During the debate over health care reform, the Obama Administration steadfastly denied that a statutory penalty for failing to purchase a government-approved health insurance policy would constitute a “tax.” The President himself categorically rejected the argument that the mandate is a tax in an ABC interview. Now, however, the Administration is relying upon the federal taxing power to defend the constitutionality of the health care law. As the NYT reports:
Administration officials say the tax argument is a linchpin of their legal case in defense of the health care overhaul and its individual mandate, now being challenged in court by more than 20 states and several private organizations. . . .
In a brief defending the law, the Justice Department says the requirement for people to carry insurance or pay the penalty is “a valid exercise” of Congress’s power to impose taxes.
Congress can use its taxing power “even for purposes that would exceed its powers under other provisions” of the Constitution, the department said. For more than a century, it added, the Supreme Court has held that Congress can tax activities that it could not reach by using its power to regulate commerce.
While that is the government’s argument now, it is not the argument Congress anticipated. More from the NYT:
Congress anticipated a constitutional challenge to the individual mandate. Accordingly, the law includes 10 detailed findings meant to show that the mandate regulates commercial activity important to the nation’s economy. Nowhere does Congress cite its taxing power as a source of authority. . . .
The law describes the levy on the uninsured as a “penalty” rather than a tax. The Justice Department brushes aside the distinction, saying “the statutory label” does not matter. The constitutionality of a tax law depends on “its practical operation,” not the precise form of words used to describe it, the department says, citing a long line of Supreme Court cases. . . .
The argument that the mandate is a tax, and not a regulation of commerce, is also key to the Administration’s effort to delay legal challenges to the mandate, as taxpayers must first pay a tax and then seek a refund before challenging its constitutionality.
UPDATE: Speaking of the legal challenges to health care reform, law professor Brad Joondeph of Santa Clara has launched the new ACA Litigation Blog: “A place to find news updates, legal analysis, and all official documents related to the states’ constitutional challenges to the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Reconciliation Act of 2010).”
ORID says:
Someone needs to brush up on their Flast v. Cohen clarification of taxpayer standing. Additionally since when does the Executive get to trump Congressional findings? Is providing health care a power for the states or the Federal Government? Is the Federal Government becoming a “market participant” (I know that is a power of the states, but is it a power of the Federal Government?).
Of course you throw everything up against the judge and hope something sticks (they would never let their personal bias affect how they rule, right?).
If it was Congress’ broad discretion to label these things as penalties rather than taxes, I have a hard time believing the executive can ignore such broad discretion…
July 18, 2010, 12:44 amAdam Berkowicz says:
I’m eagerly awaiting the liberal response to such a claim, but honestly…Democrats chastised the Bush Administration, saying that he lied his way into the Iraq War. Can’t we at least be fair and admit that both of these political parties are rubbish?
Never mind the individual mandate, though. The story that has yet to come to fruition is the unfunded mandate on states. We sit here discussing things like the national deficit and taxes that may be raised, but the new taxes to be added at the state level to collect for the Affordable Care Act will be like nothing we’ve seen before.
July 18, 2010, 12:46 ammemomachine says:
Hmmmm.
Who cares.
Under Obama and the Democrats the rule of law has become completely meaningless. Argue amongst yourselves but it’s totally irrelevant whatever you decide or deride.
July 18, 2010, 1:01 amConstantin says:
Should I get out the dictionary, Barack?
July 18, 2010, 1:06 amSarcastro says:
I hear that the government is also arguing tomatoes are vegetables! And what Agatha Christie calls murder? Lawyers call it manslaughter all the time.
And the worst lie of all? Lawyers call their constant tyrannical flaunting of truth the “legal lexicon!” They don’t even have the balls to admit it!
Also, this proves Obama is Hitler.
July 18, 2010, 1:35 amSteven Appelget says:
One wonders if that water Mr. Adler keeps carrying ever gets heavy.
July 18, 2010, 1:38 amAlast says:
A tax, imposed on each person for simply being alive. Looks like a capitation tax to me, so it must be apportioned.
July 18, 2010, 1:40 amPete says:
Doesn’t this break a very specific promise President Obama made to not raise our taxes?
