think, a strong case on the commerce clause. >> could you turn to the tax clause? >> yes. >> i have looked for a case that involves the issue of whether something denominated by congress as a penalty was never the less treated as a tax. except in those situations where the code itself or the statute itself said treat the penalty as a tax. do you know of any case where we've done that? >> well, i think i would point the court to the licensed tax case where it was just the nominated a fee and not a tax and the court upheld it as an exercise of the taxing power. in a situation in which the structure of the law was very much like the structure of this law in that there was a separate stand-alone provision that set the predicate and then a separate one imposing -- >> license fees. fees for a hunting license. everybody knows those are taxes. i mean, i don't think there's as

much of a difference between a fee and a tax. as there is between a penalty and a tax. >> and i think -- in terms of the tax power, i think it's useful to separate this into two questions. one is a question of characterization. can this be characterized as a tax and second constitutional exercise of the power. with respect to the question of characterization, this is in the internal revenue code, it is administered by the irs. it is paid on your form 1040 on april 15th. >> but yesterday you told me you listed a number of penalties that are enforced through the tax code that are not taxes, and they're not penalties related to taxes. >> they may still be exercise of the -- exercises of the taxes power, justice ginsburg, as this is, and i think there isn't a case in which the court has, to my mind, suggested anything that bears this many indicia of a tax can't be considered as an

exercise of the taxing power. in fact, it seems to me the license tax cases points you in the opposite direction and beyond that, you're -- seems to me the right way to think about this question is whether it is capable of being understood as an exercise of the tax -- >> the president said it wasn't a tax, didn't he? >> justice scalia, two things about that. first, seems to me what matters is what power congress was exercising and i think it's clear that they were exercising tax power as well as -- >> you're making two arguments. number one, it's a tax. two, even if it isn't a tax it's within the taxing power. i'm addressing the first. is it a tax or isn't it a tax? the president didn't think it was. >> the president said it wasn't it ought to be understood as an incentive to get insurance. it isn't fair to say whether this is an exercise of tax power or not. >> the tax is to raise revenue. a tax is a revenue-raising device and the purpose of this

exaction is to get people into the health care risk pool before they need medical care. so lit be successful if it doesn't raise any revenue if it gets people to buy the insurance. that's what this penalty -- this penalty is designed to affect conduct. the conduct is, buy health protection, buy health insurance, before you have any need for medical care. that's what the penalty's designed to do. not to raise revenue. >> that is true, justice ginsburg. that is true of the marijuana tax that was upheld in sanchez. that's commonly true of penalties under the code. they do, if they raise revenue, they are exercises of the taxing power, but their purpose is not to raise revenue. their purpose is to discourage behavior.

the mortgage deduction works that way, when the mortgage deduction is clearly an exercise of the taxing power. when it's successful it raises less revenue for the federal government. it's still an exercise of the taxing powers. >> i suppose, though, one question is whether the determined efforts of congress not to refer to this as a tax makes a difference? i mean, you're suggesting we should just look to the practical operation. we shouldn't look at labels. and that seems right, except that here we have a case in which congress determinedly said, this is not a tax, and the question is why should that be irrelevant? >> i don't think that's a fair characterization of the actions of congress here, justice kagan. on the december 23rd, a point of constitutional order was called too, in fact, with respect to this law. the floor sponsor, senator baucus, defended it as a result of the taxing power in his response to point of order. the senate voted 60-39 on that proposition. legislative history is replete

with members of congress explaining that this law is constitutional as an exercise of the taxing power, was attacked as a tax by its opponents. so i don't think this is a situation where you can see that congress was avoiding any mention of the tax power. one thing if congress explicitly disavowed an exercise of the tax power. given that it hasn't done so seems to me that it's not only fair to read this as an exercise to the tax power but this court has got an obligation to construe it as an exercise of the tax power if it can be upheld. >> why didn't congress call it a tax then? you're telling me they thought of it as a tax, defended it on the tax power. why didn't they say it was a tax? >> they might have thought, your honor that calling it a penalty as they did would make it more effective in accomplishing its objectives but it is in the internal revenue code, collected by the irs on april 15th. i don't think this is a situation in which you can say --

