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Discussion of statutes begins always with the statutory language. Much water has been flowed under the bridge below before Arlene even mentions the statutory language, only part of which she cited to a partial source.
The actual Patient Protection and Affordable Care Act, P.L. 111-148, 124 Stat. 119, was the document from which this discussion should have started. Not some editorializations about "what the government wants," or summaries of what judges said. This is law school. One of the first lessons in it is that when discussing statutes, one always starts from the text.
You can find the relevant provisions 124 Stat. at 242 et seq. (p. 124 of the GPO print of the bill). You probably want to pay careful attention to section 5000A(g), 124 Stat. at 249 (p. 131 of the GPO print). You might also want to consult Chapter 68, Subchapter B of the Internal Revenue Code.

I attempted to put the relevant text of the statute below, but I'm not thrilled with the formatting. Without the pre tags, the text loses all the newlines, but with the pre tags there are scroll bars. Can anyone offer advice on how to quote longer pieces of text in the wiki? Google and a quick look through the TWiki help was unavailing.

SEC. 5000A. REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE. 
(a) REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE.—An applicable individual shall for each month beginning 
after 2013 ensure that the individual, and any dependent of the 
individual who is an applicable individual, is covered under minimum essential coverage for such month.
(b) SHARED RESPONSIBILITY PAYMENT.— 
(1) IN GENERAL.—If an applicable individual fails to meet 
the requirement of subsection (a) for 1 or more months during 
any calendar year beginning after 2013, then, except as provided in subsection (d), 
there is hereby imposed a penalty 
with respect to the individual in the amount determined under 
subsection (c). 
(2) INCLUSION WITH RETURN.—Any penalty imposed by 
this section with respect to any month shall be included with 
a taxpayer’s return under chapter 1 for the taxable year which 
includes such month. 
(3) PAYMENT OF PENALTY.—If an individual with respect 
to whom a penalty is imposed by this section for any month— 
(A) is a dependent (as defined in section 152) of 
another taxpayer for the other taxpayer’s taxable year 
including such month, such other taxpayer shall be liable 
for such penalty, or 
(B) files a joint return for the taxable year including 
such month, such individual and the spouse of such individual shall be jointly 
liable for such penalty. 
(c) AMOUNT OF PENALTY.— 
(1) IN GENERAL.—The penalty determined under this subsection for any month with 
respect to any individual is an 
amount equal to 1⁄12 of the applicable dollar amount for the 
calendar year. 
(2) DOLLAR LIMITATION.—The amount of the penalty 
imposed by this section on any taxpayer for any taxable year 
with respect to all individuals for whom the taxpayer is liable 
under subsection (b)(3) shall not exceed an amount equal to 
300 percent the applicable dollar amount (determined without 
regard to paragraph (3)(C)) for the calendar year with or within 
which the taxable year ends. 
(3) APPLICABLE DOLLAR AMOUNT.—For purposes of paragraph (1)— 
(A) IN GENERAL.—Except as provided in subparagraphs (B) and (C), the applicable dollar amount is $750. 
(B) PHASE IN.—The applicable dollar amount is $95 
for 2014 and $350 for 2015. 
(C) SPECIAL RULE FOR INDIVIDUALS UNDER AGE 18.— 
If an applicable individual has not attained the age of 
18 as of the beginning of a month, the applicable dollar 
amount with respect to such individual for the month shall 
be equal to one-half of the applicable dollar amount for 
the calendar year in which the month occurs

1. Additional Congressional Authority Under Art. I, Sec. 8

Classifying the mandate as a tax opens up a head of congressional authority as an alternative to the Commerce Clause. If classified as a tax, the mandate could fall within Congress's power to "lay and collect Taxes, Duties, Imposts and Excises, to ... provide for the ... general Welfare of the United States” US Const. Art 1, Sec 8. As such, if the Supreme Court finds that the individual mandate does not comport with the Commerce Clause, the government is hoping that the court will find authority for it in the broader congressional authority to tax. This line of argument is unavailable if the individual mandate is classified as a penalty.

