respect to this in the future.
Of course, the answer to these questions is Congress could, if Congress can set a minimum wage of $5 an hour, it can set a minimum wage of $5,000 an hour. The courts will police the outer boundaries of that, but the idea that you should expect or want the courts to get involved in second guessing the intricacies of the legislation and the incentive system, it does surprise me to hear so much of that coming from the branch that is actually entrusted under the Constitution with principal responsibilities for making those decisions.
Mr. McDermott. Do you, the charge that the President said, I will never raise taxes, and could you talk a little bit about that? Because I, it is a pretty serious charge. The President said we are not going to raise taxes, and now he has gone out and done it. They never argued it in the court; they slipped it by. It was kind of like a slider or a screwball in the court.
Mr. Dellinger. As I said, it was on the face of the statute exactly who has to pay what and when, as noted very effectively, a very small portion of the population will ever have to pay it.
The President was asked whether it was a tax increase, just as Governor Romney was asked whether it was a tax increase in Massachusetts when he had a similar penalty for people who didn’t have coverage. I think both of them are getting a bum rap, both Governor Romney and President Obama. Because what they are really saying is, this is like the requirement that you have automobile insurance if you drive a car. No one says that when you add that it is a tax increase on the middle class or anybody else. It is expected that Americans will have, will choose to have insurance coverage or pay a modest penalty, and I think to characterize that as a sort of particularly a tax increase on the middle class is, is unfair both to Governor Romney and to President Obama, each of whom solved this.
And in Massachusetts, it has been successful. It is a very effective way to expand coverage so that we have a much more rational system for paying for health care, one in which people take responsibility for their own, paying their own health care bills through their own insurance.
Mr. McDermott. Does this have anything, any ramification for State legislatures? I was just thinking as I got in my car this morning and I put on my seatbelt. I was avoiding a tax. A cop caught me down at the corner without my seatbelt on it is $125.
Mr. Dellinger. States have the same authority in this tax realm as Congress does, and we have trusted to the elected representatives at the State level to make these judgements as well.
Chairman Camp. All right. Time has expired.
You did pose a question to the panel, Mr. Dellinger, that I feel compelled to answer. I do think it is a real concern of this committee when we see the Congress assuming Federal police power either under the Commerce Clause or under the taxing power. That is why we do believe there should have been court review of this, and you had sort of inquired in a puzzled sort of way why is the committee or why are we now suggesting this.
But I will yield now to Mr. Ryan for 5 minutes.
Mr. Ryan. Ms. Severino, I am looking at your testimony, and the Anti‑Injunction Act is what I want to kind of get into here.
So the court did not use the labels used in the legislation on constitutionality, but they did use the labels in the legislation for the Anti‑Injunction Act. Help me reconcile this.
Ms. Severino. Well, it is true that for a law like the Anti‑Injunction Act Congress can define the word “tax” to mean what it wants. It can define the word “penalty” to mean what it wants in that context. That is true. And what Chief Justice Roberts says, correctly, is that is a Constitutional matter; we can’t just say Congress can call anything whatever they want and then we will treat it as that. That will just be ceding the authority of Congress to define its own powers, which I am puzzled to hear Mr. Dellinger suggesting that we perhaps should do; just defer to Congress on what it is allowed to do. No, we need someone other than the foxes guarding the henhouse, and that is what the court is there for.
The curious thing here is that we found something for both constitutional purposes that it was a penalty in the analysis in the Commerce Clause, for example, and that it was functioning as a tax for constitutional purposes. So that is a new beast. We would ‑‑ normally taxes and penalties are seen as opposed things and the Chief Justice’s opinion recognizes that.
Mr. Ryan. That is what I am trying to get at. So we have this body of rulings of precedents where we have had all of these delineations between what are penalties and what are taxes. We have a rich history of that. This is a new bridge that has been built, correct, on the definition with respect to core precedents with respect to differences between taxes and penalties?
Ms. Severino. Yes, there have been cases where the court it seemed to try and slip in a penalty as a tax, but the court said, no, no, no, no, Congress can’t do that, but it is a unique case to say this is actually a penalty and it is a tax for constitutional purposes.
Mr. Ryan. Right. So that is new territory so now that this is within the taxing power and we seem to be testing limits here and we don’t really know where they are, you know from a behavioral economic standpoint and the drafters of this bill really believe in behavioral economics by virtue of the way they designed this bill, if this is now to be seen as just an option or a tax, not sort of a social stigma of breaking the law, you are obviously just going to make a rational economic decision. You will pay the $695 instead of the more expensive premiums.
Now, what that means to us ‑‑ and I think the drafters probably saw this. And in the Senate Finance Committee, they had an amendment to lower those penalties because those penalties were originally set at areas where actuaries said were necessary to prevent what they called death spiralling, would prevent only sick people going into the insurance markets and the insurance subsidies and the healthy people staying out of it because it is a cheaper thing to do. So they had penalties set at such high levels.
Well, that is bad politics. So an amendment came in the Senate Finance Committee to lower that penalty to where it is now. Now that it is not even a social stigma, it is just some optional choice, we can’t help but conclude this pool will get filled with sick people. Rates will go up, and therefore, the subsidies will go up from that, an we believe CBO will probably take a look at that.
What that means for us here is we will have a choice: Do we just keep absorbing these much higher Federal outlays for these higher‑priced subsidies because they are a sicker profile of people, or do we raise the penalty to try and prevent that and bring in more revenue? That is the choice that this Congress if this law stays in place will be faced with.
Let me get your take on it, Mr. Bradbury. I see you shaking your head on this. Does this not, in your view, change the feel and look of this law as more of just an option than an actual penalty or violation of the law?
Mr. Bradbury. I agree with you entirely, Congressman. I was nodding. That was the point I was trying to make. The Supreme Court has now made it clear to the whole world that it is not a direct legal mandate. There is no moral imperative to comply. It is totally optional. It is just a pure economic decision, and look, the rate of the tax assessment was set, as you suggest, at a purposely very low level. So, as for most people, the cost of insurance is going to be well higher than this tax penalty. They will make a rational decision not to purchase insurance and instead to pay the penalty. And under the guaranteed issue and community rating regulations of the law, as Congress recognized, the law itself creates a very strong incentive for people to defer getting insurance and not to get insurance until they are actually sick, and they need it.
And so you combine those factors together, and you see that the 1.2 percent could be much higher, and that was the point I was trying to make. And I would say there is a very big difference between this what the court has now said what the Federal law is and the Massachusetts law, where, of course, with the police power in Massachusetts, the legal mandate is a real legal mandate, and the tax penalty is a penalty, an enforcement provision to a moral imperative, a legal, a legal mandate. So that is a very different because of the police power nature of the State authority versus the Federal Government.
Mr. Ryan. Thank you.
Chairman Camp. Thank you.
Mr. Doggett is recognized.
Mr. Doggett. Thank you, Mr. Chairman.
You will recall, Mr. Dellinger, the famous writing of Supreme Court Justice Louis Brandeis in his dissent in the New Ice case back in 1932. We hear it referred to often paraphrased about the States being a laboratory of democracy. He referred in his writing to one courageous State. Indeed, in the instant situation, don’t we have one courageous State, that being Massachusetts, that was the laboratory for democracy, after which the Affordable Care Act was modeled with reference to individual responsibility?
Mr. Dellinger. It is, and the Massachusetts experience is instructive in another way as well.
Mr. Doggett, if I may, because Mr. Ryan’s questions to Mr. Bradbury raise the point that Mr. Bradbury’s testimony that I actually think is a point that is well taken. What Mr. Bradbury says, and I think what Congressman Ryan was following up on, is that there may be fewer people who will sign up for insurance once the Supreme Court has said that the provision saying that every individual shall have coverage is not constitutionally enforceable; it is a legal obligation. So that people will then be looking at the tax penalty, and they will perhaps as rational economic actors be weighing the cost and benefits. I think that is a good point.
