Why ObamaCare's Penalty For Not Purchasing Health Insurance Isn't A Tax


Philip Klein makes an important point about why you shouldn't buy the federal government's argument that the individual mandate to purchase health insurance is justified under Congress's taxing power:

It's true that Democrats went out of their way to call the fine a "penalty" in the legislation to avoid the more politically toxic term "tax" – and that has figured into these decisions – but there's a much more important reason why the taxing power argument has been thrown out. The reason is that the fine serves a primarily regulatory function, whereas to be justified under the government's taxing power its primary purpose must be to raise revenue.

When the individual mandate was first conceived, its designers thought of the mandatory insurance premium revenues as a form of taxation. The trouble with that conception (for the mandate's backers, anyway), though, is that all those premium revenues get counted toward the total cost of the law—revealing just how expensive it really is. That's what happened with HillaryCare in 1994, and it's one of the reasons that law died. This time around, as Cato's Michael Cannon has written, the law's designers worked to ensure that those costs would be hidden. And the administration made the argument that the mandate was legal under the taxing power by saying that the penalty for non-compliance was a form of taxation. But it's really more like a backdoor form of regulation—intended primarily to control behavior rather than to raise revenue. The distinction matters. As Klein points out later in his post, even Judge Norman Moon, a federal judge in Michigan who ruled in favor of the mandate, didn't buy the government's argument that the penalty could be constitutionally justified as a tax. 

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  1. But…but….FREE HEALTHCARE!

  2. The income tax alone has all sorts of deductions for very specific behavior. These deductions are meant to steer your behavior and nothing else. Yes, the primary purpose of the income tax is to raise revenue, but the deductions’ purpose is to incentivize certain behavior. They could always increase the income tax and add a health insurance deduction. Same difference.

  3. Really? Then why are so-called “sin taxes” necessary, such as taxing tobacco to fund health care liabilities?

    If the intent is to modify behavior….

    1. Well, read stories about the DC bag tax. The whole thing was touted as a way to get people to stop using plastic bags. Now the DC govt is pissed because people stopped using so many plastic bags and they didn’t raise half the revenue they expected (uh, to clean up the river, you know).

      They lie when the truth would serve them better.

  4. Don’t all taxes have to be applied proportionally (or something in that language) across the population? Which would be another reason on why those taxes would be invalid?

    1. Not if it was part of the 16th amendment income tax.

      1. It isn’t proportional to earned income, though, nor is it some sort of deduction or credit (though those are really already stretching the constitutionality issue).

  5. A couple-three months ago, Virginia’s Attorney General, Ken Cuccinelli, gave a brief talk about his case against Obamacare here in Richmond at a Federalist Society meeting.

    He explained the legislative history of the individual mandate and the arguments they had presented to the judge. When the fine/fee/tax was first introduced, it was included as a tax, but the Administration was trying furiously to argue it was living up to BHO’s promises not to raise a single tax on anyone making under $250,000 (or was it $150,000?).

    During the various proceedings, more than one Dem legislator got up and pounded the podium about how this is NOT a tax!! And the language of the bill expressly was changed specifically to make it clear that it was not a tax, but was instead a fine or fee for not having purchased health insurance. They argued that they were not using the taxing power, but were enacting it under the commerce clause (are you serious?).

    And of course, predictably, when challenged in court, the government lawyers, painfully aware of the potential infirmity of a commerce clause argument, argued that it was an exercise of the taxing power.

    The judge in Florida and the Virginia judge both shot that argument down. It clearly cannot be justified as a tax, given the clear legislative history, where Congress expressly says it’s not a tax.

    1. It also cannot pass as strictly an income tax, because it will be owed even if one owes no income tax. What it actually is, if not a fine, is a capitation or head tax. There has never been such a thing in this country, and I believe even with the 16th Amendment it would be unconstitutional.

      1. Hmmm, since we exhale CO2, is this how a carbon tax is permissible? Not to mention when we decompose, talk about a true death tax.

        What’s the imperial government going to do? Tell us not to breathe and die? There’s ya some regulatory recapture!

      2. Right. It also originated in a Senate bill, whereas revenue bills must constitutionally originate in the House.

        1. Did not know that.

          Yup, the mandate is DOA.

        2. It wasn’t a gutted House bill? Of course, really, the court could strike that down too — it does occasionally whack things that are obvious end-runs around Constitutional intent, if it feels like it.

  6. You know who else sought to modify behavior…

    1. B.F. Skinner?

  7. Cass Sunstein?

  8. Tax shmax…whatever…general welfare..necessary and proper…violent rhetoric… just shut up and do as you’re told.

    1. Fuck off, slaver.

  9. They could always increase the income tax and add a health insurance deduction. Same difference.

    They could have, but they didn’t. So fuck ’em.

  10. Last year, when my 86 year old mother died, we found a hospital bill in her effects. From 1927. Her dad had an operation. The bill was simple: a fee for the operation, a daily charge for the hospital stay, and two or three minor charges. And my grandmother, who never owned a house, never owned a car, worked as a retail clerk…she paid the bill with a check.

    How far we’ve come since then.

  11. If only I was the Progressive end result of millenia of human intellectual progress, then I would be able to understand when something becomes a non tax then a tax based on what suits me most politically at any given moment.

    1. That pea is under one of those shells, damn it. Sure it is.

  12. Speaking of Obama and taxes, I watched him flub his way through that interview with O’Reilly before the super bowl.

    He’s was saying “I’ve cut taxes for 95% of working families” which isn’t a lie so much as a distortion of the truth (I’ll ignore the direct tax increases I’ve experienced like the cigarette tax). Taxes stayed the same for most of the middle class, yet one could argue that by handing out checks of taxpayer money for things like Cash for Clunkers or the 1st time Home buyer tax credit he simply put the needed additional revenue to finance these “tax cuts” on the Federal credit card.

    That’s the same deal with Obamacare. He’ll “lower healthcare costs” for those who already couldn’t afford it by raising costs on those who can. During the interview he said that he’s been successful in lowering health care costs since Obamacare has been enacted because he’s forced insurance companies to stop denying coverage based on pre-existing conditions. But the insurance companies have raised premiums on the paying customers to afford this new pool of unhealthy people with pre-existing health conditions, thus raising everyone’s cost.

    But the worst part of the joke here is that Obama has to tap dance around the mandate between the “is it or is it not a tax” argument when the tax penalty for those who won’t pay won’t even come close anything but pocket change in grand scheme of things.

    He wants to argue that a mandate will generate enough revenue to offset costs of putting 40 million new people on medicare.

    And no one ever calls him out on this bullshit. Even O’Reilly.

    1. No one called this whole sham out on the grounds it should have been called on, when it was going to congress.

      Why should anything change now?

      The MSM continues to prove their utter worthlessness.

    2. My brother would tell you we have to respect the office (no yelling “you lie” when he’s lying).

  13. So as I say, I wake up every morning, thankful that I have exceptional health insurance coverage I found through wise health insurance for my family because it gives me peace of mind knowing that my family can count on me to deliver their health care needs.

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