TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, April 21, 2010

Burman: Health Mandate -- It's Just a Tax Break in Disguise

Leonard E. Burman (Syracuse University, Maxwell School), Health Mandate: It's Just a Tax Break in Disguise (CNN Money):

I'm doing my taxes and thinking about mandates. That is natural because health reform passed during tax season. Critics argue that the new law's requirement to purchase insurance or pay a fine is a radical departure and unconstitutional.

In fact, this is nothing new. Our tax returns are full of implicit mandates with huge penalties -- in the form of lost credits and deductions -- for noncompliance. The government wants us to donate to charity, own a home, save for retirement, adopt a child, buy a hybrid car ... If we don't, we pay more tax (a penalty).

There is a semantic difference between the health insurance mandate and these other tax nudges in that the government doesn't require you to donate to charity or own a home. But the government doesn't really require you to get health insurance either. You are free to ignore the "mandate" and pay the tax.

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Len is only partially correct. Charging a $1000 penalty for not buying insurance is indeed mathematically equivalent to increasing everyone's income tax by $1000 and providing a $1000 tax credit for buying insurance. So why was the law not written in the latter form?

One reason: A $1000 tax liability at zero income is not an income tax, it's a head tax. Head taxes are unconstitutional.

Therefore the penalty would need to be written, for example, as a 50% tax rate on the first $2000 of income, with a $1000 credit for buying insurance. This completely constitutional formulation is not mathematically equivalent to the penalty formulation for anyone with income below $2000. That's a minor difference, not enough to bother anyone.

So why not make this change and avoid the legal problems? To establish a precedent of unlimited power to fine people for action or inaction?

Posted by: AMTbuff | Apr 21, 2010 10:32:35 AM

Sophistry of the highest order.

Posted by: Elmer_Stoup | Apr 21, 2010 9:27:31 PM

Whatever the merits of the legal point made by AMTbuff (I don't comment on conspiracy theories), the health care mandate does not apply to low-income people. They get subsidized health care. Only those with positive income, who presumably could afford health care but decline to purchase it, are subject to the mandate tax. So Len's point stands as a practical matter.

Posted by: Mike McIntyre | Apr 21, 2010 11:47:41 PM

So I guess the prof would be okay if, instead of a credit, we penalized everyone that didn't buy a hybrid? How about a penalty to everyone that doesn't drill an oil well?

Posted by: Matt | Apr 22, 2010 1:44:26 PM