Chief Justice Roberts and four others found that the individual mandate could not be justified via the Commerce Clause (CC) in the Constitution. The CC allows the federal government to “regulate” interstate commerce. Roberts found that precedent allows the government to regulate activity via the CC but the individual mandate regulates inactivity and is hence unconstitutional (p. 20 of Roberts’ opinion):

The individual mandate, however, does not regulate existing commercial activity. It instead compels individuals to become active in commerce by purchasing a product, on the ground that their failure to do so affects interstate commerce. Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority.

Moreover (p. 22-23),

Indeed, the Government’s logic would justify a mandatory purchase to solve almost any problem…To consider a different example in the health care market, many Americans do not eat a balanced diet. That group makes up a larger percentage of the total population than those without health insurance…..The failure of that group to have a healthy diet increases health care costs, to a greater extent than the failure of the uninsured to purchase insurance….Those increased costs are borne in part by other Americans who must pay more, just as the uninsured shift costs to the insured….Congress addressed the insurance problem by ordering everyone to buy insurance. Under the Government’s theory, Congress could address the diet problem by ordering everyone to buy vegetables.

Let’s take a quick look at the broccoli market. At the prevailing price, absent regulation, some consumers are active in the market and buy broccoli and other are inactive and don’t buy broccoli. Similarly, there are some  producers who sell broccoli and other potential sellers who, given the prevailing price, produce chilis. Domestic broccoli growers are mainly in California but many broccoli consumers live in the Acela corridor so there is interstate commerce.

Then, the government enters the broccoli market. Some say this is because of the health benefits of broccoli, others say this is because the broccoli growers have formed an effective lobby, much like the sugar producers. The government intervention comes in the form of a subsidy to broccoli consumers. Consumers who consume 1 lb of broccoli/week get a $300 deduction on their taxes (Whole Foods immediately starts selling an annual contract which can easily be appended to your IRS form to get the broccoli deduction.)

Consumers who were active before still continue to buy: after all they are getting an extra incentive to buy. But also consumers who were inactive before now start to buy: after all the broccoli vs arugula margin now favors broccoli. In fact there is a new annual demand curve for broccoli D'(p) where D'(p)=D(p-300) where D was the original demand curve. There is higher demand at every price and the price of broccoli goes up. This changes the broccoli-chili margin for producers and inactive broccoli producers now switch to activity. (Also, profits go up for broccoli producers giving them the incentive to lobby for a consumer subsidy.)

Therefore, intervention in the “active” market changes the active-inactive decision and influences inactivity. An equivalent policy is to use to stick rather than a carrot and impose a penalty of $300 on consumers who are consuming less that 52 pounds of broccoli/year.  Appropriately chosen carrots and sticks are equivalent in terms of broccoli trade. (More broadly, a tax or subsidy to broccoli production could also implement the same output of broccoli.) This simple analysis has some implications for Democrats and Republicans.

First, many instruments can implement the same output so the fact that one kind of intervention has been deemed unconstitutional is not important. A carrot can replace a stick.

But, second, the instruments differ in their revenue implications. Carrots are expensive to the government and sticks raise revenue. More use of carrots means bigger deficits or distortionary taxes.

And, third, since penalizing inactivity is equivalent to incentivizing activity, we appear to have conflicting precedents. It is legal to regulate activity but not to regulate inactivity. But regulating activity impacts inactivity and if regulating inactivity is unconstitutional, in a roundabout way, the Roberts et al applies. On the other hand, there are plenty of precedents for regulating activity even if they influence inactivity. In the (in)famous Wickard case, quotas on farmers reduced activity and increased inactivity. I am not a lawyer so I can not sure what happens in this circumstance. I guess the Supremes get to vote and they can rationalize votes one way or the other based on conflicting precedents. All bets are off – will Roberts switch his vote at the last minute etc.?

Plenty of stuff for us citizens to contemplate on July 4. I’ll be grilling broccoli.

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