We don’t know to what extent fewer people will get coverage because they are told that the, that the exhortation sentence is no longer possible. But in Massachusetts, they did something very effective. They had a very effective campaign under Governor Romney’s administration to persuade people that they should sign up for health insurance, that it was the right thing to do. They had members of the Boston Red Sox and lots of other people in Massachusetts saying, I signed up, I signed up, I have got it. And members of the Boston Red Sox said, everybody should have health insurance, so that, you know, I think if we would try to be more positive about this and tell people yeah, you could make a rational economic decision, that you are better off paying the penalty than you are getting health insurance, but, a, you know you wouldn’t have health insurance, you get less effective treatment if you do it, and when you do get treatment and if you are hit by a bus, other taxpayers are going to have to, and other patients are going to have to pay for your health care costs. So, yeah, if you want to do that, you can do that. You can make a rationale decision. It basically makes other people the insurers of your medical care.
But I think we ought to be telling those people, look, everybody, this whole system will work better if everybody should get coverage who can afford it. There are hardship exemptions for those who can’t. Those people ought to get coverage, and there is no reason to ‑‑ and that makes it work, that is what makes it work to tell insurance companies they can’t turn down people because of pre‑existing conditions.
Mr. Doggett. I couldn’t agree with you more. And when people stop hearing that the sky is falling and realize the immense benefits of this, perhaps we will have the same experience with this tax that in fact this laboratory of democracy in Massachusetts has had, whereas I understand it, less than 1 percent of the people have actually been faced with paying any kind of tax or penalty because most have been responsible in the very positive, optimistic way that you have viewed it. And the Massachusetts Affordable Care Act has also been or the Massachusetts law has been the model for the Affordable Care Act enforcement mechanism also; has it not?
Mr. Dellinger. That is correct.
Mr. Doggett. I yield 1 minute to Mr. Blumenauer.
Mr. Blumenauer. Thank you, Mr. Doggett.
I just wanted to follow up on my friend, Mr. Tiberi’s point about, well, couldn’t Congress impose a gas guzzler tax. Well, actually, the Congress has already imposed a gas guzzler tax. And when you contrast that with our treatment of electric vehicles, which pays no Federal gasoline tax, and in addition gets a tax credit, there is a massive support that this Congress and the previous administrations, Republican and Democratic alike, have done. So it is a very significant adjustment. And if you compare what some poor sole who is driving a 12‑mile‑per‑gallon beater, because that is all he or she can afford, versus how they are treated with subsidies for electric vehicles, it pales in comparison to this modest penalty that we are talking about here.
I appreciate the gentleman’s courtesy for permitting me to make that point. We already do it, which you were trying to say to Mr. Tiberi.
Chairman Camp. Thank you.
I think the difference is, Mr. Blumenauer, that if you buy a gas guzzler, you pay a tax, and what this would say under this ruling is, unless you buy a low‑mileage vehicle, you will pay a tax, which is a different, different approach to this taxing issue.
But Mr. Davis is recognized for 5 minutes.
Mr. Davis. Thank you, Mr. Chairman. I would like to follow‑up on that point as someone who has driven an F‑250 Ford pickup truck for the last 15 years, and there is no electric car that can haul or carry the things that I carry in my vehicle in Kentucky in the heartland.
One perspective I would like to explore comes back to this issue with the policing power and the role of the Federal Government. Chief Justice Roberts’ opinion noted that the enumerated powers to tax and regulate interstate commerce, quote, must be read carefully to avoid creating a general Federal authority akin to the police power. This issue of taxing inactivity, to Chairman Camp and Chairman Tiberi’s point, is of great concern to me because of the issues that are raised on a much broader perspective and from our Federal system. And it also echoes the goals of the Founding Fathers, who during the early debate over the Constitution’s meaning sought to limit, quote, “the power of levying taxes,” closed quote, from becoming, quote, “a distinct power,” closed quote, rather than one limited by other powers in the words of Roger Sherman.
The author of the Constitution, James Madison, echoed the same point that the taxing power was limited to the enumerated powers described in the rest of Article I, Section 8. There has been a lot of discussion among legal scholars since the Supreme Court’s ruling as to whether this limitation stands and the degree to which there is any limitation on the taxing power.
I would like to invite the witnesses to provide their thoughts on this matter, but before going into that, since there has been so much talk about the automotive industry and the purchase of cars, you know, we saw a very interesting overturning of 100 years of commercial law with preferred creditors with the Chrysler and General Motors bailouts. I happen to live in a State where Ford and Toyota did not participate in that and have come out on the side of this very successfully.
The bigger question here is, couldn’t we in fact impose a penalty under these powers that would mandate the purchase of certain vehicles to benefit constituencies that help the executive branch, help a particular political party, can drive the economic debate in a way that removes the freedom of choice of the American people with these compulsions through increased or punitive taxation or what in effect is a form of police power.
But I would like to have you comment if you would on what this means to the future of jurisprudence. I see this as a great hinge and turning point and what the Constitution is going to mean in the next 100 years. Mr. Casey?
Mr. Casey. Yeah. I think you raised very important issues. And I think it is important to make clear that the reason this decision is scary has nothing to do with health care. It has nothing to do with the amount of tax that people may or may not pay. The fact of the matter is this law was not passed as a tax; on the face of the law, it is not a tax. It does not use the language of tax. Congress, God knows, knows how to raise a tax when it wants to. There is a page and a half of findings in the law referencing the Commerce Clause.
In order to uphold the law because the court agreed that passing this under the Commerce Clause would indeed involve the creation of Federal police power, which is impermissible, the court rewrote the law to create a tax, and that is what is so scary, first of all, because that is not what Congress meant to do, and second of all, because in doing so, it suggested that the kinds of taxes Congress can pass are far broader than we ever thought before.
Mr. Davis. Ms. Severino, you made a comment about alluding to religious discrimination. I think of the Catholic health care system right now under these powers as being compelled to support practices that fly in the face of the biblical principles that they choose to uphold under their First Amendment rights. Would you care to comment on this issue?
Ms. Severino. Certainly. I think it is just another category of people and organizations that may be forced into paying these taxes and not just having their employees paying the individual mandate penalty perhaps but also the employer penalties because of a heretofore unseen expansion into religious freedom. Even the Clinton health care bill had an exemption for religious freedom far broader than the very cramped narrow reading of the exemptions we see in the current law. And it is unfortunate to see that implication.
And if I can comment one other point on the Federal versus the State powers, we are not just sitting here talking about wolves at the door, as Ranking Member Levin called it, because our concern is that, not to, not to, I guess, call the Members of Congress wolves, but effectively what this has done is remove the door. We have a Constitution as a barrier preventing the government from overtaking more power than it was designed to have. The Founders were concerned about that. Our concern is that, that the court has effectively removed the door should wolves come, should a government that decides to expand its power beyond an appropriate reach come, now we no longer have those constitutional boundaries.
Mr. Davis. Well, for example, on that point and coming back to this issue of police powers of the State, there is an interesting case in New Mexico right now that has been prosecuted against the ‑‑
Chairman Camp. I am afraid time has expired.
Mr. Davis. Okay. I will yield back.
Chairman Camp. All right.
Mr. Thompson is recognized.
Mr. Thompson. Thank you, Mr. Chairman.
Mr. Dellinger, during the course of the debate on the Affordable Care Act, I met with a number of people from my district who were hurt by the fact that they had lifetime caps on their insurance, people with pre‑existing conditions who couldn’t get insurance, parents of little kids who their kids had very serious medical conditions, and they have run up against the lifetime cap, and they are just 100 percent exposed with no help.
I met with a young man after passage of the bill who was a hemophiliac, and he is now ‑‑ the lifetime cap is not a problem for him any more. Matter of fact, he started his own business and has hired employees. I have commercial fishermen in my district, the north coast of California, who since 1981 have been denied access to health care because of some port hospital, port physician issues. They have had to go out into the private sector and buy their insurance, and quite honestly can’t. They are over the top on passage of this bill that finally after all of these years they are going to be able to get coverage.
