Conditional Spending, Coercion, and Commandeering: The Affordable Care Act and the Federal Regulation of State Taxation

Bradley W. Joondeph, Santa Clara University School of Law

Abstract

In their constitutional challenge to the Affordable Care Act (or ACA), the twenty-six states party to Florida v. HHS contend that the ACA’s amendments to Medicaid amount to an impermissible “commandeering” of the states. Specifically, they argue that, though the ACA’s Medicaid provisions are not mandatory in form, they are “in fact”; the sheer volume of the federal funding at stake leaves them with no practical capacity to withdraw from Medicaid. The states’ claim thus poses a very basic question of constitutional law, which the Supreme Court has yet to squarely answer: can conditions imposed on state governments pursuant to a federal spending program, participation in which is formally voluntary, ever constitute an impermissible commandeering?

This short article explains that, were the Supreme Court to vindicate the states’ commandeering claim, it would largely undermine Congress’s authority to regulate the states’ taxation of interstate commerce. The Supreme Court has long held that the Commerce Clause grants Congress the power to regulate state and local taxation. We can reconcile this authority with the anti-commandeering principle on the ground that, at least in form, the federal regulation of state taxes always presents state governments with a choice: they can adhere to Congress’s prescription, or they can decline to impose the affected tax. But if the question of constitutional coercion turns on whether the states have a choice “in fact”—fiscally and politically—this distinction would fall to pieces. Any federal regulation of a tax that is too practically difficult for the states to abandon would constitute an impermissible commandeering.

This concern may seem insignificant, but the long-term ramifications could be quite unfortunate. In 2007, state and local governments collected roughly $1.3 trillion in tax revenue, accounting for more than one third of the overall tax burden in the United States. And there are strong reasons to believe that the problems posed by our present state and local tax system—the disadvantaging of interstate commerce, the distortion of locational decisions, the undertaxation of mobile taxpayers, and the costs of compliance and planning caused by the non-uniform rules of thousands of different taxing jurisdictions—are causing significant welfare losses to American society.