The Federal Power to Tax
The Issues:  How far does the power of Congress "to lay and collect taxes" extend?

The United States is a government of enumerated powers.  Congress, and the other two branches of the federal government, can only exercise those powers given in the Constitution.

The powers of Congress are enumerated in several places in the Constitution.  The most important listing of congressional powers appears in Article I, Section 8 (see left) which identifies in seventeen paragraphs many important powers of Congress.   In this section, we consider how the enumerated power of Congress "to lay and collect taxes" has been interpreted.

Article I, Section 8 gives Congress the power to "lay and collect taxes, duties, imports, and excises."  The Constitution allows Congress to tax in order to "provide for the common defense and general welfare." The Court has flip-flopped on the issue of whether Congress has the constitutional power to tax in order to accomplish regulatory goals that would otherwise be outside of the scope of its enumerated powers.  In Bailey vs Drexel Furniture (1922), the Court invalidated a 10% tax on the annual profits of employers who knowingly employ child labor.  The tax, imposed after an earlier attempt to block the interstate transportation and sale of products produced by child labor was struck down in Hammer, was seen by the Court as an unconstitutional attempt to make an end-run around its earlier decision.  In 1925, in Linder v United States, the Court reversed the conviction of a doctor who had given three cocaine tablets to a patient to relieve an addiction.  The conviction, based on a law that imposed a $3 tax on doctors who prescribed cocaine, rested on the theory that the law limited the prescription of cocaine to the treatment of diseases, not addictions, and that the defendant had given cocaine tablets to an addict.  The Court concluded that the law could survive only as a revenue measure, and that the Taxing Power gave Congress no authority to regulate directly the practice of medicine--that is, to tell doctors who had paid the required tax what they can or cannot do for their patients.

The Court reversed its ban on taxes serving primarily regulatory (rather than revenue-producing) goals in Steward Machine (1937), which upheld a tax on employers designed to encourage states to enact unemployment compensation schemes.  In Kahriger (1953), the Court upheld a law requiring bookies to register and pay on tax on all wagers--even though the tax had the regulatory goal of wiping out bookmaking operations and could not be expected to produce significant revenue.

The Affordable Health Care Act ("Obamacare") survived, mostly, when five justices found "the individual mandate" to be within the taxing power of Congress.

In perhaps the most significant taxing power case ever decided, the Court ruled in National Federation of Independent Business v Sebelius (2012) that the so-called "individual mandate" (generally considered a requirement that individuals purchase health insurance) contained in the Affordable Care Act could be sustained as a tax, even though the requirement was outside of Congress's power to regulate commerce.  Writing for five members of the Court, Chief Justice Roberts held that even though proponents of the Act consistently said a penalty, not a tax, would apply to individuals who failed to purchase insurance, it still operated as a tax and that a functional analysis should control.  The Court noted that failure to purchase insurance required a payment to the IRS, that no criminal penalties attached to failure to purchase insurance, and that the cost of the tax would, in most cases, be less than the cost of buying insurance.  In sum, the law did not make it unlawful to purchase insurance, allowing individuals a choice of paying a tax instead.  Roberts also reaffirmed that the Congress may seek to achieve regulatory goals through its taxing power that it might not be able to achieve under its other Article I powers.  Justices Kennedy, Alito, Scalia, and Thomas dissented, arguing that the taxing power could not sustain the mandate.


The power to tax:
Bailey v Drexel Furniture 

[Child Labor Tax Case] (1922)
Linder v United States (1925)

Steward Machine vs Davis (1937)

U. S. vs Kahriger (1953)
National Federation of Independent Business v Sebelius (2012)["individual mandate" case]

Key Constitutional Grants of Powers to Congress

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises,
to pay the Debts and provide for the common Defence and general Welfare of the United States...

Article I, Section. 8. 

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; 

To borrow Money on the credit of the United States; 

 To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; 

 To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States; 

 To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; 

 To provide for the Punishment of counterfeiting the Securities and current Coin of the United States; 

 To establish Post Offices and post Roads; 

 To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

 To constitute Tribunals inferior to the supreme Court; 

 To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations; 

 To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water; 

 To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years; 

 To provide and maintain a Navy; 

 To make Rules for the Government and Regulation of the land and naval Forces; 

 To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions; 

 To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress; 

 To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for  the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;--And 

 To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof. 



1. Does Congress have the power to tax for a purely regulatory, non-revenue raising, goal?  Could Congress require all prostitutes to register and pay a tax if it could not make prostitution a federal crime directly?
2.  Does the Court's decision in National Federation of Independent Business v Sebelius suggest that Congress will increasingly rely on its taxing power to accomplish goals it may not be able to accomplish under its commerce power?
3.  Do you think that the description of a mechanism in an act as a "penalty" not a "tax" should control, or was the Court correct to use a functional analysis to conclude that the individual mandate penalty/tax operated as a tax--no criminal punishment, for example, for not purchasing health insurance so long as you make the payment to the IRS (and the amount paid will generally be less than the cost of insurance)?

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