…because I’m an economist and a mom–that’s why!

Just a “Tax”

June 29th, 2012 . by economistmom

I find it kind of funny that, in the end, what saved President Obama’s health care reform law was to go ahead and call a tax (the crucial cost-controlling provision previously known as a “mandate”), a “tax.” From the Washington Post’s Robert Barnes (emphasis added):

At the core of the legislation is the mandate that Americans obtain health insurance by 2014.

The high court rejected the argument, advanced by the Obama administration, that the individual mandate is constitutional under the Commerce Clause of the Constitution. Before Thursday, the court for decades had said it gave Congress latitude to enact economic legislation.

But Roberts found another way to rescue it. Joined by the court’s four liberal justices — Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan — he agreed with the government’s alternative argument, that the penalty for refusing to buy health coverage amounts to a tax and thus is permitted.

Roberts summed up the split-the-difference decision: “The federal government does not have the power to order people to buy health insurance,” he wrote. “The federal government does have the power to impose a tax on those without health insurance.”

Later in the Post story, Justice Kennedy explains that the basic problem was that Congress (and implicitly the Obama Administration as well) wouldn’t call a tax a “tax” (bold added):

Kennedy said Roberts and the justices who joined him rewrote the statute in order to save it.

“The act requires the purchase of health insurance and punishes violation of that mandate with a penalty,” Kennedy said. “But what Congress called a ‘penalty,’ the court calls a tax. What Congress called a ‘requirement,’ the court calls an option. .?.?. In short, the court imposes a tax when Congress deliberately rejected a tax.”

It’s seems rather ironic to me that the authors of the health care legislation avoided the term “tax” to make the policy seem more acceptable to the American public–and in the process called its constitutionality into question.  Politicians work so hard to avoid that dirty word–as I’ve noted previously in different contexts.  Yet, taxing is one of the most appropriate things the federal government can do; it is essential in order to fund the public goods and services (such as “affordable [health] care”) that it provides.

Who knows what other things we might be able to accomplish by embracing the federal government’s taxing authority?!

(PS:  Here’s the Concord Coalition’s reaction to the decision.)

10 Responses to “Just a “Tax””

  1. comment number 1 by: Jason Seligman

    Roberts use of ‘can be seen’ suggests the analogue to a tax, I find this agreeable.

    Of course there is an analogue to tax expenditure as well depending on where you set your baseline.

    This makes things a bit more challenging for me. The free rider problem is bad, the related cost shifting problem is bad, and it too is a tax of a sort, on a shrinking base.

    However, one can see the penalty as a head tax, and the preferential treatment of those who have insurance, whether by employer, or other means as a tax expenditure.

    Looking at it this way offers two questions I’ve pondered today:
    -1- how regressive is this?
    -2- relative to the public or universal (non) options, how efficient is this in the medium run?

    No answers, just questions this day…

  2. comment number 2 by: Patrick R. Sullivan

    Funny ha ha, or funny peculiar?

    If peculiar, it has to stand in line behind Roberts switching his vote at the last minute. You don’t have to read very far into the ‘dissent’ to scratch your head and say, ‘What’s going on here?’

    Clearly it didn’t start out as a dissent, but as the majority decision. Maybe Roberts agrees with Mencken that the American people deserve to get what they want…good and hard.

  3. comment number 3 by: economistmom

    Ed Kleinbard explains this well, here:

  4. comment number 4 by: Underwriterguy

    I’m beginning to share the view that this is a decision primarily designed to restrict Federal overreach based on the Commerce Clause.
    Roberts had an epiphany writing the total rejection of ACA and saw he could side with the liberals and strike a blow for liberty that would set precedent for years to come. He is betting the political process will resolve the ACA issues either through the election or the pain of implementation of this poorly drafted law.

  5. comment number 5 by: Patrick R. Sullivan

    Kleinbard’s post is pure sophistry. No one disputes congress has the power to tax and spend, but they didn’t do that with Obamacare. Probably because a straightforward law wouldn’t have passed, as its flaws would have been obvious to too many voters.

    The Supremes are supposed to rule on the law actually written, not on one that could have been written.

  6. comment number 6 by: AMTbuff

    Roberts argued that the penalty could have been defined as a flat tax on everyone with an offsetting credit to those who obtain the right kind of insurance. However the flat tax would be a head tax, not an income tax. Such a tax is not permitted under the Constitution. That’s one factor Roberts overlooked.

    Roberts rewrote the law, saying that the penalty was equivalent to an income tax with an offsetting credit and pretending that the law was enacted in that form. However Roberts did not demonstrate his claimed equivalence. I claim that this task is mathematically impossible.

    Feel free to prove me wrong by showing us a marginal rate and credit phase-out schedule that matches the penalty dollar for dollar in all situations across all incomes. I claim that you may be able to get close, but you’ll never reach an exact match. I further claim that as you get close to a match, the marginal tax rates will skyrocket. That will create a different constitutional defect: a possible violation of the takings clause.

  7. comment number 7 by: Brooks / Gordon


    I have two (real, not rhetorical) questions:
    1. On what basis do you say a head tax is unconstitutional?
    2. Would the penalty of ACA ever exceed one’s taxable income?

  8. comment number 8 by: Steveinch


    Here are some thoughts on number 1. A capitation tax is permitted but you cannot structure the ACA as a capitation tax because a capitation tax is required of each individual. Given te ACA penalty is structured on a household basis, it simply isn’t practical to use a capitation tax to achieve te outcome at least not without a hopelessly complex rebate

    As to question 2, about 13 million return with AGI under $5,000 were filed in 2009. Since the max ACA penalty is about 2k, it would be possible but for the fact that people with AGI below the filing threshold are exempted. But this more or less makes AMTs point. Moving from below the threshold to an income where the ACA penalty applies could easily generate a tax rate on the margins of over 100 percent

  9. comment number 9 by: Brooks / Gordon


    (Belated) Thanks. So, based on that WSJ piece, a “head tax” is indeed constitutional. I would think, from a constitutionality perspective, the key characteristic of such a tax is not that it is literally per individual (as opposed to household), but rather that such a tax is imposed simply for residing in the country (or for working here or for being a citizen), as opposed to being based on income or some activity.

    Re: question #2, I didn’t follow your response. Are you saying yes or no? (Would the penalty of ACA ever exceed one’s taxable income?)

  10. comment number 10 by: SteveinCH


    On 1, the answer is constitutionally it has to be a capitation (per head) tax. I don’t think per HH would actually work.

    On 2, the answer is no I think but the marginal rate could still exceed 100 percent near the pivot point.