Last week, I gave some thought to exactly what sort of new tax Supreme Court Chief Justice John Roberts had created by reading the health insurance mandate of the Patient Protection and Affordable Care Act (PPACA) as a tax. My conclusion was that the only logical reading that satisfies the constitutional restraints is that it’s a capitation tax (assessed per person) for which purchasers of health insurance and those with inadequate income receive a credit on their income tax returns.
Obviously, any attempt to categorize the tax are necessarily read into the law, because there are no provisions for taxation. Indeed, the Obama administration continues to refuse to call the mandate a tax (although not simultaneously acknowledging that it must therefore be unconstitutional).
That said, presumably the country will have to move forward with this new meaning of tax, so it behooves us to determine what exactly it is. In doing so, the old rule of thumb for science fiction stories comes to mind: The author can ask readers to suspend disbelief on a few major points (e.g., the reality of magic), but the imagined universe otherwise has to operate by pretty much the same rules of physics as our real one and to be logically coherent.
National Review Senior Editor Ramesh Ponnuru’s solution, offered on Bloomberg View, is a bit simpler than mine: He characterizes the mandate as a tax deduction. Although he stresses that Justice Roberts’s argument is not persuasive, whatever the case, Ponnuru’s deduction example isn’t really applicable for a few reasons:
The mandate, in this argument, is like the tax deduction for charitable giving. If you don’t give to charity, you pay more to the federal government. The same goes for not buying insurance under Obama’s health-care law. In this view, the difference is merely that the health-care statute calls the extra money you pay the government a “penalty” for breaking the law rather than a “tax.”
Not many people doubt that the government can make different groups of people pay different amounts of money based on economic decisions. Nobody thinks the charitable deduction is unconstitutional. So, Roberts and four colleagues conclude, it can also tax people differently based on whether they purchase health insurance.
A deduction is when the IRS allows a taxpayer to reduce his or her taxable income by the amount spent for some purpose that the government has deemed desirable, like charity. The taxpayer ultimately saves whatever taxes would have been due on that portion of his or her income. In that respect, the ObamaCare mandate tax is much more like an inverted credit: a direct dollar amount that the government grants to the taxpayer.
In either case, a new deduction or credit does not actually increase taxes; it reduces the government’s overall take. Since no other tax rate has been changed, and since nobody is suggesting that anybody’s taxes are going to be reduced, the PPACA has to be understood to have levied an additional tax for the purpose of offering the deduction/credit.
That is, the mandate tax must be both a credit and a new tax, and it makes most sense to see it as a capitation tax. It cannot be an income tax, because it does not vary by income and it does not relate to any revenue-generating activity on taxpayers’ part.
The general sense among those who ponder policies professionally is that the commentariat is currently in the first phase of shock, assessing the political implications of the Supreme Court’s ruling — who did what, why, and what it will mean in November. Whatever happens in the upcoming election and the Congressional sessions thereafter, the Supreme Court has opened up a new playing field for government mischief makers. The better the boundaries can be defined in advance, the better off our civic society will be.