Tax Foundation Misses the Ball (again) in its analysis of Supreme Court Health Care Ruling
by Linda Beale
Tax Foundation Misses the Ball (again) in its analysis of Supreme Court Health Care Ruling
The Tax Foundation pretends to be non-partisan. Of course we all know that is pretense. Look at the way it has pushed its concept of the so-called “tax freedom day”, which misleads everyday Americans into thinking that they are working for months and months to pay taxes, based on the use of “average” tax burdens across every American from Bill Gates to Joe Unemployed and a good deal of uncertainty about just who pays what taxes (like the corporate taxes).
They’ve done it again in their analysis of the health care decision. See Richard Morrison and Joseph Henchman, Tax Foundation, Guest Opinion, The Tax Flaw in Health Care Ruling, The Hearld News (July 3, 2012).
1. The Tax Foundation builds its conclusion into its description of the givens.
They start out with their conclusion–a definition of taxes as items whose intent is “raising revenue for government spending” and of a “penalty” as “imposed for the purpose of punishing an individual for an unlawful act.” Based on that conclusory definition, they conclude unsurprisingly that the ACA’s individual mandate is not a tax, because it is a penalty. That kind of argument has the cart leading the horse.
Taxes do increase revenues, but that doesn’t mean that they cannot also be used to modify behavior, which is what penalties do.
The obvious type of taxes that act as penalties are excise taxes. There is considerable discussion about “sin taxes”–taxes on cigarettes, alcohol, and other commodities or behaviors that are disliked. If the person engages in the ‘bad’ behavior, the person pays the tax penalty and at least the government gets some revenue from the misbehavior. If the person is discouraged from engaging in the bad behavior because of the tax penalty, the penalty has done its job and there is more of the desired good behavior. Tax penalties also exist in our current income tax laws–the “singles penalty”, as mentioned in a prior post, causes a single person to pay more tax than that person would if married, thus penalizing the person for failure to marry. (Conversely, in situations where there is a marriage penalty, the tax causes a married person to pay more tax than that person would if single, thus penalizing the person for failure to divorce.) And there are many credits and other items that can be seen as simply notational variations on a penalty. For example, the greater tax that childless couples pay than couples of the same income with children pay can easily be viewed as a tax penalty for not having children.
2. The Tax Foundation tries to raise fears of a bad impact for states
The Tax Foundation’s next argument is the old “slippery slope” problem (and depends on the success of their first, unsuccessful, argument). Since it claims the tax versus penalty distinction is “vital”, and there are local and state government revenue sources that are not generally thought of as taxes, the Foundation also claims that the Supreme Court’s purported broadening of the concept of tax could mean those state and local items must also be treated as taxes for state law purposes, and this could mean that they will be subject to different procedural rules for taxes rather than the procedural rules under which they were passed.
This appears beyond silly. What it does mean for states is that a state like Massachusetts, that had already passed a state health care law with a mandate similar to the ACA’s mandate, can rest assured that it is not an unconstitutional form of tax.
3. The Tax Foundation misunderstands the relationship between the Commerce Clause and the Taxing Power
The Foundation didn’t want the mandate upheld, and the right-wing is fighting hard for a much narrower view of the Commerce Clause with the idea of preventing progressives from undertaking needed national policies. The Court found the Commerce Clause didn’t extend to the mandate, a conclusion which seems extraordinarily weak to me and which I predict will be overturned by another Court within thirty years.
But the Commerce Clause doesn’t decide the case, because the taxing power is even broader than the Commerce Clause power. And Roberts rightly recognized that. This was not a “twisting [of] the traditional and historic meaning of a tax” but rather the expected and predictable analysis based on the traditional and historic understanding of the taxing power.
4. The Tax Foundation raises the “direct” tax issue
Tax academics have devoted a lot of discussion to consider what would be a direct tax that had to be apportioned among the states. Calvin Johnson, Professor at the University of Texas, wrote an interesting book looking into the history of the Constitutional Convention as motivated in large part by a desire to get around the weak taxing power of the Articles of Confederation, which required requisitions from the states to allow a strong taxing power in the federal government. the passage of the income tax amendment–contravening any need for apportionment–pretty much left the direct/apportioned taxes as an archaic category.
The article cclaims that the mandate can’t fall within the income tax since it is a flat tax. But of course everyone knows that the Tax Foundation and every other right-wing organization thinks that a flat tax on income is constitutional.
The Tax Foundation is quite simply wrong in suggesting that this is a “new” definition of tax.
(By the way, the Tax Foundation also attributes the entire opinion (and the purported “new definition”) to Chief Justice Roberts. He was the author of the opinion for the Court, but the opinion represents the views of a majority of the Supreme Court Justices. It is not just Roberts’ opinion. )
crossposted with ataxingmatter
Linda
i don’t think much of the Tax Foundation myself. But your objection in point one is pretty good evidence of your own using the conclusion to start your “thinking.”
