When is a Tax Not a Tax?

Megan McArdle and I have been having an interesting discussion in the comments to my last ObamaCare post. She’s convinced me that the ObamaCare individual mandate is structured in a way that would be difficult to actually duplicate within the structure of the existing tax code. Many taxpayers pay no income tax, so if Congress simply created a health insurance tax credit (and raised rates or reduced the standard deduction to make it revenue-neutral) it wouldn’t be creating any incentive for the lowest-income (non-)taxpayers to get health insurance. The ObamaCare mandate deals with this problem by creating a brand new quasi-income tax with a weird structure. As Ezra Klein describes it: “In 2016, the first year the fine is fully in place, it will be $695 a year or 2.5 percent of income, whichever is higher.”

I’m not a constitutional lawyer, but it doesn’t seem like it would be crazy for the court to hold that the minimum liability provision makes this a sham income tax that exceeds Congress’s taxing powers. I wouldn’t be upset to see the court say that. But it would be a very narrow holding. Congress could easily respond by creating a new tax that’s 50 percent of income below $1390, 0 percent on income between $1390 and $27,800, and 2.5 percent of income above $27,800. This is indisputably a tax on income and it’s mathematically identical for everyone who makes more than $1390.

But I don’t think this is what people are talking about when they say that the mandate is unconstitutional. I think they have something much broader in mind: that Congress shouldn’t be using the tax code to force people to do stuff they wouldn’t otherwise do and buy products they wouldn’t otherwise buy. But if so, then the courts have two options: One is to bite the bullet and invalidate the child tax credit, energy efficiency tax credits, college tuition tax credits, and so forth. Or two, they need a story about why coercing people to buy health insurance is more objectionable than coercing them to have children, pay tuition, take out a mortgage, or install solar panels on their house. Personally, I’d be happy to see the US tax code ruled unconstitutional. But I think it’s safe to say that the courts aren’t going to do that. And I have trouble imagining a principled argument for invalidating tax incentives to buy health insurance without invalidating a bunch of other tax credits that have long been regarded as constitutionally sound.