Tax Analysts Blog

The Great Anti-Climax: Using Tax Law to Deliver Economic Incentive is Constitutional

Posted on Jun 29, 2012

In the Roberts opinion the so-called “individual mandate” is not viewed any differently than hundreds of other provisions in the tax law where Congress uses monetary incentives to do its bidding. As with any other tax incentive, if you do not do what Congress wants—in this case, buy health insurance--you are not an outlaw. You simply must pay more tax, as the Chief Justice wrote:

While the individual mandate clearly aims to induce the purchase of health insurance, it need not be read to declare that failing to do so is unlawful. Neither the Act nor any other law attaches negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS. (p. 37 of the Roberts opinion)

Principled conservatives object to the individual mandate because it is government interference in the marketplace as well as in the personal lives of citizens. That’s a perfectly valid point of view. But folks must acknowledge this interference is similarly rampant everywhere in our tax laws. To strike down the mandate on constitutional grounds would put the constitutionality of half the Internal Revenue Code into question. Nearly three months ago a prior post on these pages predicted the Court's decision based on this idea:

Perhaps too blithely, we assume the mandate will be affirmed because the nation's leading legal gurus won't want to open up a can of worms that makes all tax incentives subject to constitutional challenge.

Yesterday Chief Justice Roberts made the same point using an example:

Suppose Congress enacted a statute providing that every taxpayer who owns a house without energy efficient windows must pay $50 to the IRS. The amount due is adjusted based on factors such as taxable income and joint filing status, and is being paid along with the taxpayer’s income tax return. Those whose income is below the filing threshold need not pay. The required payment is not called a “tax,” a “penalty,” or anything else. No one would doubt that this law imposed a tax, and was within Congress’s power to tax. (p.39, boldface added).

Read Comments (2)

Joseph HenchmanJun 28, 2012

For the record, on Roberts's comments that no one would doubt that a $50 charge
for refusing to install windows is a tax, I would doubt that. That's a fine,
not a tax. Taxes have the purpose of raising revenue, fines/penalties have the
purpose of changing behavior.

If you think that anything that raises revenue is a tax, I hope you understand
the implications with respect to the Tax Injunction Act, supermajority
requirements, voter approval requirements, and limitations on local governments
to levy taxes.

Brian B.Jun 29, 2012

There is a significant difference between the use of credits and deductions to
influence behavior and creating a tax on inactivity. Please point me to any
other instance in the IRC where a failure to engage in an activity is the basis
for additional taxation.

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