>> that's the reason. they thought it would be more effective if they called it a penalty. >> there's nothing i know of that illuminates that. >> the practice goes back to, is this simply anything raising revenue that congress can do? >> no. >> there has to be a -- >> and i think that, of course, the constitution imposes some. got to be uniformed. can't be a tax on exports. if it's a direct tax it has to be apportioned. beyond that the limiting principle of the court is identified from drexel furniture to kurth ranch that it can't be punishment, punitive in the guise of a tax, and there are three factors, of course, identified to look at that. first is the sanction and how disproportionate it is to the conduct. the second is whether the c enter and third, administrative apparatus out there to enforce

the tax. now -- against drexel furniture, the tax was 10% of the company's profits even if they had only one child laborer for one day. a enforced by department of labor not just collected by the internal revenue service. here you don't have any of those things. the penalty is calculated to be no more than, at most, the equivalent of what one would have paid for insurance. there's no sienta requirement, no enforcement >> can't that be viewed as a tax apparatus out there. if it does impose a requirement on people who are not subject to the penalty or the tax? >> i think it could, for the reasons i discussed yesterday. i don't think it can or should be read that way, but if there's any doubt about that, your honor if there is -- if it is the view of the court that it can't be, then i think the right way to handle this case is by analogy to new york against united

states, in which the -- the court read the "shall" provision. shall, radioactive waste, as setting a predicate and then the other provisions were merely incentives to get the predicate met. >> are you saying all the discussion we had earlier how this is one big uniform scheme in the commerce clause, blah, blah, blah, blah, really doesn't matter? this is a tax and the federal government could simply have said without all of the rest of this legislation, could simply have said, everybody who doesn't buy health insurance at a certain age will be taxed so much money? right? >> it used its powers together to solve the problem of the market not -- >> yeah, but you didn't need that. you didn't need that. if it's a tax, raising money is enough. >> it is justifiable under its taxing power. >> okay. >> thank you, general. >> we'll take a pause for a minute or so, mr. verrilli.

>> why don't we get started. again. mr. clement. >> mr. chief justice, and may it please the court, the mandate represents an unprecedented effort by congress to compel individuals to enter commerce in order to better regulate commerce. the commerce clause gives congress the power to regulate existing commerce. it does not give congress the far greater power to compel people to enter commerce, to create commerce essentially in the first place. now, congress, when it passed the statute, did make findings about why it thought it could regulate the commerce here. and it justified the mandate as a regulation of the economic

decision to forgo the purchase of health insurance. that is a theory without any limiting principles. >> do you accept your -- the general's position that you have conceded that congress could say if you're going to consume health services, you have to pay by way of insurance? >> that's right, justice sotomayor. we say consistent with 220 years of this court's jurisprudence, if you regulate the point of sale, you regulate commerce, that's within commerce's congress power. >> what do you do with the impossibility of buying insurance at point of consumption? virtually, you force insurance companies to sell it to you? >> well, justice, i think there's two points to make on that. one is, a lot of the discussion this morning so far proceeded on the assurance if the only thing at issue is emergency room visits and the only thing imposed it catastrophic care coverage, but as the chief justice indicate the earlier,d a

lot of the insurance covered is for ordinary preventative care, ordinary office visits, those are the things one can predict. a big part of market is regulated here that wouldn't pose the problem that you're suggesting. but even as to emergency room visits, it certainly would be possible to regulate at that point. you could simply say through a mandate on the insurance companies, you have to provide people to come in. this will be a high-risk pool and maybe share it amongst yourselves or something. people simply have to sign up at that point and that would be regulating au'ree just talking about a matter of timing. that congress can regulate the transaction and the question is, when does it make best sense to regulate that transaction? and congress surely has it within its authority to decide rather than at the point of sale, given an insurance-based mechanism it makes sense to regulate it earlier? it's just a matter of timing? >> well, justice kagan, we don't

