Tag Archives: commerce clause

03.20.2012 | Health Care and Commerce

How to define commerce?

In 1824, the U.S. Supreme Court was asked to decide if New York State could give a monopoly to a steamboat operator. In his decision, Chief Justice John Marshall rejected the narrow “buying and selling” definition of commerce. Instead, he said that commerce included all economic intercourse. Consequently, New York could not confer an exclusive right to travel on interstate waterways because Congress had the power to regulate interstate transport.

That 1824 decision, Gibbons v. Ogden, was only the beginning. Used to strike down New Deal legislation and to support Civil Rights law, the interpretation of the Commerce Clause has been varied. Now, starting on March 26 with 5 1/2 hours of oral arguments, again the Supreme Court will probably tell us what commerce means.

The Commerce Clause directly relates to 1 of the 2 major sections of Obama health care legislation that the Court is considering. Called the individual mandate, beginning in 2014, most of us will be required to obtain health insurance coverage or pay a penalty. Does Congress have the authority to mandate coverage? The Commerce Clause will provide an answer.

Interesting: Reflecting the importance of the issues, the Supreme Court has allocated an unusually long 5 1/2 hours to oral arguments. Also, they will make audio recordings available within hours of their presentation.

Here, econlife describes the other Affordable Care Act issues that the Supreme Court will ponder.

The Economic Lesson

Hoping to promote a single national economy, the framers of the Constitution included a “Commerce Clause” that gave the Congress the power to, “regulate Commerce with foreign nations and among the several states, and with the Indian Tribes.” In Marshall’s Gibbons v. Ogden decision, he specifically says “commerce” includes trade and transportation.

Here, in an econlife post, you can see historic definitions of the “commerce clause.”

An Economic Question: How can opponents and supporters of the Patient Protection and Affordable Care Act each use the “commerce clause” to support their position?

Posted by: adminEcon
Tags: commerce clause, Gibbons V. Ogden, health-care law, individual mandate, John Marshall, multi-state case, Patient Protection and Affordable Care Act, Supreme Court
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11.16.2011 | The Supreme Court and the Health-Care Law

How to understand what the Supreme Court will look at when they decide whether parts of the health-care act are constitutional?

In an excellent interactive graphic, the Washington Post identifies the issues that Supreme Court will consider:

Individual mandate: Requiring most Americans to buy insurance or pay a penalty.
Medicaid expansion: Mandating extra state Medicaid spending for expanded coverage.

Formally called Florida v. Dept. of Health and Human Services, No. 11-400, the case is also known as the multi-state suit because 26 states are involved with challenging the Patient Protection and Affordable Care Act. March oral arguments have a 5 1/2 hour Supreme Court slot rather than the traditional single hour.

These health-care law issues have also been challenged in the courts but will not be considered this year by the Supreme Court:

Employer mandate: Requiring firms employing 50 or more to provide health insurance or pay a penalty.
Health benefits exchanges: Requiring states to establish their own insurance markets or to let the federal government set one up for them in order to supplement existing markets.

The Economic Lesson

Hoping to promote a single national economy, the framers of the Constitution said that the Congress has the power to, “regulate Commerce with foreign nations and among the several states, and with the Indian Tribes.” However, since 1824, the Supreme Court has had to define “commerce.”

Now again, for health care, the commerce clause has played a leading role in determining Congressional power. So far, lower courts’ opinions have varied about whether the “commerce clause” facilitates or prohibits Congressional health-care legislation.

Here, in an econlife post, you can see historic definitions of the “commerce clause.”

An Economic Question: How can opponents and supporters of the Patient Protection and Affordable Care Act each use the “commerce clause” to support their position?

Posted by: adminEcon
Tags: commerce clause, health-care law, individual mandate, multi-state case, Patient Protection and Affordable Care Act, Supreme Court
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07.17.2011 | Amazon vs. California

According to the Seattle Times, in 1996, Amazon’s CEO, Jeff Bezos said, “You have to charge sales tax to customers who live in any state where you have a business presence. It made no sense for us to be in California or New York.” Amazon’s home? Seattle.

Bezos was referring to a 1992 Supreme Court decision that said states could not ask out-of-state retailers with no local physical presence to pay a sales tax. Consequently, Amazon pays sales taxes to Kansas and Kentucky, North Dakota, and Washington because it has stores or offices there. Amazon claims it has no physical presence in California.

Using a broader definition, California disagrees.