Don’t feel too bad about this. It’s the normal way humans think.
You might not be too comfortable in the company of those who regard taxes as “punishing the successful,” but then i would expect you to find a way to “distinguish” yourself from that argument.
Any tax penalty is a tax subsidy for someone else. A penalty for singles is a subsidy for married couples. The government subsidizes plenty of activities and others pay the standard rate. With Obamacare those who don’t get health insurance are paying the standard tax while those with insurance get a subsidy. It’s the same thing.
It even covers making people eat broccoli. The government already gives farms tax subsidies paid for by other people, so they are subsidizing your broccoli like Justice Robert talked about.
Anonymous Broccoli guy,
The Ag Department subsidizes corn, wheat, soybeans and cotton, but I’m not aware of any subsidy for more healthful foods. Are you sure broccoli is on the list?
The decision was made and it is law.
So why squabble about this?
The implementation details are much more interesting.
anonymous
with reasoning like that, better you should remain anonymous. the thing about “thinking” is that you can always strain “logic” to come up with any “obvious” conclusion you want. but, of course, you might hurt yourself.
rusty
i wasn’t talking about the law. i was talking about the self deception of the author of this article.
Regarding your first point, I have thought, apparently like the Tax Foundation, that the “penalty” is either a “tax” or a “fine” for breaking the law, that is, for committing a crime. But not being a lawyer or inside the Tax Foundation, I reached a different conclusion regarding ACA. Am I wrong to believe that paying a fine for criminal behavior generally does not permit a person to continue that criminal behavior? ACA permits people to have no insurance as long as they pay the penalty to the IRS. I don’t think Congress intended to criminalize the failure to have health insurance, and to allow people to engage in this criminal behavior as long as they paid for the pleasure–they instead intended a tax to discourage a (non-criminal) behavior, and didn’t have the guts to say this in plain English.
Coberly,
A penalty to one is a subsidy to the others, it’s kindergarden maths. For example a hotel might have higher rates at Christmas and lower rates off season. Is it penalizing the Christmas people or subsidizing the off season people? The question is ridiculous, it’s the same thing.
There are plenty of similar situations, a government might discount driver’s licenses to people who become organ donors, are they subsidizing the donors or penalizing those who don’t?
In the same way Obamacare either penalizes some who don’t get insurance or grants an exemption from the tax to those who do. For this to be unconstitutional the government wouldn’t be allowed to reduce taxes for any group.
Generally farmers get some kind of tax break, so broccoli should be covered but not as much as healthy foods like high fructose corn syrup.
Anonymous Broccoli Guy
Anonymous
apparently it is kindergarten logic, too.
Other than making gratuitous insults I have no idea what point you are making. If the hotel raised its rates by 1000 times at Christmas at what point does this become a penalty and the off season rate no longer a subsidy? It’s the same again, it just means the off season rate is subsidized a 1000 times as well.
When you buy broccoli at the supermarket at 2 pounds for the price of one pound, are you being subsidized or are the ones buying a pound of broccoli being penalized? Or is it a trick by the supermarket to make you eat more broccoli, as part of their long range plans to sell you health care?
If there are no actual criminal sanctions for not getting health insurance in Obamacare then it can’t be a penalty without being a subsidy. Therefore since the government is allowed to subsidize some activities it is constitutional.
“The obvious type of taxes that act as penalties are excise taxes.” An even more obvious example is the lower tax rate on capital gains to encourage investment.
anonymous
i get fairly tired of being accused of “gratuitous insults” when i get fairly tired of arguing with someone who is reasoning in a circle.
Linda started out by accusing the Tax Foundation of using its desired conclusion as an “assumption.” then proceeded to do the same thing. as do you, in spades.
it turns out this is far, far more common among humans than they realize. and there is nothing you ( I ) can do to stop them.
There is no circle there. The idea behind the legal argument is that if Obamacare created a penalty for not having insurance then it could be unconstitutional. I was pointing out that even if it did penalize some people it was subsidizing others, and the government has already been found to be allowed to subsidize some businesses to motivate people. Roberts was saying however that it was really a tax and not so much a penalty anyway.
So my point is the idea of a penalty being unconstitutional doesn’t make sense anyway without a criminal penalty, which is the point that Roberts made himself.
Really I’m saying the same thing Roberts did, you should read his opinion if you haven’t done so.
I’m sorry if I offended you but I’m really not wrong on this.
Coberly:
I wasn’t really talking about you. 🙂
thanks rusty.
anonymous
you didn’t offend me. you shouldn’t be offended by me. i was trying to say that you are talking nonsense. not to offend you, but to report a fact.
there is no offense, because everyone talks nonsense, including the Chief Justice.
coberly