In my district, we had an uncompensated care cost of $50 million last year, and I am told that that, that works out to be about $1,000 per person who buys insurance that they have to pay more. You could call it a tax, I guess, on the people who already have insurance.
Those three groups of people that I mentioned, do you think they are home right now fretting over whether or not this is a tax?
Mr. Dellinger. Well, I think, Mr. Thompson, that is, that is such a well‑taken point because it is really astounding to me how few people understand the enormous benefits of this legislation, all of which would have been taken down had the court ruled as dissenting members, where the entire law would have been gone. The freedom from caps for your hemophiliac constituent, the ability to be covered by your parents’ policy, the right to get insurance even though you have had asthma or some other pre‑existing condition; all of that would have gone down.
And when I say I think the concern about, about what Congress may do with its tax powers, I understand Ms. Severino’s point about the importance of judicial review. We have used it to protect religious minorities. We have used it to protect freedom of speech. But the courts have been really hesitant of second‑guessing the area of budgeting and finance and taxing and spending and instead have thought within large boundaries those judgments need to be left to the people that are out there every day talking to their constituents. You know things and your colleagues on the other side know things that Justices don’t know sitting in the Supreme Court about how hard it has been for people who could not afford to see a doctor and who couldn’t get health care for their child when they were sick. You understand those things in a way that the court does not, and that is why I think it is appropriate for the court to defer to you in making these kinds of judgements.
Mr. Thompson. Thank you.
I mentioned the $50 million in uncompensated care in my district and translates out to $1,000 per person who buys insurance. The national number is $100 billion in uncompensated care. So I would assume that if you extrapolate, that is $1,000 per every person who has insurance. So if you are going to argue the tax stuff, I think it is probably only fair to point out that is a $100 billion worth of tax cuts that, that appropriate health care coverage will provide the American people.
And our colleague, Mr. Doggett, pointed out that it is about time we get away from “the sky is falling” on health care and start figuring out how to, how to rub off some of the warts that are on the bill and make it an even better bill. This is, this is so important to so many people, and yet we are spending time ad nauseam trying to pick it apart, piece by piece. I think this week we are going to have our 31st or 32nd vote on the repeal of either all or part of the health care reform legislation. We need to get away from this. We need to make sure that we all remember why it started.
This was in response to a national crisis, a national crisis. Businesses, individuals who couldn’t afford the health care costs. The ever‑rising costs of health care. And the many millions of people who couldn’t get health care and were suffering as a result of that, of that national crisis. We stepped up. We did something about it. I think everybody will admit that it is a work in progress. There is more that we need to do, and we ought to get on with doing that part of it rather than having this little pick‑it‑apart session such as the one we are having today.
I yield back.
Chairman Camp. Mr. Reichert is recognized.
Mr. Reichert. Thank you, Mr. Chairman.
Here we go again discussing another false statement that was told to the American people in order to sell the health care law. First, they said if you like your health care plan, you can keep it. Well, we know that is no longer true. And last week, the statement that was made that the mandate is a penalty and not a tax was overruled by the Supreme Court.
And so, Mr. Dellinger, I would like to just comment on a couple of statements you made.
First, the answer to the is it a tax or an indirect tax or indirect tax or a penalty.
The Congressman going fishing or the fisherman who is the Congressman fishing, the bottom fact here is the line is in the water. The government can call it a tax or a penalty, but the American people I don’t think are fretting whether or not it is called a tax or a penalty. All they know is that the Federal Government has its hand in their pocket, and I don’t think they are too happy about that. They want jobs.
And the point that this is, this is a 2,700‑page bill plus. I don’t think we are picking it apart. We are just trying to learn a little bit more about it, trying to find out what is in it. We are kind of doing what Nancy Pelosi told us to do; read the bill, find out what is in, it after it was passed, unfortunately.
So, Mr. Dellinger also made a comment that this 1 percent of this tax doesn’t affect Medicare, Medicare Advantage, but in fact, really Medicare, Medicare Advantage are taking a $523 billion cut; $200 billion just to Medicare Advantage. Where are those seniors going to go? They have got to go to a personal policy. Well, the personal policy after 2013 will no longer, by this law, allow people to enroll in new policies. They are also going to be limited on the amount of insurance they can have added to that policy. So where are they going to be finally driven out of the personal insurance policy?
And you also mentioned it is not going to impact the employer insurance providers. Well, they have already been impacted. They are not providing insurance to some of their employees because they have discovered it is too expensive.
So I think all of those facts lead to the bottom line, and that is there are going to be more than 1 percent of Americans affected by this tax, which of course then leads you to all of the next things that will happen. Costs will go up; that is a yes. Democrats in Congress will seek to force these people to buy health coverage, yes, because they will need that money to pay for the rest of the health care bill. Could this include significantly increasing the individual mandate tax? Yes. Then you can’t take this and just talk about this tax.
But let us just talk about all of the other taxes. There is a ‑‑ there is a 3.8 percent tax on employers. There is a 2.3 percent tax on medical devices. There is a tax on the 1099 form that fortunately we were able to get the Democrats to agree with that was removed from the law. There is a 40 percent tax on Cadillac, so‑called Cadillac health care plans. There is a $2,000 penalty on employers if they don’t provide insurance. There is another $3,000 tax penalty on employers who provide a plan that is deemed to be too good or too expensive. The list goes on and on and on.
Maybe what we should do is tax AARP because in this plan that they helped write, AARP stands to gain $1 billion in revenue over the next 10 years. Maybe they need to be taxed instead of the American people.
One of the questions I have is, you know, as we look at the penalties applied here, would there be a penalty applied if someone who is filling out their IRS form checks the box, yes, I have had insurance the entire year, and they haven’t?
Mr. Bradbury. Yes. I mean, under current law, 18 USC 1001, a knowing misrepresentation to the Federal Government is a felony.
Mr. Reichert. Lying to the IRS. That is current law. They check the box. They don’t have insurance. I am sure there will be some people that do that. The penalty for that, would you happen to know what the penalty for lying to the IRS? It varies I know.
Mr. Bradbury. Well, I believe it is the general 1001 criminal penalty. It is a felony so it is subject to a high financial penalty and also prison time.
Mr. Reichert. What happens if they don’t check the box at all?
Mr. Bradbury. Well ‑‑
Mr. Reichert. Who is going to follow up on that? Where do the IRS agents come from? How much is that going to cost? I know you can’t answer those questions.
And Mr. Chairman, I yield back.
Chairman Camp. All right. Thank you.
Mr. Blumenauer is recognized.
Mr. Lewis. Thank you, Mr. Chairman.
Mr. Chairman, I have been listening to the discussion today, and I tell you, it seems that we have lost focus on what really matters, whether it is a tax or a penalty on people who fail to take individual responsibility doesn’t matter. Every American who can afford to buy health insurance must buy insurance, and if you can’t afford it, the Affordable Care Act will pay, will help you pay for it. That is amazing progress on a country that has been trying to provide health care to all Americans.
We should not lose sight on the fact there are people suffering in our country. Over 12 million people still looking for jobs, wondering if they will lose their homes, whether they will be able to put food on their tables.
We also have over 50 million people who do not have health insurance. Some of them are unemployed, but the vast majority of them are working hard each and every day and simply can’t afford health insurance. They, too, are worrying whether they are one illness away from disaster.
I believe that this Congress and the President of the United States, President Barack Obama, took a historic step to expand health coverage by passing the Affordable Care Act. Working together, we can assure every American ‑‑ we cannot afford to turn the clock back on the progress that was made. The Affordable Care Act has already made unbelievable progress.