2. Anti-Injunction Act May Bar Lawsuit

A completely different statute called the Anti-Injunction Act prevents lawsuits "for the purpose of restraining the assessment or collection of any tax." 28 USC 7421. Essentially this means you can't bring a lawsuit until the IRS actually tries to collect the tax. Therefore, the government argues that this means the current lawsuit is barred since the "tax" does not go into effect until 2014. Of course, this argument will only delay the lawsuit since even if the mandate is classified as a tax, as soon as the IRS begins collecting it in 2014, the suit will be allowed under the Anti-Injunction Act.

Please note that the text of Act refers to the mandate as a penalty, not as a tax.

How does that "complicate" anything? Isn't Holmes' point that the words mean what they do, and that the doing is not affected by the naming, because in the end there are no operative distinctions between "tax," "penalty," and "tax penalty"? Surely no one will seriously argue that it's unconstitutional to use the word "penalty" but constitutional to use the word "tax." In which case, why does the name matter at all?
Your point is well-taken and I have revised the above section accordingly.
But I question your claim that 'no one will argue that it is unconstitutional to use the word penalty but constitutional to use the word tax.' Congressional choice between the word tax and any other word matters because if I were the plaintiffs, I would be trying to convince the Court that Congress itself does not think the mandate is a tax, whatever else the mandate may be.
Use of the word penalty is not itself unconstitutional, but its use is evidence that this is not a tax, which forecloses the lines of argument the government is advancing discussed above. What if Holmes is right that words mean what they do notwithstanding the label we give them? Forgive me, but to a set of plaintiffs who want to see this bill overturned at any cost, does that matter? They want to convince the Court that there is an operative distinction between penalty, tax, and tax penalty, and they hope that the practical effect of this illusory distinction results in overturning the law.

-- HarryKhanna - 24 Jan 2012

Courts Have Ruled the Mandate a Penalty
Judge Vinson, of the Northern District of Florida, rejected the governments argument that the mandate is a "tax," holding that it is a "penalty." The 11th Circuit affirmed his ruling in this regard, and refer repeatedly in their opinion to the mandate as a "penalty." The 11th Circuit did not agree with Judge Vinson's assessment that the mandate was not severable, and believe the potential unconstitutionality of the mandate would not render the entire act unconstitutional. (See Judge Vinson's Opinion: http://www.realclearpolitics.com/docs/2011/Vinson_HCRuling_0131.pdf and the 11th Circuit's Opinion: http://www.uscourts.gov/uscourts/courts/ca11/201111021.pdf)
-- KhurramDara - 24 Jan 2012
_Seems to me that courts are just using semantics to push political agendas. It reminds me of what Eben discussed today regarding the courts making decisions without having to point to what really is leading them to their conclusions. That is all._ -- KippMueller - 24 Jan 2012
I agree with Kipp - i could definitely imagine them deciding to remove the designation "tax" for political reasons rather than because they didn't believe it was a tax - not that the belief of congress/the administration in what metaphysically constitutes a "tax" necessarily affects whether the court believes it does. What does a tax do if not penalize those on whom it is applied, and what is a penalty if not a tax? The potentially different moral connotations typically associated with each word is of arguable relevance. Vinson's line here: "Congress should not be permitted to secure and cast politically difficult votes on controversial legislation by deliberately calling something one thing, after which the defenders of that legislation take an “Alice in Wonderland” tack and argue in court that the Congress really meant something else entirely, thereby circumventing the safeguard that exists to keep their broad powers in check." is nice in theory but seems hilariously naive, given the inherent spin associated with choosing any descriptive language. Here is an excerpt by Justice Taft from Bailey v Drexel (1922) on his take of the difference between the two - i'd be curious if you any more informed than i was after reading it.
"The difference between a tax and a penalty is sometimes difficult to define, and yet the consequences of the distinction in the required method of their collection often are important. Where the sovereign enacting the law has power to impose both tax and penalty, the difference between revenue production and mere regulation may be immaterial, but not so when one sovereign can impose a tax only, and the power of regulation rests in another. Taxes are occasionally imposed in the discretion of the Legislature on proper subjects with the primary motive of obtaining revenue from them and with the incidental motive of discouraging them by making their continuance onerous. They do not lose their character as taxes because of the incidental motive. But there comes a time in the extension of the penalizing features of the so-called tax when it loses its character as such and becomes a mere penalty, with the characteristics of regulation and punishment. "

First, this is hypertext we are writing. Don't put a URL in the text, link it to the phrase it amplifies, explains, or (in the case of references like this one) resolves. Second, URL shorteners are disgusting. You're just giving someone else a chance to surveil your readers' reading, hurting their privacy in order to hide from them information they might want to have. Second, you're distorting the link pattern of the web, which makes it harder for people to see whose services are valuable to them. Third, because you should be linking in hypertext, not putting a URL in the text for people to copy, URL shortening serves no valid purpose, because the reader doesn't retype the link anyway. In short, no benefit+harm to others' privacy+misdirection of traffic = poor use of the Web.

