Tax Analysts Blog

If Mandate Is Struck Down, Are Tax Incentives Next?

Posted on Apr 2, 2012

For lawyers and political junkies, it is the Super Bowl: three days of Supreme Court arguments over one of the biggest domestic policy changes in decades.

But we economists can only scratch our heads. Why are we in court? What's the big deal? It's called an "individual mandate." Sounds ominous. But to economists it looks like nothing more than your everyday ordinary tax incentive. For as long as there has been a tax code -- and particularly in recent decades -- there has been a bipartisan consensus that tax incentives are an excellent way for Congress to get individuals and businesses to do what lawmakers want them to do.

The only difference between the mandate and your common tax incentive is that Congress framed the incentive as a tax penalty instead of a tax break. I recognize there might be a legal difference between the two approaches that is beyond my comprehension. But the Court, Congress, and the public should understand that economically the two approaches are exactly the same. Any tax penalty can easily be redesigned as a tax incentive. So, for example, a $1,000 tax penalty for not doing X could be replaced by a tax policy whereby all individuals' taxes are raised by $1,000 and then they are given a tax credit of $1,000 for doing X. (See the table below.)

A tax penalty and a tax incentive have the same economic impact on affected and unaffected individuals. They have the same effect on the goals the government is trying to achieve. They have the same effect on government revenues. It is possible, then, that they have the same effect on freedom and constitutional principles.

So armchair constitutional scholars should enjoy the show. But please excuse us economists if we tune out. 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. If by chance the court does strike down the mandate, by all means give us a call. It could be the beginning of the end for all those complex and inefficient tax incentives we have been complaining about all these years.


What's the Difference Between the 'Mandate' and Other Tax Incentives?

Table 1.pdf

Read Comments (0)

Submit comment

Tax Analysts reserves the right to approve or reject any comments received here. Only comments of a substantive nature will be posted online.

By submitting this form, you accept our privacy policy.

* REQUIRED FIELD

All views expressed on these blogs are those of their individual authors and do not necessarily represent the views of Tax Analysts. Further, Tax Analysts makes no representation concerning the views expressed and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, fact, information, data, finding, interpretation, or opinion presented. Tax Analysts particularly makes no representation concerning anything found on external links connected to this site.