Mr. Chairman, I must say, in all honesty, that I believe that this hearing today is a political stunt just like tomorrow’s repeal vote. Repealing the Affordable Care Act would mean 17 million children with pre‑existing conditions who will be denied coverage by insurance company. I want to know right now whether any member of this panel support allowing insurance companies to once again deny health insurance to children who are unlucky enough to get sick.
Ms. Dellinger. Mr. Lewis, could I comment on that?
Mr. Lewis. Yes, Ms. Dellinger.
Ms. Dellinger. To me, this is I think one of the four great pieces of social legislation enacted in the past century. It completes the set of Social Security, Medicare, Medicaid, and the Affordable Care Act. And when I sat in the Supreme Court and listened to the arguments at the end of March, I was struck by the fact that every Justice, every law clerk, every one of the State attorneys general, everyone arguing on both sides and everyone in that courtroom not only had health insurance, they wouldn’t dream of going without it. And it seemed incredibly strange to me to hear people talking about this new liberty in not having health insurance when there is not a single person in the room debating those issues who would dream of going without health insurance.
Mr. Lewis. Other members of the panel.
Mr. Casey. Well, I would say that the question, again, the question you raise is a good one, which is should Congress attempt to provide for those who cannot afford health insurance for themselves? And there are good arguments that it should. The question is how. And the question is how your power is exercised and the question is how the court will permit you to exercise your power.
And this decision takes that, the balance created by the Constitution and the Framers and it unbalances it, and that is the problem with it, not the question of who should be covered and not.
Ms. Severino. Yes, I agree, with respect, Representative Lewis, I think this is an important question, and it is not, as Mr. Dellinger called it, a nomenclature battle that is ultimately unfruitful. It is ‑‑ the Constitution’s limits on our government are very important. We don’t have a Federal Government that just has the mandate to go and do good but that there are enumerated powers, and just as it is very important the nomenclature of whether something is speech and therefore is protected by the First Amendment or whether protection is actually equal and therefore permitted under the 14th Amendment, it is very important whether our constitutional limits are being respected here and whether this is actually a tax and what the taxing power means.
Mr. Bradbury. Congressman Lewis, the problem that Congress faced, and it recognized it when it passed the law, was that to, to require guaranteed issue and community rating in all of the insurance policies in order to achieve greater access to insurance coverage, Congress recognized that was inevitably going to cause the cost of insurance to go up. And it was going to incentivize more people to drop insurance. And so that was really the dilemma that Congress faced, and that is why the mandate was added to try to force people to buy insurance in order to lower the costs of insurance for others and to avoid the moral hazard of causing more and more people to go without insurance. So it was a real attempt at a balance.
And the problem we now face is that the court has said, you can’t mandate it directly. It is really a tax. And the question is will it work.
Chairman Camp. Time has expired.
Mr. Marchant is recognized for 5 minutes.
Mr. Marchant. Thank you, Mr. Chairman.
I would like to discuss the part of the argument that we have not discussed yet this morning and that was the interpretation of the Supreme Court of the States’ responsibility in the mandate as it related to the expansion of the Medicaid and the Medicare because when we all go back home now, our State legislators and our Governors are most interested in the mandates that were placed on those governments because, in fact, although part of the ‑‑ the bill, part of the law was declared a tax, the expansion of Medicaid to the States is always going to have been a tax because the States were going to have to come up with hundreds of millions of dollars to, in their matching amounts, to match the expansion. And the only way those States could pay for that would be to absorb that cost and pass that down to their taxpayers.
So, in many ways, Obamacare, has always been a tax on many States.
The court chose to address the personal mandate and said it is not a personnel mandate. It is in fact a tax. But then they went on to discuss the responsibility or the mandate on the States. So I would like to have your view of the ramifications of that constitutional change or that interpretation, Mr. Bradbury.
Mr. Bradbury. Thank you. Yeah, I think it is a very significant ruling. Seven members of the court recognized that there really is teeth to the idea that under the spending power, Congress cannot go so far as to coerce States into agreeing to regulations that Congress is imposing through its cooperative spending programs. And here what the court held is can’t force States to accept the expansion of Medicaid at the peril of losing all of the pre‑existing Medicaid funding that the States enjoyed. That could be very significant. The States now understand, each Governor now understands that the opting in to the Medicaid expansion is truly an option that States have, and I think we saw yesterday that another Governor of a major State has announced that that State, Texas, is not going to opt in to the Medicaid expansion. So that is a very significant ruling, raises a lot of interesting questions about where are the lines that you draw as to what is coercive for States, and States may have arguments that other aspects of the Medicaid program or other cooperative Federal State programs have crossed that line or might cross that line in the future. So I think it is going to be a rich vein if you will of new litigation and constitutional development in the court.
The mandate has a lot of implications for State costs, too, because I think as the States that were in the Supreme Court made clear, the mandate, if it were a legal mandate that applied to everybody, not just the people who can afford to buy insurance and will have to pay the tax, but lower‑income people as well, it was going to cause a lot more people who are eligible for Medicaid to opt in to actually choose to subject themselves to Medicaid or become a patient under Medicaid, and that was going to increase the costs to States very greatly. They recognized that. Unclear now whether that is going to happen or to what extent that will happen because we now know it is not a mandate that applies to those people. It is just a tax that applies to people with a little bit higher income who can afford to buy.
Mr. Marchant. So one of the major premises of the Affordable Health Care Act was that it would force many more, millions more people into the system, which would create a larger pool, which would in effect create a smaller premium or a savings in premium. But, in fact, as a result of both of these rulings, it is probably going to have a result of a significant, millions less people participating. And so the premise that this Affordable Care Act would lower premiums is probably going to be erased. And the Federal Government in fact may be building on what Chairman Ryan said, what will probably happen is that since there is no savings, it will, the system will create significant deficits to be implemented.
Mr. Marchant. And those deficits will have to be covered by cutting spending or raising taxes, and that responsibility will fall completely on the Congress. And, Mr. Dellinger, do you agree that this will complicate this, the whole theory of more people participating.
Chairman Camp. Answer quickly, because time has expired.
Mr. Dellinger. I do believe it will complicate it, particularly if Governors take what to me would be an extraordinary step of declining the expanded Medicaid funding which will help the working poor afford insurance. If they are unable in States that actually turn down the expanded Medicaid support, I think it will have adverse affects on what the anticipations were.
Chairman Camp. All right. Thank you.
Mr. Crowley is recognized.
Mr. Crowley. I thank the chairman very much.
I have heard references made of the Congress as wolves and foxes. I have been called worse in my district, quite frankly, so I appreciate the ‑‑
What I would suggest, though, is the possibility the Constitution and the Bill of Rights was put in place to prevent a dictatorship. And this is the people’s House. And I think when the House and the Senate come to an agreement on legislation that has passed and has been signed by the President, I think this is the way the Founders of our country envisioned our government would work.
Despite the fact that my colleagues on the other side gave no vote in favor of this, the majority of the people of the House of Representatives did, and they were elected by the people. And, subsequent to that, we have had elections, and they have made themselves known once again, and they will have an opportunity once again this fall to do so. And I anticipate they will also let their feelings be known collectively in that election.
What I find really interesting about this discussion today ‑‑ and I appreciate having this hearing. I hope we have many, many more hearings like this at some point. Because I think the more we talk about the legislation the more we understand it. I think that is very accurate. One of my colleagues on this side ‑‑ I think Mr. Reichert said that. That is true. But I do think it is also frustrating to the American people.
I just came from a trip to Montana, where my in‑laws are from, hard‑working ranching family from Billings, Montana, struggling. My kids are out there. We call it Camp Montana. They get to ride horses and help bring the cattle in. Unfortunately, this year they had to bring the cattle in a little early because the market has dropped out for the cattle industry in Montana.
So my kids have a great time, but my in‑laws who are brutally struggling every day to make ends meet, it is not as much fun for them. And they are wondering what is the Congress doing to help them today.
And my constituents back home in Woodside, Queens, and in Pelham and the Bronx, they are asking the exact same question: What, Congress, are you doing to help fix this economy? What are you doing to create jobs in America?
