Paul L. Caron

Monday, April 2, 2012

Sullivan: If the ObamaCare Mandate Is Struck Down, Are Tax Incentives Next?

Tax Analysts Martin A. Sullivan (Tax Analysts), If Mandate Is Struck Down, Are Tax Incentives Next?, 135 Tax Notes 14 (Apr. 2, 2012):

Martin A. Sullivan discusses how the individual mandate and penalty in the healthcare reform act functions similarly to tax incentives [click on chart to enlarge]:


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Update: New York Times, First the Mandate, Then All Tax Incentives.

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I believe there is 1 simple difference, but feel free to correct me if I am wrong. The individual mandate is universal in scope and would affect 100% of citizens; there is no option to engage or not engage in the covered activity. Off the top of my head and without doing any research, I believe that all tax incentives apply to activities that are voluntary and at least in theory could be avoided.

Posted by: Todd | Apr 2, 2012 7:41:06 AM

While I usually don't agree with the author, I normally respect his intelligence. I simply do not understand this argument.

Sullivan compares the effects of the individual mandate with someone who currently has emplyer provided insurance. The premise is false. The individual mandate forces the UNINSURED to pay a penalty/tax if they do not purchase insurance.

The tax law neither infers income nor allows a deduction for someone who does not have insurance. The tax law "encourages" me to buy insurance; it does not penalize me if I fail to buy insurance. I cannot see the equivalency.

If a new law required me to take out a home mortgage, contribute to charity, or fund an IRA, that also would not be equivalent to a deduction.

I understand wanting to support an idea they agree with. However, for someone of Sullivan's position to posit such a bizarre and unfounded nalogy weakens him and his position. It does not strengthen it.

Posted by: Ed D | Apr 2, 2012 8:20:31 AM

As I see it, this is Marty's point:

1. The government can give A a tax break for buying something from B.

2. The government can modify the tax tables so as to increase everyone's liability by exactly the amount of the potential tax break.

3. The net effect of this is the same as imposing a penalty for not buying something from B.

My comments:

4. The mathematical identity is accurate.

5. Achieving point 2 is likely to be impossible for low-income taxpayers, in that it would require tax rates exceeding 100%. The resulting tax rate might also become an unconstitutional head tax.

6. There is a qualitative difference between the government giving you an incentive to buy from B and the government penalizing you for not buying from B.

7. There is a qualitative difference between the government taxing everyone and handing out an explicit subsidy to B versus making a law breaker out of everyone who does not buy directly from B. It's the difference between a request and a demand.

8. Requiring people to spend their money in certain ways allows Congress to spend money without taxing, and that is dangerous to democracy. These expenditures should be on-budget, with funds raised through taxation. Regulation of business activities is qualitatively different from reaching into people's wallets to spend their money without making the taxation explicit.

9. If you don't believe that after-tax income rightfully belongs to the citizen and you see no problem with hidden taxes, you may not agree with points 6, 7, and 8.

Posted by: AMTbuff | Apr 2, 2012 12:02:23 PM