think it's a matter of timing alone and we think it has significant substantive effects. in congress tried to regulate at point of sale, the one group it wouldn't capture it at all are the people that don't want to purchase health care insurance and those that don't plan on using services in the near term. congress wanted to capture those people. those people are essentially the golden geese that pay for the entire lowering of the premium. >> is the government's argument this -- and maybe i won't state it accurately. it is true that the non-insured young adult is, in fact, an actuarial reality any so far s our allocation of health services in so far as the way health insurance companies figure risks? that person who's sitting at home in his or her living room doing nothing is an actuarial reality they can and must be measured for health service purposes.

is that their argument? >> well i don't know justice kennedy, but if it is there's at least two problems with it. one is as justice alito's question suggested earlier, somebody not in the insurance market is irrelevant as a rick. look at the people not in the insurance market and we'd find they're relatively young, relative healthy and would have a certain pool of ak terrell risks that lead to lower premiums. the people captured by guaranteed rating and community guaranteed issue and community rating would presumably have a higher risk profile and higher premiums. one of the things congress sought to accomplish here was to force individuals into the insurance market to subsidize those already in it to lower the rates. that's just not my speculation. that's finding i of 43a of the government's brief, that has a statute. a clear finding. >> doesn't that work? that work the way social security does?

let me put it this way. congress in the '30s saw a real problem of people needing to have old-age and survivors' insurance. and, yes, they did it through a tax, but they said, everybody's got to be in it, because if we don't have the healthy in it, there's not going to be the healthy to pay for the ones who become old or disabled or widowed. so they required everyone to contribute. it was a big fuss about that in the beginning, because a lot of people said, maybe some people still do today. i could do much better if the government left me alone. i'm going to the private market. i buy an annuity. i make a great investment and, they're forcing me to pay for this social security that i don't want, but that's constitutional. so if congress could see this as a problem when we need to have a

group that will subsidize the ones who are going to get the benefits. it seems to me you're saying the only way that can be dub is if the government does it itself, it can't involve the private market it can't involve the insurers. if it wants to do this social security as its model, the government has -- has to be government takeover. we can't have the insurance industry in it. is that your position? >> no, i don't think it is, justice ginsburg. i think there are other options available. the most straightforward one, figure out what amount of subsidy to the insurance industry is necessary to pay for guaranteed issue and community rating. once we calculate the amount of that subsidy we could have a tax that spread generally through everybody to raise the revenue to pay for that subsidy. that's the way we pay for most subsidies. >> could we have an exemption? could the government say, everybody pays a share of health care responsibility payment to

offset all the money that we're forced to spend on health care, we, the government. but anybody who has an insurance policy is exempt from that tax. cot government do that? >> the government might be able to do that. i think it might raise some issues about whether or not that would be a valid exercise of the tax -- >> under what theory wouldn't it be? we get tax credits for having solar-powered homes. we get tax credits for using fuel-efficient cars. why couldn't we get a tax credit for having health insurance and saving the government from caring for us? >> well, i think it would depend a little how it was formulated but my concern would be -- the constitutional concern would be that it would just be a disguise impermissible direct tax, and i do think -- i don't want to suggest we get to the taxing power too soon, but i think it's worth realizing that the taxing power is limited in the ability

to impose direct taxes and the one thing i think the framers would have clearly identified as a correct tax is a tax on not having something. the framing generation was divided werther a tax on carriages was a direct tax on not. hamilton thought it was an indirect tax. madison thought it was a direct tax. i have little doubt both would agree a tax on not having a carriage would have clearly been a direct tax and thought it wasn't a valid regulation of the market in carriages. look at hilton against the united states, that's this court's first direct -- >> let me ask you. can i go back a step, because i don't want to get into a discussion whether this is a good bill or not. some people think it's going to save a lot of money. some people think it won't. so i'm focusing just on the commerce clause. not on the due process clause. the commerce clause, and i look back into history, and i think if we look back into history, we see sometimes congress can

