Taxes

Is ObamaCare's Mandate a Tax or a Penalty? Everyone Agrees the Answer Is Yes.

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Is ObamaCare's mandate a tax or a penalty? The Obama administration, Republican presidential nominee Mitt Romney, and (maybe) Supreme Court Chief Justice John Roberts all agree that the answer is: yes.

Over the weekend, top Romney campaign adviser Eric Ferhnstrom told MSNBC that the former governor of Massachusetts, who pushed for a state-based mandate in his own 2006 health care overhaul, agrees with the president that the mandate is a penalty and not a tax. Two days later, Romney offered a correction, telling CBS that "the Supreme Court has spoken, and while I agreed with the dissent, that's taken over by the fact that the majority of the court said it's a tax, and therefore it is a tax. They have spoken. There's no way around that." Romney has described the Massachusetts mandate he signed into law as an "incentive."

Obama administration press secretary Jay Carney, meanwhile, recently told reporters that that ObamaCare's mandate was not a tax. President Obama said the same thing in 2009. But in a Supreme Court brief signed by Obama administration Solicitor General Donald Verrilli, the administration insisted that "the minimum coverage provision" — a.k.a. the mandate —  "is valid not only as a tax in its own right, but also as an adjunct to the income tax," and also argued that just because Congress called it a penalty in the law's text, that doesn't mean it's not a tax. "The suggestion that Congress disavowed its taxing power is insupportable," says the administration brief. "Congress placed the minimum coverage provision in the Internal Revenue Code" and "gave the IRS enforcement power over it." It also compared the provision to other "taxing measures" used to expand health insurance, saying that the Constitution "permits Congress to impose a '[t]ax on individuals without acceptable health care coverage,'" and noted that multiple members of Congress defended the law as a tax during debates.

And if Salon's report from an anonymous source inside the Supreme Court is accurate, Chief Justice John Roberts wrote both the majority opinion declaring that the mandate was justifiable under the tax power but also the first three quarters of the dissent, which argues that the mandate is not a valid exercise of the tax power. Roberts' signed majority ruling explains that "the most straightforward reading of the mandate is that it commands individuals to purchase insurance. After all, it states that individuals 'shall' maintain health insurance." And then the law imposes a penalty if they do not. But the Chief Justice's opinion disregards the most straightforward reading and rules that it's valid under the tax power anyway. The dissent, on the other hand, notes that the Supreme Court has "never held that  any exaction imposed for violation of the law is an exercise of Congress' taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty." 

So here was have each of the parties acting according to their respective characters: In early drafts of the law, Congress initially described the mandate as a tax, but eventually stripped that language and framed the mandate as a penalty when the provision was passed. The administration publicly declares that it's a penalty now, after arguing in court that it's a valid exercise of the tax power. But the Supreme Court has ruled that it's technically viable only as a tax, despite agreeing that that's not really what Congress meant. And the Romney campaign has flipped its position in the less than a week because that's what the Republican party seems to want to hear. 

The part of the mandate that resembles a tax is not the penalty on those who do not comply but the requirement that everyone "shall" mantain coverage. Think of it this way: There's little important difference between 1) the government requiring health insurers to provide health coverage and using revenue collected from a new tax to pay those insurers and 2) the government alternatively requiring individuals to pay health insurers directly for their services. There is precedent for this view: When scoring Bill Clinton's 1994 health reform proposal, the Congressional Budget Office counted private health insurance premiums paid under the law as government revenue, and added the cost of those premiums to the bill's total tab. 

Does it really matter, though, whether the mandate is labeled a tax or a penalty? What matters most is what it actually does: Give the federal government the power to create commerce in order to regulate it by mandating purchase of a private product. It's a bad policy and worse legal precedent no matter what you call it. 

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20 responses to “Is ObamaCare's Mandate a Tax or a Penalty? Everyone Agrees the Answer Is Yes.

  1. It’s a living healthcare law!

  2. I’ve noticed that the big argument you hear from Pelosi and Reid etc. lately is “The law is just a penalty (NOT A TAX!!!) in order to go after the freeloaders in society that are making the rest of us pay for their healthcare.”

    They didn’t use to make this argument as much. Before it was “we need to make healthcare more affordable for those who can’t get it”. Now that the law has been declared a tax, not only do they try and argue it isn’t, but they then try and deflect the argument by saying that “Only those freeloaders” would pay it.

    I smell serious desperation.

    1. The problem is the only way to make health insurance more affordable for the sick is force subsidization by the healthy, thus the mandate as an offset to the anti-market guaranteed issue and community rating provisions.

      Now that the mandate is just a tax, which by definition has to be lower than what an eligible insurance plan would cost, and thus not fixing the adverse selection problem, premiums will rise for everyone. In any event I’m not sure the mandate/tax distinction would’ve made a difference in practice.

      The critical piece of ObamaCare is the guaranteed issue/community rating mandate, not the new “tax”. The former is what will lead to a collapse in the private health insurance market, which for too many is a feature not a bug.

      1. “In any event I’m not sure the mandate/tax distinction would’ve made a difference in practice.”

        Yeah, I agree. And you’re right that the attempt was to use the mandate as an offset to the anti-market guaranteed issue and community rating provisions. But as we both know it wouldn’t have even made a dent in practice.

        My premiums went up significantly immediately after the law was passed, so this is sort of irrelevant at this point. Soon the bigger insurance companies will let the anti-market provisions of this bill kill off any remaining competition in their market and we will get “Universal Healthcare” from a select few insurance companies that have paid off Obama and the others the most, resulting in higher costs and shittier service for all.

        Hoo ray.

  3. good grief, it’s like a remake of “it depends on what the meaning of is is.”

    1. And I feel nostalgic for those times.

      That’s just how far we’ve fallen.

  4. So, there are lots of styles of jurisprudence — deference, activism, originalism, living constitution, etc. Shouldn’t Roberts’ best be described as doublethink?

  5. Barack Obama can blow me.

    And Roberts can get in line behind him, too.

  6. Is Suderman’s Lost Alt-Text Evil or just Lazy? Everyone Agrees the Answer Is Yes.

    1. Yes, we can.

  7. so it’s a mandtax? or is a tatory better”

  8. I can’t wait to see the look on liberals’ faces when the cycle shifts around to republicans in power using this precedent as an excuse to shove something else up everyone’s asses and have a free pass because it’s a tax.

    It’ll suck just as bad as this, but at least there’s the “I told you so” silver lining.

    1. Heard it suggested that the HOR pass some ridiculous mandate in this manner just to prove the point.

    2. two words

      NATIONAL SERVICE

  9. Does it really matter, though, whether the mandate is labeled a tax or a penalty?

    Yes. One is unconstitutional regulation of non-commerce and the other is constitutional regulation of non-commerce. See the difference?

  10. Tax? Mandate? Either way it is health care access for 30 million Americans. Surely that is not a bad thing?

    1. Yep, because a bunch of asshole lawyers can just GIVE 30 million people health care with the stroke of a pen.

      Why don’t they just mandate that we all be billionaires?

  11. If the PPACA is a tax, then doesn’t it violate Article 1 Section 7, because it originated in the Senate? I’ve been busy lately, so I don’t know if this point has already been addressed.

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