What is the limiting principle?

There was a hush in the room during the oral arguments on the Affordable Care Act when Justice Anthony Kennedy asked Solicitor General Donald Verrrilli, arguing the individual mandate was authorized by the Commerce and Necessary and Proper clauses, “Can you identify for us some limits on the Commerce Clause?” Verrilli didn’t have a satisfactory answer.

The search for a limiting principle on the Commerce and Necessary and Proper clauses goes back to McCulloch v. Maryland. Now the ACA proposed to impose a regulatory penalty, not on doing something, but on not doing something. It is argued elsewhere (see below) that that is unconstitutional.

Five of the justices didn’t buy it, and decided that not penalizing inaction was at least one limiting principle on the Commerce and Necessary and Proper clauses, but then Chief Justice John Roberts did something almost no one expected, and against which the litigants had not prepared or presented arguments. He declared that the individual mandate was authorized as the exercise of the tax power, and even gratuitously injected that it was not a direct tax, subject to apportionment.

Is there historical precedent for a tax on not doing something? Can that be a proper taxable object?

Some have argued that a tax on A with deductions for doing B is a tax on not doing B, but that line of analysis doesn’t work, grammatically. There is still a taxable object A, assuming it is a proper taxable object. The tax is not on not doing B.

Grammatically the verb to tax is basically tritransitive: Like the verb to trade it can take an indirect object and one or two direct objects. Thus one can say

The agent taxed him the purchase $10.

One could also say

The agent taxed the purchase $10 from him.

or

The agent taxed him $10 on the purchase.

But in each case it is the purchase that triggers the tax, and therefore is its object, the thing that defines the taxpayer and the tax amount.

The power to tax is not unlimited. Court precedents have already established, correctly, that the exercise of a fundamental right is not a proper taxable object, and may be only incidentally burdened. We can therefore ask whether there is a natural right not to act, and with certain public duty exceptions, there is.

Proposed clarifying amendment:

1. A tax shall be considered direct if under the totality of circumstances in which it is applied, less than half of it is likely to be passed through to a further individual purchaser of the thing taxed as a higher cost of purchase, and indirect if half or more of it is likely to be thus passed through. 
2. An indirect tax may only be imposed on a profitable transaction or use the profit on which is or is readily convertible into a monetary equivalent. 
3. A direct tax may be imposed on being or having something without a profitable transaction involved. 
4. No tax shall (a) unduly burden the exercise of a natural or social right, or (b) be imposed on not doing something, or (c) offer a deduction for doing something there is no power to compel one to do, or (d) to regulate something not otherwise subject to a power to regulate, or (e) be at a rate beyond the point of diminishing return of revenue. 
5. When in doubt, a tax shall be considered direct. 
6. Taxes on corporate entities or trusts shall be considered indirect.

See also:

• Tax Matters — Portal to the subject of taxes, tax abuses, and tax reform.
• Unnecessary and Improper — Analysis of Necessary and Proper Clause.
• Individual mandate goes down in the 11th — This is the case that went to the Supreme Court.
• Is it a “tax” or not a “tax”? — Discussion of an article by Rob Natelson.
• What “commerce” meant to the Framers — Evidence of original meaning of the term.
• The original meaning of “carrying into execution” — The restrictive phrase has never been properly adjudicated.
• First day of oral arguments on Affordable Care Act – 2012/03/26 — Video of Constitution meetup.
• Original Understanding of the Commerce Clause, Jon Roland — Historical background.

Read more at Constitution