Why Isn't the Individual Mandate Equivalent to a Tax?

There's no difference between a tax-voucher-rebate scheme and a mandate

Noah Millman -- blogger for The American Conservative

Randy Barnett, a professor of law at Georgetown University, could be Affordable Care Act's most famous critic. In a recent interview, Ezra Klein asked him how the mandate differed from a tax credit a family gets if it buys health insurance. Barnett responds: "[I]f they have a commerce power to mandate you buy things, then under existing law and financial law, they could put you in jail. Every time you give up a tax subsidy, all you lose is the $5,000 benefit you didn't get. It can't be enforced through imprisonment. And that's a big difference."

The core argument I was making was: there's no difference between a tax-voucher-rebate scheme and a mandate. In each case, you pay money and get a service, whether you want it or not, but if you can prove you have already received the service by some other means (say, from your employer) you don't have to pay. In each case, the government is regulating how much you pay and what you get, and in neither case do you get a choice of opting out. The only difference is whether the check goes directly to the private company or gets to the private company via the government.

Barnett points out a potential difference. In the case of the ACA, the penalty for non-compliance is a fine. But in theory, if the government has the right to order you to purchase insurance, and you refuse, the penalty could be non-monetary. The government could imprison you for refusing to purchase insurance. By contrast, in a tax-voucher-rebate scheme, if you fail to either claim the rebate or use the voucher, you're just out the cost of the tax. There's no way prison enters into it.

Does that distinction hold up? Let's see.

Under the ACA, you could fail to purchase insurance, either because you already have insurance or because you don't. If you already have insurance, the government should know about it, and therefore there should be no problem. If somehow the government doesn't know, you have a problem, which should be able to be remedied by communicating the necessary information. If you don't have insurance, you have a problem, and if you don't remedy it you'll be fined (or, potentially, imprisoned).

Under a tax-voucher-rebate scheme, you could fail on more dimensions. You could fail to pay the tax, or fail to use the voucher, or fail to claim the rebate. Let's look at each in turn.

The rebate claim could be made automatic; if the government knows about your insurance, then you'll automatically get a rebate; if the government doesn't, you have a problem (and could be out money), but this should be easily remedied by communicating the necessary information to the necessary authorities. This is parallel to the situation under the ACA where you might already have insurance. There is a small asymmetry here in that in the hypothetical world where the ACA's penalties include imprisonment, you could be arrested for failing to purchase insurance when you were not, in fact, obligated to because you already owned it (but somehow the government didn't know), whereas in the tax-voucher-rebate scheme, all that would happen is that you wouldn't get the rebate you're owed. But, again, this is a circumstance where the government is acting on incorrect information, and there is a ready remedy in each case.

Suppose, on the other hand, you don't use the voucher. There's no clear equivalent in the ACA world; the closest equivalent is to not making claims under insurance you have purchased. Consider: you've paid the tax. You've got the voucher (because you don't have insurance through your employer). You just don't use it. That's not equivalent to refusing to purchase insurance - because you've paid. So there's another asymmetry, but I'm not sure what the significance of it is - because there's no situation under the ACA or under a tax-voucher-rebate equivalent where I see a penalty of any kind clearly coming into play.

Finally: suppose you don't pay the tax. Well, then, you'll be subject to criminal penalties. This is clearly equivalent to refusing to purchase insurance under the ACA - and this is where penalties kick in under the ACA as well. Under the ACA, the penalty is a fine. Barnett argues that the precedent set by the ACA would make criminal penalties such as imprisonment possible. But that's true if you don't pay the tax in a tax-voucher-rebate scheme as well. It sounds to me like there's more symmetry than asymmetry here.

Barnett says that under a tax-voucher-rebate scheme, the only penalty you could pay is if you don't claim the rebate, in which case there appears to be an asymmetry versus the ACA. But that's comparing apples and oranges. Not claiming the rebate is like purchasing insurance when you already own it through your employer. Not purchasing insurance is equivalent to refusing to pay the tax - or, alternatively, fraudulently claiming the rebate. Both would subject you to criminal penalties.

Barnett says, "just because the government does have the power to do x, doesn't mean they have the power to do y, even if y has the same effect as x," but the issue isn't whether the effect is the same but whether the actions are functionally equivalent.

Nonetheless, I acknowledge that the Court seemed unsympathetic to the argument that the mandate is a tax. That means that the question comes down to the commerce power - whether the activity/inactivity distinction is meaningful at all and, if it is, whether, because everyone is part of the healthcare market, the government can legitimately claim that nobody is actually "inactive." Because the plaintiffs accept that the government can make you pay for insurance, and the plaintiffs accept that the government can get private insurers to provide that insurance, and the plaintiffs accept that the government can make you transact directly with a private company when you are already engaged in commerce.