-- RohanGrey - 24 Jan 2012

tax n. a governmental assessment (charge) upon property value, transactions (transfers and sales), licenses granting a right, and/or income. (http://legal-dictionary.thefreedictionary.com/tax).
The usual notion of a tax is that it is something collected on the basis of positive events. Which is to say, you typically have a free choice about whether you will undertake the actions that will lead to a tax being collected from you. The fee that would be exacted under the Affordable Care Act (whether we call it a tax or a penalty) would be resting on a person's choice not to do something--that is, not to pay for insurance that they don't want. I have heard people argue that it is really a tax on the affirmative choice to be a "self-insurer," and not on the choice to refrain from buying insurance, but this line of argument strikes me as duplicitous. Failing to purchase something seems to be more of non-action than an action--even if that failure to purchase entails a plan to purchase a substitute at a later time. What do you think?
Then again, maybe this doesn't matter. Maybe taxes don't have to be tied to positive transactions. Does anyone know of other taxes that are based on a non-action? There is the estate tax, for instance. Dying isn't usually a choice, but the estate still gets taxed, regardless. Then again, death is definitely an event, as opposed to a non-event.

So in your judgment there would be something different about the situation in which Congress says "Everyone (with the following exemptions) must pay the following amount in additional income taxes, but we rebate the tax to you if you maintain adequate minimum health coverage for your family?" Then the tax would be on the income, and the choice about whether to qualify for the rebate would determine the incidence of the tax?

Turning it into a choice of whether to positively qualify for the rebate certainly seems to transform the question into one of affirmative volition, rather than latent inaction. At least I think that is what the hypothetical is aiming at. Also, wrapping up the tax-penalty in the framework of the income tax adds a layer of complication onto things, making it that much more difficult to identify the tax-penalty as one or the other (or both). At its core though, I don't see the situation as being very different, since the additional tax-penalty (now piggybacked onto the income tax), is still hinging on an refusal to take special action. The default operation in both situations is that people will be losing additional money to the government, unless and until they go out of their way to avoid it.
In contrast to the above situations, the idea of a positive transaction being the touchstone of a properly-named "tax" takes the default operation to be that people won't be losing additional money to the government, unless and until something about the status quo changes.

But the point is that in fact nothing has changed. The words haven't altered anything at all about what happens. From the perspective of the "bad man," or indeed of any realist, the situations are identical, and to attach any consequences requires invention of what Felix Cohen calls "transcendental nonsense," which your made-up law about "default operations" provides a superb sample of.

So we agree that the situations are not different. And yes, my "law" is made up. I don't mean to say this is how tax-law actually is, or should be. I am suggesting what my perception of the common notion of taxation is, and trying to compare that to how taxes actually operate in reality.

On the question of taxes based on non-actions: If I sell my house for more than I paid for it (or in some other cases, for more than the amount I am imputed to have paid for it, even I did didn't do anything to acquire it, which would be known as my "basis") I owe capital gains taxes on it. But if I "roll over" by buying another house within 18 months, I am not required to pay capital gains taxes at all. Does that mean that the capital gains taxes are based on my inaction in not buying another house? Or was I penalized for not buying another house? How, from a Holmesian point of view, could one tell?

Here's the way the situation looks to me, but I'd be happy to hear other ways of interpreting. At T1, I own my original house. At T2, the house has been sold (at a profit over my basis). At T3a, I have bought another house. On the other hand, at T3b, 18 months have passed, I haven't bought another house, and I must now pay a capital gains tax. At T1, the status quo is that I own a house (and, ignoring property taxes and everything, I won't have to pay any additional taxes on it). In moving to T2, I have upset the status quo by choosing to engage in an activity that brings with it a capital gains tax. The tax, therefore, is tied to the positive action of my earning money by selling something. If I go to T3a, the tax is forgiven on account of whatever policy aims that serves. If I go to T3b, then the tax comes due, and I must pay it. It can appear that the tax is only being forced upon me by virtue of my failure to buy another house, and maybe it is, from a certain viewpoint. At the same time, however, it shouldn't be forgotten that I found myself in T2 only as a result of my own choice to leave T1. The move from T2 to T3b is certainly the result of personal non-action, but is the tax excised on account of the move from T1 to T2, or the move from T2 to T3b? I gravitate toward the former, but what would Holmes say?

