Readers have provided many thoughtful comments on yesterday’s post about whether we should use the word “taxes” to characterize the financial penalties that would be used to enforce an individual health insurance mandate. Based on those comments, and some further reflection, I have several additional thoughts:
- I discovered that some people think the individual mandate itself should be characterized as a tax. I don’t agree. As long as individuals are free to choose among private insurance plans in satisfying the mandate, there is no need for the President (or anyone else) to refer to the mandate as a tax. The distinction between regulation and taxation can sometimes be blurry, but it’s still a useful distinction. And an individual mandate is clearly a form of regulation. (However, I also won’t object if opponents characterize the mandate as a tax; that’s well within the norm of political economic rhetoric on both sides of the aisle. My point is simply that proponents of the mandate don’t need to use the “t” word in characterizing it.)
Note: The situation would be different if individuals were forced to purchase a specific government insurance plan. That would be a tax. (For a related discussion, see this brief from the Congressional Budget Office that discusses how it decides whether regulations are so intrusive that the regulated activities should be reflected in the budget; as I noted in one of my first posts, that was a key issue during the debate over the Clinton health proposals.)
- My ruminations were focused on the question of what you should call the financial penalties that would be applied to individuals who didn’t satisfy the mandate. Following the CBO, I am firmly of the belief that the resulting cash inflow to the government should be characterized as revenues.
- Most revenues are the result of taxes, but not all. And, on reflection, it seems rhetorically defensible to refer to the penalties as “fines” rather than “taxes” if their purpose is to enforce the individual mandate and not to generate revenue. (This is similar to, but somewhat different from, my earlier thoughts about the penalty acting like a Pigouvian tax, which is what I took the President to be saying on Sunday.)
So, here’s my revised suggestion for rhetoric that the President can use next time he’s interviewed by George Stephanopoulos: “If my plan is enacted, I believe that all responsible Americans should have health insurance. If they don’t they should face a penalty because they are imposing costs on others who may have to pick up the tab for their future health costs. And that penalty is a fine, George, not a tax.”