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Wednesday, September 30, 2009

Does IRS Enforcement Make Health Care Mandate a 'Tax'?

Following up on my prior posts (Tax Penalties and the Health-Care Bill; Obama's Nontax Tax):

Wall Street Journal editorial, Rhetorical Tax Evasion:

The IRS says it will fine or jail you for not paying Obama's mandate levy.

President Obama's effort to deny that his mandate to buy insurance is a tax has taken another thumping, this time from fellow Democrats in the Senate Finance Committee.

Chairman Max Baucus's bill includes the so-called individual mandate, along with what he calls a $1,900 "excise tax" if you don't buy health insurance. (It had been as much as $3,800 but Democrats reduced the amount last week to minimize the political sticker shock.) And, lo, it turns out that if you don't pay that tax, the IRS could punish you with a $25,000 fine or up to a year in jail, or both.

Under questioning last week, Tom Barthold, the chief of staff of the Joint Committee on Taxation, admitted that the individual mandate would become a part of the Internal Revenue Code and that failing to comply "could be criminal, yes, if it were considered an attempt to defraud." Mr. Barthold noted in a follow-up letter that the willful failure to file would be a simple misdemeanor, punishable by the $25,000 fine or jail time under Section 7203.

So failure to pay the mandate would be enforced like tax evasion, but Mr. Obama still claims it isn't a tax. ... Too bad Mr. Obama's rhetorical tax evasion can't be punished by the IRS.

PolitiFact.com, Conservative Group Says You'll be Imprisoned for Not Having Health Insurance:

As the Senate Finance Committee took up its version of health care legislation, conservatives ramped up their opposition to a variety of provisions in the bill. One of them touches two hot buttons for conservatives: taxes and the long arm of the federal government.

On Sept. 29, 2009, a subsidiary of the conservative group Americans for Prosperity sent out an e-mail headlined, "Health Care Mandate Will Require Imprisonment and Fines for Americans Who Can’t Afford to Purchase Insurance or Pay Hefty Government Penalties."

The group was referring to an exchange in the Senate Finance Committee between Sen. John Ensign, R-Nev., and Joint Committee on Taxation chief of staff Thomas Barthold on Sept. 24, 2009. ...

It is a significant exaggeration to say that the Baucus bill's "health care mandate will require imprisonment and fines for Americans who can’t afford to purchase insurance or pay hefty government penalties." It won't "require imprisonment and fines" -- those are simply two of the options for enforcement, and experts say that neither a prison term nor a fine anywhere near that high is likely to be used.

The official responsible for the Patients First release acknowledges that his headline overstated what the Joint Committee on Taxation chief of staff said, but the release does accurately report the penalties in the body of the text. The notion that one could go to prison for not buying insurance is certainly attention-grabbing, but based on past patterns of prosecution, the likelihood of it happening is extremely small. So while the fear seems to us to be overheated, the possibility exists, so we rate the statement Barely True.

As I noted earlier, William A. Jacobson (Cornell) was the first on this story:

http://taxprof.typepad.com/taxprof_blog/2009/09/the-irs-and.html

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Comments

We need a pro-growth agenda that urges congress and the Obama administration to enact policies that bring tax rates in line with our global competitors. We need to keep chipping away at the deficit by taking steps to control wasteful government spending. See http://www.friendsoftheuschamber.com/issues/index.cfm?ID=104

Posted by: Audrey | Sep 30, 2009 12:54:30 PM

so any civil penalty administered by the IRS is a tax? So failure to file and failure to pay penalties are really excise taxes on Americans who choose not to comply with federal tax laws.

Posted by: anon | Sep 30, 2009 1:09:53 PM

....but based on past patterns of prosecution, the likelihood of it happening is extremely small.

Is it OK not to be comforted by that allegation?

Posted by: guy in the veal calf office | Sep 30, 2009 5:26:10 PM