And, instead ‑‑ and I hope we have more of those hearings; I think it is wonderful ‑‑ we are discussing a bill that became law, was passed by the President, enacted, and the judicial review is done, and they have found this law to be constitutional. Yet we still continue to talk about it and to berate Obamacare.
By the way, I don’t call it Obamacare. I think that is a pejorative. It is President Obamacare. I think what the President has done here is something that has perplexed our country for over a century and Presidents before him who have tried to fix or help this problem. He should be credited for the advancements that we have made.
Now I have heard the reference made to two particular points, fishing licenses or the right to fish or the ability to fish and the other is to own a car or the requirement to own a car. Now can each and every one of you tell me, is there a requirement that any American by State law or the Federal law are required to own a car? Yes or no?
Mr. Bradbury. No.
Ms. Severino. No.
Mr. Casey. No.
Mr. Dellinger. No.
Mr. Crowley. Is any American required to own a fishing license?
Mr. Bradbury. No.
Ms. Severino. No.
Mr. Casey. No.
Mr. Dellinger. No.
Mr. Crowley. My understanding is that that doesn’t exist.
Now will every American at some point become ill?
Ms. Severino. Not necessarily but very likely.
Mr. Crowley. Not necessarily, but for the most part would you say yes? Likelihood?
Ms. Severino. Certainly.
Mr. Crowley. Certainly. Would you all agree?
Mr. Crowley. So ‑‑ would you all agree? Yes, sir?
So here we are ‑‑ nuance. No one requires anyone to get a fishing license. No one requires anyone to buy a car.
Is there a requirement involved in getting sick? How does that happen? How do people get sick? Does anyone know?
Mr. Casey. Um ‑‑
Mr. Crowley. Who does this to us? Does the State do it medically? Does the Federal Government require people to become ill?
Mr. Casey. No.
Mr. Crowley. Do they require them to become ill?
Mr. Casey. No.
Mr. Crowley. So the reality is, whether we like it or not, unless you live in a remote part of Alaska by yourself and chose to do so and you live in a log cabin that you have built and you kill what you eat and you wear what you kill and you live somewhere where no one will ever know you exist, in all likelihood you will need some type of health care.
That is the nuance here. That is what I don’t think people understand. Getting sick is not an option. You get sick. It is not like you get an option to buy a car. If you want to do it, you can do it. But no one requires you. That is the nuance here the American people don’t understand. We are talking about something that will happen.
And I think, once again, we are not talking turkey enough to the American People. We are talking in the abstract. The reality is they will get sick, and if they do get sick and they go to the hospital and they don’t pay for it, we pay for it.
My wife says, why do we get insurance? Why don’t we just go to the hospital and have someone else pay for our insurance?
Because it is not individually responsible. That is why. That is why we don’t do it. It is not ‑‑ it is a lack of individual responsibility.
Mr. Brady. [Presiding.] The gentleman’s time has expired.
Mrs. Black. Thank you, Mr. Chairman.
It has been a very good discussion today, and I appreciate the fact that our chairman brought us together to discuss these very important issues.
As a nurse for over 30 ‑‑ over 40 years ‑‑ boy, I am really starting to know those years now ‑‑ there is no doubt that we have the best health care in this world. And I know that because I have done medical mission work in other places like Haiti and Guatemala where, yes, they are said to have care. That it is care you can get. But, believe me, when you go into those hospitals, that is not the kind of care we want here.
So our system is broken because we have difficulty with everybody having access to it. But there are alternatives beside the alternative that we got in this 2,700 page document. And having been, as I say, in this field for a long time, I think things like strengthening our health departments, which have deteriorated over the years because of various things that have happened ‑‑ I won’t go into those ‑‑ but removing the barriers of purchasing health insurance across State lines, giving people more opportunity, more tools, more competition, those are various things that can be done beyond what was done in this 2,700 page document.
So I am going to just put that aside for a moment. Because over this past week I did read the entire ruling, and it did concern me. I am not an attorney, but, as I read, what really concerned me, especially in the dissenting opinion, was the fact that we are now taxing an inactivity.
And I think out of everything that I read in that document that was the thing that scared me the very most, is that, as has already been said in here, there have been incentives to be given to people to encourage their behavior, such as maybe a tax incentive to buy a certain kind of car or other such things, but it has always been as a result of something that you actually did, an activity.
So this inactivity now, to be able to tax inactivity, what I would like for each of you to tell me is has there ever been in our law a precedent such as this where you tax inactivity? And from what I read according to the dissenting opinion that is no, but I do want to hear that from each of you.
Second to that, from your opinion, where do you see this going? Does this really create Federal policing power? Is there a limit? Where is the limit?
Because I think we have only seen the beginning of that. Whereas, as already has been said, if you didn’t eat just what the government thinks you should eat because that will make a better society that we have a right now to tax that.
So two things there. Is there anything else you can think of that is an inactivity that we already tax; and, second to that, where is the limit?
Mr. Bradbury, let’s begin with you.
Mr. Bradbury. Thank you, Congresswoman.
I can’t think of another example. So I do think it is unprecedented, as far as I know, anyway.
And, second, as to the what the limit is, well, first of all, there is a political accountability limit when Congress is passing a tax. But if Congress can pass something and say, oh, this is not a tax and then have the Court later uphold it as a tax, well, then that undercuts that limit.
And the Court previously has not been clear as to the constitutional limits of the taxing power. It is very broad. Clearly, it is. So, at a minimum, we have to say it is very unclear, it is ill‑defined, and perhaps the sky is the limit.
And so it is just limited by the creativity of Congress, I think.
Mrs. Black. Ms. Severino?
Ms. Severino. I agree. This is an unprecedented tax on inactivity. I think that is what makes it a little bit different from what Representative Crowley was talking about. The car and fishing license examples aren’t perfect analogies. Because in those cases you are engaging in some activity. This is a tax on not engaging in activity.
And as philosophers going back to Aristotle I believe could tell you, there is a difference ‑‑ despite how an economist may analyze things, there is a difference between taking action and failing to take action as a philosophical matter. So I, too, am concerned about the fact that this eliminates some of the limits on our government.
Mrs. Black. Mr. Casey.
Mr. Casey. Yeah, I am unaware of any precedent that is like this one.
I will say where it goes I don’t think any of us actually know, but it could go very far. For example, Mr. Crowley mentioned a moment ago that his relatives or friends in Montana are in the cattle industry, and it is down. Well, one way Congress could fix that problem is require us all to all buy a certain amount of beef or pay a tax. We never thought that Congress could do that before, but now that you know you can, that is scary.
Mrs. Black. Mr. Dellinger.
Mr. Dellinger. I am not afraid, Mrs. Black, because Congress has always had the power, at least for the last century or more, to influence what people buy and don’t buy by use of the taxing power. State and Federal governments have encouraged or discouraged purchases by use of the tax power. The Court in 1903 could have decided it was going to try to police that from the judiciary, and they decided to leave that to Congress, and I think that is where it ought to be left.
Chairman Camp. [Presiding.] Thank you.
Mr. Neal is recognized for 5 minutes.
Mr. Neal. Thank you, Mr. Chairman.
Mr. Chairman, one of the points I would like to raise here, as Mr. Dellinger has noted, Social Security was a compromise. Essentially, Roosevelt began by looking for something grander, and Republicans or nothing, and the compromise was the payroll tax.
And Medicare wasn’t quite what Johnson wanted. He wanted it to be ‑‑ President Johnson wanted it to be more extended ‑‑ having just finished the fourth volume of the Caro series ‑‑ to note how that was done.
But the practical side of this bears noting. In the State of Massachusetts, 64 percent of the voters are either Republicans or Independents; and the health care plan in Massachusetts polls north of 70 percent in terms of customer satisfaction. It was negotiated between business and labor and arguably the best hospitals in the world. And now the next step in this deliberation is on to a global payment system which his State is about to adopt.