create commerce out of nothing. that's the national bank which was created out of nothing to create other commerce out of nothing. i look back into history, and i see it seems pretty clear that if there are substantial effects on interstate commerce, congress can act. and i look at the person who's growing marijuana in her house, or i look at the farmer growing wheat for home consumption. this seems to have more substantial effects. is this commerce? well, seems to me more commerce than marijuana. i mean, is it, in fact, a regulation? well, why not? if creating a bank is, why isn't this? and then you say, ah, but one thing here out of all those things is different. and that is, you're making somebody do something. i say, hey, can't congress make people drive faster than 45, 40

miles an hour on a road? didn't they make that man growing his own wheat go out into the market and buy other wheat for his -- for his cows? didn't they make mrs. -- if she married somebody with marijuana in her basement, wouldn't she have to go and get rid of it? affirmative action? i mean where does this distinction come from? it sounds like sometimes you can and sometimes you can't. so it is argued here, there is a large group of -- what about a person that we discover there is a disease sweeping the united states? and 40 million people are susceptible of whom 10 million will die. can't the federal government say, all 40 million get inoculation? here we have a group of 40 million, and 57% of those people visit emergency care or other care which we're paying for, and 22% of those pay more than

$100,000 for that, and congress says, they're in the midst of this big thing, we just want to rationalize the system they're already in. so, there. you've got the whole argument, and i would like you to tell me, looking back -- >> looking into those questions in reverse order -- >> well, no. it's one question. it's looking back at that -- looking back at that history. the thing i can see that you say to some people go by, why does that make a difference in terms of the commerce clause? >> well, justice breyer, let me start at the beginning of your question with mccullum. it was not a commerce -- >> the not? >> no. the bank was not justified as commerce power. that is not a case that says it's okay to conger up the bank as an exercise of the commerce power. of course, what the court didn't say and i think the court would have had a very different

reaction to, is we're not just going to have the bank. we're going to force the citizenry to put all their money in the bank. if we do that we know the bank of the united states will be secure. i think the framers would have identified the difference between those two scenarios and i don't think that great chief justice would have said that forcing people to put their deposits in the bank of the yet was necessary and proper. look through all the cases you mentioned. i do not think you'll find a case like this and i think it's telling you won't. the regulation of the wheat market in wickard against filburn, all this to address the supply side, what congress was trying to do, support of the price of wheat. much more efficient to make everybody in america buy ten loaves of bread? that would have had a much more direct affect of the price of wheat in the prevailing market. but we didn't do that. we didn't say when we had problems in the automobile

industry. we're not just giving incentives. not just cash for clunkers. everybody over $100,000 has to buy a new car. >> mr. clement, the key to the government's argument to the contrary is that everybody is in this market. it's all right to regulate in wickard against filburn, that's a particular market which the farm her been participating. every is in this market. that makes it very different than the market for cars or the other hypotheticals you came up with, and all they're regulating is how you pay for it. >> well, with respect, mr. chief justice, i suppose the first thing you have to say, what market are we talking about? because the government, this statute undeniably operates in the health care insurance market and the government can't say that everybody's in that market. the whole problem is that everybody's not in that market, and they want to make everybody get into that. >> doesn't that seem a little bit, mr. clement, cutting the baloney thin? i mean, health insurance exists only for the purpose of financing health care. the two are inextricably interlinked. we don't get insurance so we can stare at our insurance

certificate. we get it so that we can go and access health care. >> well, justice kagan, i'm not sure that's right. i think what health insurance does and what all insurance does is allows you to diversify risk. it's not just a matter of, i'm paying now instead of paying later. that's credit. insurance is different than credit. insurance guaranteed you an up-front locked in payment you won't have to pay more than that even if you incur much greater expenses. every other market i know of for insurance we let people basically make the decision whether they're relatively risk averse, non-risk averse and they can make the judgment. >> but we don't in car insurance? meaning, we tell people -- not we, the states do. although you're going -- i'll ask you the question. do you think if some states decided not to impose an insurance requirement that the federal government would be without power to legislate and require every individual to buy

