Why Obama Should Embrace the Obamacare Tax
As a legal matter, the question of whether the individual mandate is a tax is important. Chief Justice John G. Roberts’s judgment that it is is what enabled him to save the law from being struck down.
As a policy matter, however, whether the payment is a “tax,” a “penalty” or a “fine” is irrelevant. That hasn’t stopped politicians in both parties from fixating on the matter.
White House Press Secretary Jay Carney pointedly insisted that it’s not a tax. Carney told reporters last week: "It's a penalty, because you have a choice. You don't have a choice to pay your taxes, right?” Meanwhile, Republicans have rather confusingly been insisting that Roberts’s ruling was wrong, and yet they knew all along that the mandate was a tax.
The confusion arises because taxes and fines are often more similar than people realize. Fines are designed to modify behavior -- and also to raise revenue. Taxes are supposed to raise revenue, but some (known as “Pigouvian taxes”) are also designed to modify behavior.
When the government imposes heavy taxes on cigarettes, its intent is to discourage people from smoking, but allow them to do so if they are willing to pay. Similarly, when the government imposes a fine on speeding, its intent is to discourage speeding, but it’s not a zero-tolerance policy; ideally, the fine should be set so that the costs the speeder imposes on society are put back onto him or her.
Speeding fines and cigarette taxes look a lot alike, and they both look like the insurance mandate. The purpose of the mandate is to get people to buy insurance, and if they don’t, the government takes money from them. This undercuts undermines Carney’s argument. Cigarette taxes are optional: If you don’t want to pay them, all you have to do is not buy cigarettes. Similarly, you can avoid the individual mandate tax, but only by obtaining insurance.
The main practical difference between a Pigouvian tax and a fine is this feeling of optionality. Drivers have the option to speed and subject themselves to the risk of being fined. But it feels like the government is telling you not to speed, more so than a cigarette tax feels like an order telling you not to smoke. Fines also come with additional costs that taxes don’t: They might require you to appear in court, and they can become part of a record that stays with you, as when speeding fines are reported to insurance companies.
In these regards, the mandate still looks like a tax. It’s collected by the IRS, which then is barred from using judicial means to enforce payment. And being subjected to an insurance penalty would be a confidential matter like anything else on your income tax return. The law may call it a “penalty,” but if it walks like a tax and quacks like a tax, it’s a tax.
But who cares whether the mandate is a tax or a penalty? Either way, it’s a coercive measure to get people who otherwise wouldn’t to buy insurance. And that’s fine (I'm using that word as an adjective). Any policy designed to achieve universal health insurance will necessarily be coercive.
Many politicians in both parties purport to share the goal of universal health coverage for all Americans. There are lots of ways to get there -- tax credits, tax exclusions, employer mandates, individual mandates, single payer coverage -- but all of them involve pushing people to obtain something they might not buy on their own.
The Obama administration should just admit that the mandate is a tax. It can also say it’s a tax that most Americans won’t pay, especially if Obamacare succeeds in its goal of getting nearly everyone to carry insurance. And it can note that it’s less invasive than the other ways we might achieve universal coverage, such as single payer.
(Josh Barro is lead writer for the Ticker. Follow him on Twitter.)
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