Exploring the tax aspects of the Affordable Care Act decision

“Chief Justice Roberts’ opinion on the Affordable Care Act mostly conforms with the way I previously understood the taxing power of the federal government,” says Adam Rosenzweig, JD, tax law expert and associate professor of law at Washington University in St. Louis.

Rosenzweig says that there were two important pieces of the Roberts opinion from a tax standpoint.

“First, individual mandate is a valid exercise of the taxing power even though the mandate was not labeled as a tax,” he says.

“Second, the argument that the tax on failing to purchase health insurance should be apportioned among the states based on population does not apply because it is more in the nature of an excise tax than an income tax (consistent with Supreme Court precedent).

“What was not discussed in the opinion is that the Internal Revenue Code, even before the ACA, effectively built in a penalty for most taxpayers who did not purchase health insurance, and nobody contended this exceeded Congressional taxing power,” he says.

Rosenzweig, as discussed in his casebook on federal income taxation, says that this issue has come up in earlier cases.

“In a recent D.C. Circuit Court case, Murphy v. United States, the court initially held that the government had a much more limited taxing power over personal injury awards, but then almost immediately reversed itself and found a tax on emotional distress damages within the taxing power,” he says.