Because Amazon has relationships with in-state affiliates that direct business to it, California says that Amazon will owe local sales taxes. Amazon responded by eliminating those affiliate relationships. In addition, Amazon has petitioned California to schedule a June referendum. Once Amazon gets 500,000 signatures, voters can decide whether California can keep its e-commerce tax.

You can see that we have here a much bigger issue. Should e-retailers charge sales tax? Local retailers say Amazon has an unfair advantage. The state of California desperately needs more revenue. On the other hand, as a growth sector of the economy, should e-commerce receive favorable treatment? And, through local taxes, are states obstructing interstate commerce?

The Economic Lesson

Citing the U.S. Constitution’s Commerce Clause, in Quill Corp v. North Dakota, the U.S. Supreme Court sought to limit when states could tax out-of-state businesses. Here, you can see the Court’s decision.

An Economic Question: Referring to opportunity cost, agree or disagree with Amazon’s Los Angeles customers paying an 8.75% tax.

Posted by: adminEcon
Tags: Amazon, California, commerce clause, opportunity cost, Quill Corp v. North Dakota, Sales tax, state revenue
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06.04.2011 | Health Care and Steamboats

Health care and steamboats are related. The link is the Commerce Clause of the Constitution.

But, what is “commerce?” In 1824, the Supreme Court had to provide an answer. And now, in Cincinnati, a federal court asked the same question.

In 1824, the Supreme Court was asked to decide if New York State could give a monopoly to a steamboat operator. In his decision, Chief Justice John Marshall rejected the narrow “buying and selling” definition of commerce. Instead, he said that commerce included all economic intercourse. Consequently, New York could not confer an exclusive right to travel on interstate waterways because Congress had the power to regulate interstate transport.

Fast forward to 2011. Obama health care legislation is being challenged in federal courts. The law’s opponents are saying that the Congress cannot require the uninsured to purchase medical coverage because of the Commerce Clause. Supporters of the mandate say Congress can require insurance purchases because of the Commerce Clause. The key again? A broad or narrow definition of commerce.

Supreme Court Justice William O. Douglas (1898-1980) said that the Commerce Clause was the “fount and origin of vast power.” (p. 48) Used to strike down New Deal legislation and to support Civil Rights law, its history since 1824 has actually been varied. Now, with federal courts in different states disagreeing, again the Supreme Court will probably tell us what commerce means.

The Economic Lesson

The United States could have been like Europe before the euro zone was created. Remember the French franc, the German mark, the Italian lira? Send some French wine to Germany and foreign exchange is involved. Travel across Europe and you needed multiple currencies. The result? None of Adam Smith’s (1723-1790) economies of scale could be enjoyed. Economic growth and development were constrained.

Not in the United States. After the powerlessness created by the Articles of Confederation (1781-1789), our founding fathers knew that Congress needed more power. One source would be the Commerce Clause. The Congress could stop one state from obstructing free movement of goods. A national market could evolve with specialization that would fuel economic growth.

An Economic Question: Knowing that a broad definition of commerce gives more power to the Congress while a narrow definition tends to favor state power, explain which one you support.

Posted by: adminEcon
Tags: Affordable Health Care Act of 2010, commerce clause, Gibbons V. Ogden, John Marshall
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01.21.2011 | A Broccoli Mandate?

For one federal district judge, deciding whether parts of the new health care reform law are constitutional relates to, “What is economic?”

Our story begins with a court hearing in Florida on December 16. States opposing the health care reform law have said that that Congress does not have the authority to make us buy health insurance or, instead, pay a $695.00 annual fine. Defending the law, (federal) government attorneys said that the insurance market was economic activity under Congress’s authority to regulate interstate commerce.

Here is where economics appears to enter the picture for the judge. Pondering the authority of Congress, he said, “In the broadest sense every decision we make is economic. The decision to marry. The decision to keep a job or not has an economic effect…If they [the federal government] decided everybody needs to eat broccoli because broccoli makes us healthy, they could mandate that everybody has to eat broccoli each week?”

You might want to go here for a Washington Post interactive description of lawsuits challenging health care legislation.

The Economic Lesson

Discussed here, the balance between the power of the states and the power of the federal government relates to the Commerce Clause and the Tenth Amendment.

The Commerce Clause of the US Constitution, Article 1, Section 8, Clause 3, states that “The Congress shall have Power…To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”

The Tenth Amendment to the Constitution says that those powers not given to the federal government in the Constitution are reserved to the states.

And perhaps all of this takes us back to “What is economic?”

Posted by: adminEcon
Tags: broccoli, commerce clause, health care reform act, Tenth Amendment
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