car insurance? >> well, justice sotomayor, let me say this which is to say, you're right on the first point to say the states do it, which makes it different right there. >> that's going back to the substantive due process question. is this a loughner era argument that only the states can do this? even though it affects commerce cars indisputably affects commerce? are you arguing because the states have done it all along the federal government is not longer permitted to legislate in this area? >> no. i think you might make a different argument about cars than you would make about health insurance unless you tried to say -- >> health insurance, i mean, i've never gotten into an accident, thankfully and i hope never. the vast majority of people have never gotten into an accident where they've injured others. yet we pay for it dutifully every year on the possibility that at some point we might get

into that accident. >> but justice sotomayor, where it's different, there's lots of people in manhattan, for example, that don't have car insurance because they don't have cars. so they have an option of withdrawing from that market. even the car market is different from this market. there's no way to get outside of the regulatory web. that's one of the real problems with this. because we take as -- >> but the given is that virtually everyone absent some intervention from above, meaning that someone's life will be cut short in a fatal way, virtually everyone will use health care. >> at some point, that's right, but all sorts of people will not say, use health care in the next year, which is the relevant period for the insurance. >> you think you can better than the actuaries or better than the members of congress who worked on it? look at the 40 million people who are not insured and say which ones next year will or

will not use, say, emergency care? can do you that any better than if we knew that 40 million people were suffering, about to suffer, a contagious disease and only 10 million would get sick? >> of course not. >> we don't know which. >> of course not, justice breyer. the point is once congress decides it's going to regulate, it is going to get all sorts of latitude to make the right judgments, actuarial predictions which to rely and which not rely on. the question that's a proper question for this court, though, is whether or not for the first time of in our history congress also has the power to compel people into commerce, because it turns out that would be a very efficient thing for purposes of congress' optimal regulation of that market. >> this goes back to the chief justice's question, of course, the theory behind not just the government's case but behind

this law is that people are in this market right now and they're in this market because people do get sick and because when people get sick, we provide them with care without making them pay. and it would be different, you know, if you were up here saying, i represent a class of christian scientists. then you might be able to say, look, you know, why are they bothering me? but absent that, you're in this market. you're an economic actor. justice kag gan, once again it depends on which market we're talking about. if we're talking about the health care insurance market. >> we're talking about the health care insurance market designed to access the health care market. >> with respect to the health insurance market designed to have payment in the health care market, everybody's not in the market. that's the premise of the statute. that's the problem congress is trying to solve. if it tried to solve it through incentives we wouldn't be here but it's trying to solve it in a way nobody's of tried to solve an economic problem before, which is saying, it would be so much more efficient if you were

just in this market. >> they're in the market in the sense that they're creating a risk that the market must account for. >> justice kennedy, i don't think that's right. certainly in any way that distinguishes this from any other context. when i'm sitting in my house deciding i'm not going to buy a car i am causing the labor market in detroit to go south. causing maybe somebody to lose their job and for everybody to have to pay for it under welfare. the cost shifting the government tries to uniquely associate with this market, it's everywhere. even more to the point, the rationale they think ultimately supports this legislation, look, it's a an economic decision. once you make the economic decision, we aggregate the decision, there's your effect on congress. that argument works here. it works in every single industry. >> of course we do know that there are a few people more in new york city than there are in wyoming, who never will buy a car, but we also know here and we don't like to admit it that because we are human beings, we all suffer from the risk of getting sick and we also all know that we'll get seriously sick. and we also know that we can't

predict when, and we also know that when we do, there will be our fellow taxpayers through the federal government who will pay for this if we do not buy insurance we will pay nothing. and that happens with a large number of people in this group of 40 million, none of whom can be picked out in advance. now, that's quite different from the car situation, and it's different in only this respect. it shows there is a national problem, and it show there is a national problem that involves money cost insurance. so if congress could do this, should there be a disease that strikes the united states, and