What I said above, that you just created a load of nonsense, from the realist point of view. In either event, the law says you must pay taxes on your profit in selling a house unless you buy another one quickly. All your extra words prove is that this is neither a tax on doing nor a tax on not doing, because that distinction is mere verbal trickery.

Is the point then that any action is just a non-action (and vice versa), if we describe it in different terms?

If we determine that money exacted on the basis on a non-event can't be termed a "tax," and that the Affordable Care Act falls under this head, then we'd have a problem with arguing in favor of the Act under the taxing power.

No, for the reason I pointed out below, that not every action taken under the taxing power constitutes a tax. Congress' power to lay and collect taxes justifies creating agencies, paying salaries, establishing crimes and the penalties for those crimes, regulating business record-keeping, requiring individuals to maintain libraries of information for future consultation, regulating charities, structuring businesses that make up more than a seventh of the entire economy, establishing the nature and governance of trade associations, and much much more.
The conversation seems to have become one about the constitutional status of the ACA, about which , if I may put it gently, the writers here are not fully knowledgeful commentators. Once again, the problem has become trying to prove someone right or wrong. In the process, Holmes' question is being lost, and also proved more valuable. Formalism that isn't competent sounds much the same as formalism that is competent. But incompetent realism, that gets the facts wrong or takes an absurd view of the world inconsistent with what actually happens, is much easier to spot. Hence, says Holmes, if you want an accurate picture of the law, approach it realistically, on the basis that things are what they do, not what they are called, and assume that law is about social action, not logical description.

Can we make solid determinations on these questions?

Does a piece of legislation have to use the word "tax" in order to be based on the taxing power? If Congress passes a statute that amends the Internal Revenue Code to set higher or lower penalties for particular taxpayer actions, and it doesn't use the word "tax" but only "penalty," does that statute not take its constitutional basis from the power to lay and collect taxes?

I don't mean to make this all rest on the alchemical invocation of the word "tax." My question is, what are the sorts of situations in which the government can constitutionally lay claim to our money as permitted by the taxing power? If the penalty named in the Affordable Care Act is one of them, it doesn't matter if anyone labels it with the word "tax."

-- RyanBingham - 25 Jan 2012

The detailed summary of the Act (dpc.senate.gov/healthreformbill/healthbill04.pdf) lists the payment as a penalty: "Beginning in 2014, most individuals will be required to maintain minimum essential coverage or pay a penalty of $95 in 2014, $350 in 2015, $750 in 2016 and indexed thereafter; for those under 18, the penalty will be one-half the amount for adults. Exceptions to this requirement are made for religious objectors, those who cannot afford coverage, taxpayers with incomes less than 100 percent FPL, Indian tribe members, those who receive a hardship waiver, individuals not lawfully present, incarcerated individuals, and those not covered for less than three months." Do the categories of objectors give us any indication as to whether it resembles a tax or a penalty? The fact that there are exceptions made for religious objectors indicates to me that the fee resembles a penalty more than a tax; I couldn't find many taxes out of which it was possible to opt out based on religious objection. It looks like you can do so with the social security tax if you have religious objections to being part of a social insurance system, but that doesn't seem to parallel the case here.

