2012/06/28

Health Care Act upheld!

The entire ACA is upheld, with the exception that the federal government's power to terminate states' Medicaid funds is narrowly read. The deciding vote supporting it was that of C.J. Roberts. The individual mandate survives by being deemed a tax. The only effect of not complying with the mandate is that you pay the tax.  The Court holds that the mandate violates the Commerce Clause, but that doesn't matter because there are five votes for the mandate to be constitutional under the taxing power. The Court holds that the Anti-Injunction Act doesn't apply because the label "tax" is not controlling.

Justice Ginsburg makes clear that the vote is 5-4 on sustaining the mandate as a form of tax. Her opinion, for herself and Sotomayor, Breyer and Kagan, joins the key section of Roberts opinion on that point. She would go further and uphold the mandate under the Commerce Clause, which Roberts wouldn't. Her opinion on Commerce does not control.

On the Medicaid issue, a majority of the Court holds that the Medicaid expansion is constitutional but that it w/b unconstitutional for the federal government to withhold Medicaid funds for non-compliance with the expansion provisions.
The key comment on salvaging the Medicaid expansion is this (from Roberts): "Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding." (p. 55) In essence, he Constitution requires that states have a choice about whether to participate in the expansion of eligibility; if they decide not to, they can continue to receive funds for the rest of the program. Justice Ginsburg would uphold Medicaid just as Congress wrote it. That, too, is not controlling.

The Court does not reach severability issues, having upheld the mandate 5-4.

In opening his statement in dissent, Kennedy says: "In our view, the entire Act before us is invalid in its entirety."

In summary:
The Affordable Care Act, including its individual mandate that virtually all Americans buy health insurance, is constitutional. There were not five votes to uphold it on the ground that Congress could use its power to regulate commerce between the states to require everyone to buy health insurance. However, five Justices agreed that the penalty that someone must pay if he refuses to buy insurance is a kind of tax that Congress can impose using its taxing power. That is all that matters. Because the mandate survives, the Court did not need to decide what other parts of the statute were constitutional, except for a provision that required states to comply with new eligibility requirements for Medicaid or risk losing their funding. On that question, the Court held that the provision is constitutional as long as states would only lose new funds if they didn't comply with the new requirements, rather than all of their funding.

The opinion in the health care cases: http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf

The position that the individual mandate is a tax was made by the Administration as a third backup argument, after the Commerce Clause and Necessary and Proper Clause arguments, and those two arguments were rejected by the Court, so that makes a small opening for turning back the line of precedents going back to McCulloch v. Maryland that began the expansion of congressional powers. But it makes the taxing and spending powers the basis for further unlimited expansion.


Holding that the individual mandate is a tax does not resolve all questions, and this holding raises some important issues. Any tax is on something. What is this tax on? It is on not doing something. That is as much of a reach as a "regulation" prohibiting not doing something. But the Roberts opinion does not adequately explain or settle that issue.

Now the doors of binding stare decisis have been opened to all kinds of taxes on not acting. We might consider a few kinds of inaction on which a tax might be imposed:

1. Not smoking. After all, if more people smoked it would kill them off faster and thus reduce medical costs for them.
2. Not driving well. Arguably this is what traffic fines already actually are.
3. Not losing weight. Obvious justification.
4. Not exercising enough. Might present an enforcement problem but could install monitor chips in everyone.
5. Not getting a regular medical checkup.
6. Not doing all your homework.
7. Not brushing your teeth.
8. Not cutting your hair.
9. Not voting in every election.
10. Not having a government-issued ID.

Some argue Congress would never attempt to impose such taxes.  And until now neither were state legislatures like to do so. But this holding is a breakthrough for the concept of what is deemed a proper taxable object, one that is likely to be taken up by state and local governments hungry for revenue or power. That makes it a government-expanding precedent as important as Wickard, and perhaps even more dangerous. If you don't have the power to make people do something, tax them for not doing it, then throw them in jail if they don't pay the tax. And of course there is no limit on taxes on doing nothing, such as 100% of a taxed business transaction. It could be an amount impossible to pay, making it effectively a penal police power.

The dam against unlimited government has been broken. Repealing the Health Care Act is not enough. The damage to our jurisprudence is far greater than most people yet realize.