The magnificence of the picture of the photograph, the day that Mitt Romney signed the legislation has Ted Kennedy standing behind him. To the right, of course, is the American flag; and in front of the American flag a member of the Heritage Foundation, who, as Senator Chafee and Senator Dole both argued, that was the Republican answer to Clintoncare. And all of a sudden it can’t be the answer to Obamacare.
The point is that the plan has worked. I don’t know anybody in Massachusetts who doesn’t think perhaps you have to sand the edges here and there, but I don’t know anybody who is talking about repealing the legislation.
And we have this conversation here that the country, frankly, has moved beyond about tax versus penalty. Most of us who have been elected here we understand the trim line. That argument is over. That was taken care of. So it is nice to have witnesses come in and espouse esoteric views interpreting what the Chief Justice said or what the minority members of the Court said, but the truth is we have moved on from that.
Mr. Dellinger, you appear anxious to comment on that. Would you do so?
Mr. Dellinger. Your remarks, Mr. Neal, make me reflect on the extraordinary process by which this legislation was demonized. I understand very much the liberty concerns that no one should be forced into a commercial transaction with a private company. That is why I have always thought it important to see this as a mere financial incentive to do so. And where the Court said the reason we think it is constitutionally valid is it really affords people a perfectly reasonable choice. If you want to make a payment to the government instead of having private insurance, you can choose to do so, if that is where you are going to go.
But what is extraordinary is when Massachusetts adopted this system which, as you say, is very popular in Massachusetts, it expanded coverage ‑‑ health insurance coverage to record levels. The hospitals are extremely pleased with it. The Boston Red Sox supported it.
What is interesting is that none of the people that are saying that, quote, Obamacare is the end of liberty as we know it rushed to Massachusetts or became excited that one of our States had gone totally rogue and adopted some unthinkable program. When Massachusetts did this, it was generally approved of and thought well of.
If one of our States had really done something that was the end of liberty as we know it, you would think it would have caused more of a ruckus than it did. In fact, it was widely approved; and Governor Romney himself said, rightly, I think, that it should be a model for where we need to go as a Nation. If we want to afford more private choice rather than have a single‑payer system, that is the way to go.
I have always thought that the demonization of it was quite striking in light of the comments you make about how relatively well it worked in Massachusetts.
Mr. Neal. If I could, Mr. Chairman, without objection, I would like to enter into the record an article entitled Massachusetts Web Site Calls Mitt Romney’s Health Care Mandate a Tax Penalty, a copy of the Massachusetts official Web site, and the Massachusetts session laws signed by Mitt Romney setting forth the tax penalty.
Chairman Camp. Without objection.
[The information follows: The Honorable Richard Neal]
Mr. Neal. Lastly, Mr. Dellinger, do you agree that Romneycare and Obamacare have the same enforcement mechanism? And if one is a tax, are they both?
Mr. Dellinger. I think that is fair enough.
Mr. Neal. Thank you, Mr. Chairman.
Chairman Camp. I would just say, Mr. Dellinger, there is a difference between the States and the Federal Government in terms of police power. So the analogy between what Massachusetts did and there was not this outcry and what the Federal Government may have done and there is an outcry is because of the limited enumerated powers of the Federal Government. Our Founders were concerned about a too powerful Federal Government. So I just think it is important to make that point.
Mr. Berg is recognized for 5 minutes.
Mr. Berg. Thank you, Mr. Chairman. Thank you for holding this.
And thank you to the panelists. It is a long morning here but appreciate your being here. It has been a good debate.
Obviously, as we talked, the Supreme Court ruled the individual mandate is constitutional. It is interesting and it is not through the Commerce Clause and makes sense from a tax standpoint.
I just want to kind of get back full circle back to Mr. Bradbury. When we talk about the people that will be affected, can you sum that up again? I know we have been over it several times, but ‑‑
Mr. Bradbury. Congressman, as I understand it, about 160 million income tax forms are filed that will be subject to the declaration: Did you have insurance for yourself, your spouse, and all of your dependents for each month during the year? So it is going to affect all of those people in the sense that if they wish to make an independent economic decision to drop whatever insurance they have they will be subject to the penalty, and they are certainly subject to the requirement to check this certification.
Then you can focus on the people who are currently projected under the law that was originally enacted will not have insurance and will be subject to the tax penalty. That is the 4 million people.
But the point I am trying to make is now that we understand from the court’s decision that it is not a legal mandate that thou shalt have insurance as a matter of Federal law, instead, it is an economic choice, and the penalty provision or the tax as now we understand it is lower for most people than the cost of insurance policy, more people could be expected to make a rational decision to pay the penalty and not to purchase insurance or perhaps to drop the insurance that they have if it turns out that it is going to up in cost.
So we don’t know what those numbers are. CBO will take a new look at it, I am sure. I cannot assess. I am not a government accountant. But it is logical to assume that the number of people who will actually pay the tax and not buy insurance will be higher than was originally assessed by CBO.
Mr. Berg. I would like to drill into that a little bit. Because I think most of the taxes that we have done are an incentive. We affected behavior by taxation, but it has kind of lowered that cost for an alternative. We have never kind of taxed inactivity.
And I just sit here and I struggle with unless someone’s tax is equal to their health care costs there is almost a question of whether or not they will move more towards the penalty, as you said, Mr. Bradbury, versus paying health care. Because, clearly, there is a dramatic difference on those people whose income would be much lower with the 2 and a half percent tax.
I just see this, and I don’t know if it has been talked about or thought through, but I just see a lot of people saying, you know what? I will never be denied health care, so I will pay the tax. You know what? I am not even going to pay the tax. Because I am not withholding much income or income tax. And maybe I have a job, maybe I am in an environment where I am not withholding, and then when I get sick I am going to go on line and I am going to sign up for the insurance.
I think to some degree that discourages people from getting regular health care as well, and there may be a bigger ‑‑ I don’t know ‑‑ a bigger cost that people aren’t anticipating just because of the dynamics. The trade‑off ‑‑ there is too much disparity there.
Would you like to comment on that at all?
Mr. Bradbury. I think that is absolutely right. That is the point I tried to make in the testimony.
I think what we have to understand is underlying that is the other regulations in the legislation that were passed ‑‑ perhaps for very meritorious policy reasons; I am not questioning ‑‑ but those other regulations are going to cause ‑‑ as Congress recognizes, are going to cause the cost of health insurance to go up and will create incentives for more people to drop insurance because they can wait until they get sick and they are guaranteed a reasonably priced policy relative to what they would otherwise expect.
So it is that incentive and those higher costs that the mandate was intended to address by forcing everybody in to purchase insurance to try to subsidize the cost for others and also to avoid this adverse selection or moral hazard of people dropping insurance.
Now if Congress sees that that is not working and the cost problems that the regulations are going to create are causing this death spiral as people have suggested, then the obvious recourse Congress could adopt under the Supreme Court’s decision is to raise the tax, is to make it more coercive to force people to do what Congress said was important to force them to do, which is to go out into the market and buy health insurance.
So the tax could go well above the cost of the health insurance policy. There is nothing that says as a constitutional matter it has to be capped by the average cost of insurance policy. It could be set way higher in order to force people economically into the market. So the result could end up being the same if Congress were to go down that road.
Mr. Berg. Thank you. I yield back the balance of my time.
Chairman Camp. Mr. Becerra is recognized.
Mr. Becerra. Thank you, Mr. Chairman; and thank you to all of you for your patience and indulgence in these questions that we have been asking. It has been an interesting hearing more because of the types of questions. They are not “what is” kind of questions which we typically engage in about what is the consequence of this, what has happened as a result of what was done. It is “what if.” It is all speculative, things that may never occur, but you are being asked to tell us what might happen if the sun doesn’t rise tomorrow.