-- KirillLevashov - 24 Jan 2012

Without coming to any conclusions just yet, I'll add some text from the Act: *Subtitle F—Shared Responsibility for Health Care PART I—INDIVIDUAL RESPONSIBILITY SEC. 1501 [42 U.S.C. 18091]. REQUIREMENT TO MAINTAIN MINIMUM ESSENTIAL COVERAGE.* _(a) FINDINGS.—Congress makes the following findings: (2) EFFECTS ON THE NATIONAL ECONOMY AND INTERSTATE COMMERCE. The effects described in this paragraph are the following: (A) The requirement regulates activity that is commercial and economic in nature: economic and financial decisions about how and when health care is paid for, and when health insurance is purchased. In the absence of the requirement, some individuals would make an economic and financial decision to forego health insurance coverage and attempt to self-insure, which increases financial risks to households and medical providers. (I) ...By significantly increasing health insurance coverage, the requirement, together with the other provisions of this Act, will minimize this adverse selection and broaden the health insurance risk pool to include healthy individuals, which will lower health insurance premiums... (J) Administrative costs for private health insurance, which were $90,000,000,000 in 2006, are 26 to 30 percent of premiums in the current individual and small group markets. By significantly increasing health insurance coverage and the size of purchasing pools, which will increase economies of scale, the requirement, together with the other provisions of this Act, will significantly reduce administrative costs and lower health insurance premiums. The requirement is essential to creating effective health insurance markets that do not require underwriting and eliminate its associated administrative costs._

The Internal Revenue Code was amended to include this "requirement"/"penalty"/"tax," including all relevant penalty amounts: http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00005000---A000-.html

This sparks possible new discussion ingredients: Holmes' notion of a legal duty and what this would mean to the "bad man"; the "law and economics" rationalization for a Congressional mandate to insure yourself against health risks; and the expansion of the insurance market through governmental regulations of people's health choices (and wallets).

What bothers me is the use of communitarian language ("shared responsibility") as a guise for the creation of a stable marketplace ("economies of scale"). Perhaps that's why the word "penalty" was used instead of "tax": to instill the feeling of guilt in the uninsured. Breaking the tax code does not instill the sense of committing a crime against your community.

Does anyone actually think the emotions of the public are affected by the text of a statute with which we have already established that no one is at all familiar, even thoughtful well-educated persons such as yourselves? Why not choose some more probable perhapses, as for example that a "penalty" is a term of art in tax law, meaning a payment collected from the taxpayer after an earlier payment for which the taxpayer is responsible has not occurred?

-- ArleneOrtizLeytte - 25 Jan 2012

It would seem that the distinction between the subsequent "penalty" and the initial "tax" as used in 26 USC §6671 and §6672

There are standard forms for citing the Internal Revenue Code. These aren't they, and for good reason. Or you could just cite using the standard form for all US Code citations, 26 USC §6671(a), for example (defining all "penalties" as "taxes" within the meaning of the IRC). [Oh, did we miss something?]

Eben, i didn't miss that - perhaps i misinterpreted though. The decision to use the words "penalties...shall be paid upon notice...and assessed and collected in the same manner as taxes" is different in my opinion to saying "are taxes", in the same way as me saying "steak shall be eaten with a knife and fork in the same manner as pork" does not make a cow identical to a pig. Moreover, the second half of the phrase "Except as otherwise provided, any reference in this title to “tax” imposed by this title shall be deemed also to refer to the penalties and liabilities provided by this subchapter." does nothing to suggest that the two concepts are necessarily identical in their legal usage outside of the IRC (such as the Constitution), or even within this particular subchapter (which would constitute the "as otherwise provided" exception) - rather, merely that they should be functionally treated as such when interpreting and applying other sections of the IRC. The reason i focused on sections that I did were that they addressed how the penalties were intended to function in relation to other taxes in that subchapter that were still called taxes, and i thought it may be possible to distill from any differences in function between the liabilities named "taxes" and those named "penalties" a concrete distinction between the two words when they are used concurrently, (which it turned out the answer was no). Of course, even if it had, that doesn't necessarily provide us with any direction as to how a court may choose to interpret the constitutionality of a particular liability - as is clearly demonstrated by Taft's opinion, which essentially says that a tax is a tax until it becomes a penalty - however it may help to identify how and why the word is interpreted and used by different branches of government.

is that the penalty liability may be a higher amount than the original tax liability whose non-payment triggered it - which in itself is i guess a form of "non-compliance" tax. Taft's attempt to associate "penalties" with regulatory or punitive power beyond the scope of the sovereign's enumerated powers seems counter to the actual examples of penalties as described in that part of the tax code, since they appear to function merely as second-tier taxes designed to ensure enforcement of the original tax liability. Moreover, the penalties identified are all specific formulas and fines - there is little regulatory discretion (with a few exceptions for waivers). This might be in order to comply with the Constitution's requirement that taxes be dispersed uniformly, which would go towards the case that a penalty is merely a subcategory of taxes.

-- RohanGrey - 25 Jan 2012