Is the individual mandate a penalty or a tax? Washington doesn’t seem to know

by Dustin Siggins | July 7, 2012 2:19 pm

Since the Supreme Court ruled the individual mandate is a tax, the various Washington-based interests have pulled out all of the political stops in order to convince the American people that it’s a tax, unless it’s a penalty, in which case it’s a fine.

Want to know for certain? Ask the 2009 version of President Obama, who said it is most certainly not a tax[1]. Or you could ask the Administration’s lawyers, who argued it is a tax when they argued for its legality in front of the Supreme Court. When the Court agreed with those lawyers last week (thereby legally affirming the mandate is a tax), White House Press Secretary Jay Carney definitely claimed[2] it’s actually a penalty, not a tax.

Got a headache yet? Grab a Tylenol — it gets worse. Just this week a senior Romney spokesperson said the mandate isn’t a tax[3], only a day before Governor Romney agreed it is[4] a tax — but only because the Supreme Court said it is, not because Romney thinks it is.

In and around all of this migraine-causing campaigning is a new paper[5] by Gadi Dechter, the Center for American Progress’ (CAP) Managing Director for Economic Policy. The paper, which parrots the Administration’s claims that the mandate is in fact a penalty instead of a tax, tells readers “here are some facts to keep in mind” as opponents of the health care law try to define the mandate as a tax. Unfortunately for Dechter, his analysis is extremely misleading in several significant ways.

First, the paper says the following:

Taxes are, for the most part, involuntary. We pay taxes on our income and when we buy things. The only way to avoid taxes is to earn less money and consume less. Penalties and fines, however, are quite different. We can avoid fines by avoiding bad behavior.

While the first two sentences are accurate, though lacking context, the next three sentences are very misleading. First, federal taxes on gas, cigarettes, and many other consumer goods are indeed voluntary. One can choose to smoke or buy bubble gum. One can choose to buy gas or buy a bike. This is not a matter of consuming less, however; it’s a matter of shifting purchases from one product to another.

Similarly, having children provides families the “child tax credit,” and buying a Chevy Volt gives every taxpayer a reimbursement. So does buying a home, via the mortgage interest deduction. So, contrary to what Dechter claims, one can avoid taxes by buying more homes, having more kids, and buying more cars from Government Motors.

Additionally, cigarette taxes are instituted because of expectations that medical costs from smokers will shift from the smoker to the rest of the population. Sound familiar? That’s exactly why the mandate was instituted — so those who choose to not have health insurance will not put costs on those who do. So is Dechter saying the cigarette tax is in fact a penalty instead of a tax?

Second, Dechter blames the uninsured for shifting costs to those who are insured. To wit:

The individual mandate presents people with a choice: Either have health insurance or pay an annual penalty. The only people who will pay this penalty are those who willfully neglect to take responsibility for getting health insurance–and then stick the rest of us with the bill when they get sick or injured.

What Dechter ignores is that this “responsibility” only came into effect because Congress passed a law[6] in 1986 that, according to the linked article, “prohibits hospitals from rejecting or ”dumping” patients who request care in emergency rooms and also prohibits them from delaying care to check on insurance coverage.” This ban on rejecting patients also applies to immigration status[7]. While it is indeed irresponsible for people to not buy health insurance if they increase costs for the insured, this was created by a big government policy by Congress in the first place.

Lastly, in the end, Dechter never really explains why he is in disagreement with the Supreme Court, and Chief Justice Roberts in particular, that the mandate is a tax. Rather than expressly outline any and all concerns regarding the Court’s decision, Dechter brushes the Court’s decision off with the following:

: Yes, it’s true that conservative Chief Justice John Roberts used a tax rationale when upholding the constitutionality of the individual mandate–and the entire law–last week. But Roberts was making a technical argument and using the word “tax” in a way that really only makes sense in an arcane legal context.

As we head toward November, the arguments over the PPACA will continue. I hope the left comes up with better arguments than Dechter’s sophomoric work in this paper — not because I want the health care law to stand, but because the American people deserve an honest, vigorous debate over the many issues facing the country. If this is how CAP, a leading organization on the left, plans to use its influence, the “honest” part of the debate may already be lost.

[Originally posted[8] in the Hot Air Green Room.]

  1. not a tax:
  2. claimed:
  3. a senior Romney spokesperson said the mandate isn’t a tax: http://../../archives/2012/07/02/romney-advisor-youre-right-the-obamacare-mandate-isnt-a-tax/
  4. agreed it is: http://../../archives/2012/07/04/romney-if-the-supreme-court-says-the-mandates-a-tax-then-its-a-tax/
  5. paper:
  6. passed a law:
  7. also applies to immigration status:
  8. Originally posted:

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