But be that as it may, we had the hearing. And while I wish we would have focused the hearing on jobs, which is what Americans really care most about, and certainly for this tax writing committee that is an important thing. We could have tackled the whole question about whether or not we should be providing tax incentives to companies that ship jobs overseas and thereby deny Americans the chance to stay at work.
But we are where we are, and we are relitigating once again what we passed in 2010, what the executive branch and the President signed into law in 2010, and which just recently now the Supreme Court has affirmed as a sound law, but we are where we are.
This penalty for free riders who are looking for a free lunch, let me ask a question ‑‑ and, Ms. Severino, let me ask you this question. You mentioned you have insurance. I have insurance. Every one of my colleagues at the dais has insurance. I am fortunate I can afford it. I guess you are fortunate enough to be able to afford it as well.
If I decide that substantial amount of money I put into my insurance for myself and for my family I would rather save that money for something else. So I say I am going to drop my insurance for myself and for my family. And so by some chance I end up in the emergency room because of someone hitting me, broadsiding me, and I am now in the hospital, but I don’t have insurance. Is it right for me to ask you to cover the cost of my health care bill?
Ms. Severino. Well, unfortunately, the law I believe, without the mandate function, does exactly that.
Mr. Becerra. I asked would it be right for me to ask you to cover my insurance ‑‑ or the cost of my health care?
Ms. Severino. I think it is fair for you to ask me. I don’t think it is right of you to force me.
Mr. Becerra. So you wouldn’t want to have to pay for my medical bills at that hospital, would you?
Ms. Severino. I might not. But as a matter of charity I think we do support a lot of people that ‑‑ so I may choose as a charitable endeavor to pay for yours or another needy person’s ‑‑
Mr. Becerra. If I told you it would cost you about a $1,000 to cover my health care bills because I chose not to have health insurance that I could afford, would you still be willing to pay that $1,000?
Ms. Severino. It probably depends on the circumstances. But, you know, there are cases I might.
Mr. Becerra. You are a very generous person.
Ms. Severino. No, if you were my father‑in‑law who wouldn’t be able to afford his health insurance, I think I would pony up the $1,000 for you. Even if I felt like it was a bad choice at the time.
Mr. Becerra. I understand that, and I think your father‑in‑law probably is enjoying the answer you just gave. I don’t happen to be your father‑in‑law. I assume then you are either extremely generous or you are unlike most persons who probably feel like they could use $1,000 to help to take care of their own family.
Ms. Severino. There are many cases where I might not pay the $1,000, yeah.
Mr. Becerra. I think that is probably the case for a lot of American families who would say, if I have got health insurance for my family and I am paying several thousand dollars for it and if you can afford to do the same thing but you are not willing to, I can’t find any reason why I should be asked to pay for your health care when you can afford it.
The chart that we have up that we have seen before essentially shows part of this. We have virtually 99 percent of Americans who, in some way or another as a result of this landmark health law, are going to have health insurance; and that small little sliver of white that you can barely see are those Americans, 1 percent of so of Americans, who may choose not to have health insurance, even though they can afford it. So, essentially, that 1 percent sliver would be saying to the 99 percent of Americans who will have health insurance you are going have to help pay for some of the costs of my health care, even though I can afford it.
We are not talking about folks who need charity. We are not talking about folks who really have no way to access health care. We are talking about folks who have chosen not to have health insurance coverage even though they can afford it, that 1 percent; and, as a result, they can impose costs on us.
When I mentioned $1,000, that wasn’t just a number I pulled out of a hat. Most American families that have health insurance coverage pay, on average, about $1,000 in their health care insurance premiums to pay for the cost not of their health care or their family’s health care but the health care for someone else who doesn’t have health insurance. So it is a matter of trying to ensure that we don’t have free riders who are charging us for their care because they chose not to be responsible.
Let me ask you all a question. Would you agree with this quote by then Governor Romney: No more free riding, if you will, where an individual says, I am not going to pay, even though I can afford it. I am not going to get insurance, even though I can afford it. I am instead going to show up and make the taxpayers pay for me. It’s the ultimate conservative idea, which is that people have the responsibility for their own care, and they don’t look to government to take care of them if they can afford to take care of themselves.
Does anyone disagree with what Governor Romney said? Disagree.
Ms. Severino. I would like to disagree with the fact that the government is forcing ‑‑
Mr. Becerra. Well, let me ask because my time is expired. If you could just tell me if you disagree with what Governor Romney has said. Anyone?
Mr. Herger. [Presiding.] The witness may respond by written letter.
Mr. Becerra. Thank you, Mr. Chairman.
Mr. Herger. The gentleman, Mr. Smith, is recognized.
Mr. Smith. Thank you, Mr. Chairman, and thank you to our witnesses for the civilized discussion that we have had today. I think it is helpful. I certainly appreciate the insight that each of you bring to the committee.
Mr. Dellinger, can you conceive of any taxing power that now that we know that it is a taxing power, that would not be within the constraints of the Constitution?
Mr. Dellinger. Yes, they are legion.
First of all, they are all of those who would run afoul of any other provision of the Constitution, obviously, affecting people’s religion or speech rights or rights of intimate association. Those kind of taxes would be ‑‑ exercising the taxing power would be invalid.
And the Court said, in an opinion by Chief Justice Roberts, it reminded us, as Justice Holmes said, the power to tax is not the power to destroy as long as this Court sits. So if you had a tax that actually forced people into an activity, it didn’t really give them a choice or stigmatized them as being criminal, the Court stands ready to invalidate a tax that exceeds that limit. But to give this Congress pretty wide range to do things that are actually silly and stupid if you want to enact them, the Court is not going to save you from all of those.
Mr. Smith. So if someone was compelled to purchase health insurance against their own religious convictions, would they be exempt?
Mr. Dellinger. Yes. I think the Court would find that to be unconstitutional. In fact, the Court suggests that if anyone were compelled to purchase insurers it might be invalid. That if the tax were so high that it became punitive, like the tax in the child labor tax case was 10 percent of your total income if you hired an underage person for one day, that they said was actually a prohibition and coercion. This actually gives people a choice to pay an amount that is not unreasonable in light of ‑‑ in fact, it is said to be too reasonable, by Mr. Bradbury and others, for it to be effective.
Mr. Smith. So there is the concern that employers may just wish to pay the penalty for not providing insurance for their employees, is that accurate?
Mr. Dellinger. Correct.
A very good point that Mr. Bradbury made is that if the tax penalty, financial incentive, whatever you want to call it, if it remains as low as it is now, won’t people make the rational choice and say I am just not going to have insurance?
I just do want to note that under Governor Romney’s plan in Massachusetts no one’s tax penalty could exceed 50 percent of the cost of what they call a credible insurance premium for credible coverage. So even though it was rational to pay half of what you would have to pay, in fact, it worked; and people found that to be incentive enough to buy insurance, that we did have widespread coverage.
Mr. Smith. Now in terms of uninsured now having insurance ‑‑ but one point of clarification. You mentioned that there are 100 million people that will see benefits from no lifetime cap?
Mr. Dellinger. I think that is right. That is the figure I have seen, Mr. Smith. I wish that I could give you ‑‑
Mr. Smith. Is there 100 million people currently up against their cap?
Mr. Dellinger. No, I said that we will never have to worry about a lifetime cap being imposed.
It may be virtually everyone. I saw the figure of 100 million. I don’t know why it is not 300 million. The fact is everybody now is guaranteed insurance no matter what kind of disease you may have that has really chronic, long‑term, high costs. You will never have your insurance company announce we have now put a lifetime cap on what you may have in terms of payments.
Mr. Smith. Now if someone is left without insurance, perhaps because their employer opted out of the mandate, so to speak, and just paid the penalty, do we know if that person would be more likely to pursue private health insurance or go on Medicaid?
Mr. Dellinger. I don’t know the answer to that. I do know that there are substantial additional subsidies for people now who are employed or working but can’t afford private health insurance. There are now substantial new subsidies as well as the expansion of Medicaid in those States that accept it.