This is a black day for the Constitution. If Romney is not elected, it will take 2/3 of both houses of Congress to overcome a veto of a repeal of the act. Even if he is, it will take a 60-vote Republican supermajority in the Senate to overcome a filibuster on those parts of the Act not considered a tax (which may not be filibustered). The main issue of the 2012 federal election campaign is now set. Several things are likely to drive developments:

  1. Major moves by large employers to drop health insurance.
  2. Either large increases in health insurance premiums or withdrawal of many health insurance companies from the market, especially when they figure out that the amounts raised by the individual mandate won't be nearly enough.
  3. A refusal of the House (which can be expected to remain Republican) to fund parts of the ACA that were not funded within it, such as Medicate expansion, rendering the entire program nonviable within a short time.
  4. Refusal by many if not most states in the Medicaid expansion, followed by fed exchanges costing so much that it breaks other kinds of spending, such as military, or state spending on other things.
  5. Withdrawal of many more physicians from the practice of medicine, or at least from acceptance of fed-funded patients.
  6. Further declines in the stock market attributable to increased health care costs, and capital flight off-shore, with resulting increases in unemployment.
  7. Collapse of the international monetary system, probably starting in Europe (as happened in 1931), but coming just after the decision on the ACA, leading many people to blame the collapse on the ACA (unfairly, but nevertheless).
The ultimate result of all this, if the ACA is not repealed, is likely to be to drive the entire medical field into a single-payer government system.


See also:

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2012/06/24

Debt and Bankruptcy Reform

Several proposals have been offered to deal with such problems as dangerous speculation in derivatives, moral hazard, and "too big to fail", but all of the ones I have seen fall short, and usually wait until insolvency occurs, which is likely to be too late to avoid systemic collapses.

Congress has broad powers under Article I Section 8 Clause 4 of the Constitution for the United States to make "uniform Laws on the subject of Bankruptcies throughout the United States". That clause has been interpreted to apply only to enterprises at the point of actual or imminent insolvency, but the language does not limit it to that, and it is a reasonable interpretation to extend it to cover enterprises or behaviors that are so risky that they pose an unacceptable threat to public safety, so great that if presented by a foreign enemy it would be grounds for war.

One such proposal by Tom Jackson that is being seriously discussed, described in an article by David Rowe, "Chapter 14: using bankruptcy law to solve too-big-to-fail", is to create a new kind of bankruptcy for insolvent financial institutions and brokers that hold or manage assets in excess of $100 billion that would be involuntary, allow a three-day stay on derivatives, and that would be adjudicated by an Article III judge, with a jurisdiction to break up the organization. There is presently a vacancy in the numbers for bankruptcy chapters for a Chapter 14.

I find this a good idea as far as it goes, but waiting for insolvency to occur is waiting too long. Milton Friedman once said in a television interview "I am in favor of free enterprise but not large organizations." The solution to having organizations "too big to fail" is to break them up before they fail, or prevent them from becoming so large in the first place. This is not contrary to having a free market, but necessary to preserve one. A free market is between independent actors, and only works if there are enough actors and new actors can enter the market. When too much of a market is brought under the control of too few actors it ceases to be a market.

The conventional approach to anti-trust is to base it on a theory of "restraint of trade" and regulate or intervene on the alleged authority of the Commerce and Necessary and Proper Clauses, but by original understanding that theory is unconstitutional. Using the Bankruptcy Clause, however, those "too big to fail" can legitimately be broken up to avoid the risk they impose on the rest of us. Restraint of trade should be left to private civil legislation.

My proposal provides for breaking up all very large organizations, not just financial institutions and brokerages, which I define using energy as a measure of value of their holdings or portfolios rather than currency that consists of debt instruments. One exajoule of energy is worth about $23 billion, so four would be $92 billion, close to the proposal of Rowe and others. However, I provide for a period of seven years to conduct the breakups, and extend the process to smaller organizations for the next seven years. Of course those periods may need to be adjusted, but they allow for such organizations to voluntarily divest themselves of holdings in advance of being compelled to do so.

But there is also a threat from herd behavior, where too many can all pursue nearly the same business strategies in ways that cause them to function like large organizations. That can pose as much of a threat, so my proposal provides for intervening to compel them to randomly diversify their business strategies as well. None would be compelled to adopt any particular strategy, only that too many of them not follow the same strategy, and that the diversification be randomized.

"Too big to fail" can, however, also take the form of entire sectors that are overleveraged using debt piled upon debt. For that another solution is needed, so I propose adding a Chapter 16 to the bankruptcy code to periodically retire debts.

The ancient Hebrews had their own constitution, to which ours owes a great deal. One of the provisions of that constitution was the rule of shmita, which required all debts to terminate each sabbath year, called shmita. It also provided for other things, like leaving the land fallow for each shmita year. The practical difficulties of this rule have led to the abandonment of strict observance of it among other than Heredi families within modern Israel, but most of those difficulties could be avoided if it was practiced by everyone, Jews and Gentiles alike.

My proposal does not apply to existing debts, only those going forward. However, it does apply to debt-based instruments like fiat currency. It makes an exception for real estate mortgages, but would require new ones to also be retired every fourth shmita year, or 28 years total.

My proposal is set forth in a proposed bill in Congress, the Debt and Bankruptcy Reform Act. Of course one could not expect Congress to pass it, or the President to sign it. It would likely get anyone who introduced it assassinated. But after global economic collapse it may acquire some legs. Until then we can only prepare what we will need then.

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