The Mandate Is Not a Tax, But the Penalty Is

July 27, 2010

The Obama administration has been accused of contradicting itself by denying that the individual mandate is a tax and then arguing in court that it is a constitutional exercise of the taxing power. Igor Volsky counters:

The mandate is not a “tax” in the sense that its primary purpose is to raise revenue even though it meets the legal definition, which is somewhat different than the popular understanding of that term. As Ian Millhiser tells me, conservatives obviously think “that they have caught Obama in some grand contradiction because he uses one meaning of the word ‘tax’ in one context and his lawyers use another meaning of that term in a legal brief, but the word ‘tax’ has an unusually broad meaning in the constitutional context — it can include nearly any provision that adds money to the federal treasury.”

I agree that there’s not really a contradiction in the administration’s position, but I don’t think the best explanation is that there’s ambiguity in the meaning of “tax” between the political and legal contexts. A better explanation is that those who think there is a contradiction have failed (a) to distinguish between the mandate and the penalty for not complying with it, and (b) to appreciate the difference between a tax and an exercise of the Taxing power.

First, a mandate is not the same thing as a penalty for not following it. Here, the penalty for failing to maintain adequate health insurance is in fact a tax. The mandate itself is not. In general, taxes are compulsory, paid to the government, and do not directly secure specific benefits in exchange for payment. Compliance with the mandate, by contrast, involves payments to private entities (for those not covered by a public plan), in return for the specific benefit of insurance. What’s more, the mandate does not really compel anyone to do anything. Rather, it sets up a system of tax-preferential treatment for those citizens who responsibly maintain adequate health insurance. You can choose not to comply, though you will have to pay more taxes. That is, you will be required to pay a monetary penalty in an amount computed on your annual income-tax forms and collected into general revenues by the IRS. You will receive nothing directly in return for your payment—not a mug, not a beer cozy, and not health insurance.

Second, not everything Congress enacts under its Taxing power is a tax. Tax exemptions and tax credits, for example, while deceptively prepended with the word “tax,” are not taxes. When the law requires that a tax be paid only under certain conditions, the conditions under which no tax must be paid cannot properly be described as a tax. The tax code is riddled with such conditions.

The PPACA minimum coverage provision (the “individual mandate”) simply specifies the conditions under which certain tax payers will not be subject to an additional tax burden (the “penalty”).

Posted in Constitution, Health Policy 1 Comment Tags: , ,

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One Response to “The Mandate Is Not a Tax, But the Penalty Is”

  1. Legislative History on the Tax Issue, A Compilation of Selected Sources : Organon on March 12th, 2011 2:10 pm

    [...] that “the responsibility to get health insurance is absolutely not a tax increase” is arguable. I tend to think he meant the mandate itself is not a tax—not that the penalty isn’t. But [...]

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