Mr. Smith. But can we expect the Medicaid rolls to increase?
Mr. Dellinger. We certainly hope so. We hope that more people who are not now covered will be covered.
Mr. Smith. But we will expect the Medicaid rolls to expand?
Mr. Dellinger. I think that is right. The whole point of the legislation was to increase Medicaid eligibility to people who are employed but whose income still makes it difficult for them to purchase health insurance.
Mr. Smith. And how does the reimbursement of Medicaid compare to private insurance reimbursement?
Chairman Camp. [Presiding.] And if you could answer quickly, because time ‑‑
Mr. Dellinger. I can’t, because I don’t know.
Chairman Camp. Thank you.
Ms. Jenkins is recognized.
Ms. Jenkins. Thank you, Mr. Chairman; and thank you all for being here today.
Mr. Bradbury, the Democrats have said the individual mandate is needed to stop cost shifting and making people pay for their own health care. Now Amicus Review participated and states, “The problem with this story is that it is untrue.” Could you just explain why the cost shifting argument doesn’t paint an accurate picture of the purpose of the individual mandate?
Mr. Bradbury. I would be happy to.
Congress in its findings supporting the law explained why the mandate was necessary, and two points come out clearly. One, because of guaranteed issue and community rating, the cost of insurance is going to go up; and we need to bring into the market more of the healthier, younger people whose health care costs, medical costs are going to be a lot less than the cost of insurance. So that the amount they pay in to the system is greater than the amount they take out, in order to lower the average cost for everybody across the system, to try to control what would otherwise be runaway cost increases for insurance premiums.
Number two, the guaranteed issue and community rating provisions were going to cause people, Congress recognized very clearly ‑‑ and this was the experience of some States ‑‑ to drop the insurance or defer getting insurance because they know they would be guaranteed insurance if they get sick and they will wait. That is a rational decision. And so you actually have lower numbers of people insured in the country, not higher numbers. So it was necessary to mandate that everybody go into the market and buy insurance in order to counteract that what I call moral hazard.
I think, as Justice Alito pointed out at oral argument, the average cost of insurance policy in 2016 is expected to be $5,600, an individual insurance policy. And the average cost in health care that a young, healthy American incurs per year is about $850. And so it is very clear that the purpose of the mandate was to require more people to pay the greater amount into the system than they would be taking out.
And I just want to point out that the $1,000 figure that is often bandied about is not ‑‑ I don’t really think there is good substance behind that figure. This is the assumption or assertion that the average cost of insurance is $1,000 higher for the typical American family because of cost shifting from uninsured.
As I understand it, the way that number was derived I think is not terribly reliable. I think it is taking the $43 billion that has been estimated in uncompensated health care generally in the country and assuming that every dollar ‑‑ dollar for dollar of that $43 billion flows through to the bottom line of insurance costs for everybody else. And they simply divide that number into the total amount of insurance premiums people pay and come up with $1,000 and say, oh, it must account for $1,000 of each average policy’s cost.
But it is really not a well‑taken assumption. Because a lot of people who choose to go without insurance the statistics show actually pay for the health care they incur and that a lot of that uncompensated care is provided to lower income folks and actually gets absorbed by hospitals and other health care providers and not passed along to insurance companies. There are a lot of reasons for that, but it is not a safe assumption that, dollar for dollar, uncompensated care gets passed along to the insurance ‑‑ bottom line insurance premium of others.
Ms. Jenkins. Okay, that is helpful.
Thank you, Mr. Chairman. I yield back.
Chairman Camp. Thank you.
Last, but not least, Mr. Reed.
Mr. Reed. I always appreciate going last, because all the good questions are gone.
Just some commentary. I have been listening to this argument before I had to leave and then come back and the taxing versus the penalty ‑‑ and from my perspective as a new Member of Congress, freshman Member of Congress, it is time to be honest with the American people.
And what this was is the Supreme Court release came back and said, you know, we have an expansion of government to deal with the health care situation. We are going to raise taxes under Congress’ act to pay for it.
If that is what the people want, and when I read the Chief Justice’s decision ‑‑ I read it five times ‑‑ essentially saying, if that is what the people want, so be it, and it is up to the people to decide where we go.
That being said, I am concerned where we are going to go in the future with the congressional power that has been granted to us now under the taxing power of the Supreme Court decision as I interpret it and as I read it. One of the things that is being kicked around is a lot of people think the political pressure of tax increases will be enough check on the system. Do you all agree with that? Does anyone disagree with that?
Mr. Casey. I do not think that the political pressures will be sufficient.
Mr. Reed. So that being the case ‑‑ and that is exactly where I wanted to go, Mr. Casey ‑‑ is what would be a mechanism that we can do in Congress in your opinion to restrain or to delineate where that power now lies?
Mr. Casey. I think one thing you can do ‑‑ and it is not clear entirely what the Supreme Court might do, but one thing you can do is make very clear when you are raising a tax and when you are not exercising your authority to raise and collect taxes. That is, after all, your decision. The Court, while some of its language might suggest, I do not believe the Supreme Court would hold that Congress can’t chose which of its enumerated powers to exercise, and you could do that.
Mr. Reed. See, and I appreciate that comment, because I have been wrestling with this. Because there are some proposals that are now floating out that we should adopt statutory language that say clearly in our legislation going forward what power we rely on. Is it a tax or is it a penalty? And I couple that with my reading of the decision where they took the anti‑injunction statute and they said, essentially for purposes of statutory compliance, we are going to say whatever Congress says it is, that is what we are going to interpret it to be for statutory tax. But for constitutionality we are going to go beyond that, and we are going to say whatever constitutional power is out there, and we are going to hold it on that.
And that concerns me. Because if we have that requirement ‑‑ a statutory requirement to put in for statutory purposes we are going declare the power that we are exercising, could not Congress in that theoretical situation say for statutory purposes we are exercising this power? That would then comply with the statute, but for constitutionality purposes the Court could go wherever it wants to go. And that is the concern.
Do you see the concern? Is my logic working?
Mr. Casey. Sure, your logic is perfect. Because, of course, in many ways it is impossible to draft a statute that is judge proof.
But what you can do is make it so clear that we are not in this instance exercising our power to tax, or in another instance we are, that the Court will not be able to pretend that it is somehow interpreting the law you actually passed and transform it into a tax when it wasn’t.
Mr. Reed. I appreciate that.
Does Mr. Bradbury or any other ‑‑
Mr. Dellinger. Well, in terms of the Tax Injunction Act it is quite simple for Congress to say that the provisions of this Act shall not apply ‑‑ or the Anti‑Injunction Act shall not apply to this particular provision of law and then can proceed.
I think one of the reasons why I thought the Tax Injunction Act argument was quite good, that this is a bar to this litigation ‑‑ I think one of the reasons the Court may have leaned a little against that is that I think if they had held that this lawsuit was barred as a pre‑enforcement lawsuit by the Tax Injunction Act that Chairman Camp and his colleague, the ranking member and their colleagues would have immediately passed a one‑sentence law saying the provisions of the Anti‑Injunction Act shall not apply to challenges on the Affordable Care Act, and the Court would have heard this again in October.
And I don’t think anybody could have voted against that, Mr. Chairman. They would have said, yes, we don’t want our law to block this. One sentence will remove that barrier.
I think that is really what would have happened.
Mr. Reed. Interesting dynamics.
I go back to the point I am going to be honest with the American People. When we stand for legislation here, if we are going to expand government and raise taxes to pay for it, then that is what it is. Let the people decide. And hopefully we can move forward to that debate in November.
With that, I yield back, Mr. Chairman. I thank the panel for your participation.
Chairman Camp. Well, thank you very much, Mr. Reed.
I also want to thank the entire panel for a very long morning and for all of your testimony. It was very helpful.
And, with that, this hearing is hereby adjourned.
[Whereupon, at 1:17 p.m., the committee was adjourned.]
Submissions For The Record