Authority for pure revenue-raising is established, but taxes with the primary goal of regulatory compliance are still up in the air.

The definition of “tax” for constitutional purposes has become important in light of the Supreme Court’s 2012 decision in NFIB v. Sebelius, in which Chief Justice Roberts for the Court upheld the constitutionality of the individual mandate of the Affordable Care Act under the taxing power. This has led to commentators questioning the utility of Roberts’ distinction between a “tax” (where Congress’ power is almost unlimited) and a “regulation” (where Congress’ power under the Commerce Cause is limited).

We should make a very clear note at the outset: Tax law is a too broad term. It includes both provisions intended at raising revenue and provisions intended to regulate behavior. Personal income tax (PIT), corporate income tax (CIT) and even value added tax (VAT) laws include both type of provisions. Using the distinction that Prof. Stanley Surrey has proposed about 60 years ago, tax legislation includes both types of provisions; those that aimed at raising revenue in accordance with the tax base, and regulatory provisions as well ("tax expenditures"). In other words, almost any tax legislation includes both aspects. Hence referring to PIT means its base, and not necessarily all its code provisions. The purpose of this article is to draw this distinction and to use it for basic guidelines for constitutional judicial review over tax legislation.

We would propose a different distinction. A “tax” for purposes of the Taxing Clause is a pure tax, namely a tax implemented “to pay the Debts and provide for the common Defence and general Welfare of the United States”, i.e., a tax intended primarily to raise revenues in order to finance the elected government’s policy and its implementation. In addition, a progressive “income tax” for purposes of the Sixteenth Amendment is a tax intended for redistribution of wealth from the rich to the poor. We do not address redistributive tax provisions (like the progressivity feature of PIT or a wealth tax) further, beyond noting that they are inherently political and therefore their distributive function (reducing inequality) should not be subject to judicial review.

Even a pure tax has constitutional limits, but they are relatively few. It should be emphasized though, that the traditional basses for constitutional judicial review - such as discrimination on the basis of gender, race, or sexual orientation, are applied to tax legislation in a very limited way. As noted already, one could detect the Supreme Court’s significant reluctance to review tax legislation in the US on constitutional grounds, although one could also argue that a tax provision that has disparate impact on racial or gender grounds (or other protected category) should be evaluated using struct scrutiny (as some provisions involving gender have in fact been evaluated by lower courts).

This should be distinguished from a regulatory tax legislation, i.e., tax legislation whose main purpose is not to raise revenue but to change taxpayer behavior. Regulatory taxes include Pigouvian taxes (e.g., tobacco taxes and carbon taxes) designed to reduce negative externalities and tax expenditures (deviations from a normative tax base, which we name negative Pigouvian taxes, since their purpose is to treat favorably taxpayers who create positive externalities). Regulatory Tax legislation should be subject to constitutional review under various clauses of the Constitution including the Due Process Clause, the Equal Protection Clause, the Establishment Clause, and the limits on the Commerce Clause.