In National Federation of Independent Business v. Sebelius, Chief Justice Roberts wrote for a majority of five justices in holding that the “shared responsibility payment” required by the Patient Protection and Affordable Care Act (“ACA”) constituted an imposition of a “tax” rather than a “penalty.” Thus, even though the Chief Justice and four other justices had concluded that the provision was not a legitimate exercise of the Commerce Power, the Court held that it was a valid exercise of the Taxing Power.
The origin of the distinction between taxes and penalties in Taxing Power jurisprudence is found in the 1922 decision of Bailey v. Drexel Furniture Co., more commonly known as the Child Labor Tax Case. There the Court invalidated a provision of the 1919 Revenue Act imposing an excise of ten percent on the net profits of all firms employing children under specified ages in various tasks, for longer than specified hours, or at night work. Bailey was followed in other, similar cases in the 1920s and 1930s, and none of these decisions has been formally overruled.
Chief Justice Roberts did not reject the authority of the Child Labor Tax Case. Instead, he reviewed the features of the Child Labor Tax that had prompted Chief Justice Taft and his colleagues to conclude that the measure imposed a regulatory penalty, and then offered several distinctions between the ACA and the earlier exaction. But a review of the reaction of child labor reformers to the 1922 decision suggests that contemporaries would not have regarded those distinctions as constitutionally significant. For child labor advocates in the 1920s did not believe that if they revised the measure to remove those objectionable features, the tax would then pass constitutional muster. Instead, they regarded the idea of such a constitutional excise as hopeless, and turned their attention to an unsuccessful effort to amend the Constitution to permit Congress to enact federal child labor legislation.
This article, a version of which was delivered as the Constitution Day Lecture at the University of Notre Dame in September of 2012, proceeds as follows: Part I provides an overview of the relevant twentieth-century Taxing Power precedents. Part II reviews the decisions of the lower federal courts concerning the construction and constitutionality of the ACA as a taxing measure. Part III canvasses the arguments made in the briefs submitted to the Court. Part IV scrutinizes Chief Justice Roberts’s efforts to distinguish the Child Labor Tax Case, concluding that if the assessment of that decision by contemporary child labor advocates was accurate, each of those distinctions is insufficient. Part V draws on the contemporaneous analysis of Professor Thomas Reed Powell to isolate the core principle emerging from the Child Labor Tax Case and its progeny: that a nominal tax is in fact a regulatory penalty where it imposes an exaction triggered by departure from a detailed and specified course of conduct, and the exaction is sufficiently onerous to induce those engaged in the targeted conduct generally to alter their behavior. Part VI presents an argument, not considered by the Court, that the ACA might be understood to impose a regulatory penalty so defined. If that understanding is correct, then the Court may have effectively overruled the Child Labor Tax Case and its progeny sub silentio. Part VII explores an alternative possibility: that contemporary child labor reformers misunderstood the Child Labor Tax Case, and could have successfully revised and defended a new Child Labor Tax by altering one or more of the distinguishing features identified by Chief Justice Roberts. If that is so, then that unfortunate generation of social activists squandered fifteen years in fruitless pursuit of a constitutional amendment authorizing Congress to regulate the labor of children, when a much easier and more expeditious solution lay right before their eyes.