NFIB v. Sibelius and the Individual Mandate: Thoughts on the Tax/Regulation Distinction

Should Congress’s taxing power be broader than its regulatory power? Put differently, should the courts, on federalism grounds, be more willing to strike down federal laws that are adopted under the Commerce Clause than federal laws that are adopted under the taxing power? The Supreme Court thinks so. While the Court has on occasion held that Congress’s has exceeded its regulatory power by unconstitutionally encroaching on the regulatory domain properly reserved to the states, the Court has never found that Congress has exceeded its taxing power. Moreover, the Court recently (and famously) doubled-down on the position that Congress’s taxing power exceeds it regulatory power in the landmark case of National Federation of Independent Businesses v. Sebelius [“NFIB”], which upheld the Affordable Care Act’s “individual mandate” on taxing-power grounds. Whether it makes normative sense for the Court to treat Congress’s taxing-power as being broader than its regulatory power is the question this Article explores. The Article concludes that the way the Court has drawn the distinction between taxes and regulations, or between taxes and penalties (which, as I will point out, are a type of regulatory provisions), is both counter-intuitive and could create incentives that inefficiently alter Congress’s choices among various policy instruments. The Article also provides an alternative way of drawing the tax/regulation distinction that does not suffer from this problem. The Article ultimately concludes, however, that the tax/regulation dichotomy should probably be abandoned; and it concludes that the Supreme Court was right to uphold the Affordable Care Act’s individual health-insurance mandate, though for reasons different than ones the Court offered.