July 18, 2010, 2:04 amleo marvin says:
As if that was in doubt.
July 18, 2010, 2:30 amShane says:
I’m interested in seeing a citation for this. I remember that when the bill was still being debated, the penalty was being specifically structured as a tax that the IRS would have the authority to oversee.
Here’s some example contemporary coverage clearly showing that everyone knew that the IRS would be enforcing the mandate by collecting the penalty:
July 18, 2010, 3:36 amhttp://www.foxnews.com/politics/2010/03/22/irs-serve-health-reform-enforcer-lacks-authority-enforce/
http://dailycaller.com/2010/04/05/irs-chief-buy-health-insurance-or-lose-your-tax-refund/
http://www.usatoday.com/money/perfi/insurance/2010-04-29-healthirs28_CV_N.htm
A. Zarkov says:
Don’t you mean Juan Peron?
July 18, 2010, 4:31 ambill-tb says:
Same lies FDR used with Social Security. And isn’t that why the money is now gone.
Now we pay taxes to insurance companies? How does that work exactly? Can everybody now just start charging taxes?
July 18, 2010, 7:07 amDavid Schwartz says:
It is technically not a tax, since its primary purpose is social engineering rather than the raising of revenue. Unfortunately, under current legal precedent, it is a legal exercise of Congress’ power under the taxing and commerce clauses. Congress can use its taxing power for regulatory purposes so long as it’s part of a comprehensive scheme to regulate interstate commerce and the regulatory aim is constitutionally permissible. (I posted the cite the last time this came up.)
The Administration’s positions are all correct. This is not a tax. This is, however, a permitted exercise of Congress’ taxing power.
July 18, 2010, 7:09 amMichael P says:
Read the NYT article that Prof. Adler linked to — in particular the reminder about the exchange between President Obama and George Stephanopoulos in which Obama “absolutely reject[s]” the notion that the penalty fits the definition of a tax.
July 18, 2010, 7:52 amcboldt says:
Does the constitutionality of a given action of force by Congress depend on having the proper “wherefores”?
July 18, 2010, 8:09 amIs the difference between reciting “Wherefore this is a regulation of commerce” and “Wherefore this is a tax” determinative? Just send it back and put in the right “Wherefore” (which has no force of operative law) and the constitutional infirmity is cured?
cboldt says:
– This is not a tax. This is, however, a permitted exercise of Congress’ taxing power. –
July 18, 2010, 8:12 amHow does that sentence make logical sense?
The taxing power is the power to levy taxes. If the enactment isn’t levying a tax, how is an exercise of the power to tax?
Laches says:
A regulatory scheme will not constitute a tax unless the real purpose and effect of the statute and regulations promulgated thereunder is to raise revenues for the general support of the government. (Citations omitted).The test is well-established:
The test to be applied is to view the objects and purposes of the statute as a whole and if from such examination it is concluded that revenue is the primary purpose and regulation merely incidental, the imposition is a tax and is controlled by the taxing provisions of the Constitution. Conversely, if regulation is the primary purpose of the statute, the mere fact that incidentally revenue is also obtained does not make the imposition a tax, but a sanction imposed for the purpose of making effective the congressional enactment.
Goetz v. Glickman, 920 F. Supp. 1173
So, how do we think the ACA “penalty” comes out under this test?
July 18, 2010, 8:44 amRich says:
Sorry you lawyers out there – this is just another reason we “normal” people hate lawyers :)
July 18, 2010, 9:09 amBrian says:
You must contract to purchase health insurance from a private party, on pain of going to jail. But this direct behavioral mandate on individual Americans is still putatively a tax because there’s the intermediary punishment of a fine, the non-payment of which would result in jail time. This reasoning gives the federal government the power to issue an open-ended range of unconditional behavioral mandates on American citizens, outside the scope of Congress’ enumerated powers.
This reasoning is such crap, that I’m optimistic that the federal courts will reject it.
It’s also an admission – as Randy Barnett has noted – that the Commerce Clause argument for the individual mandate won’t fly, even under current Supreme Court jurisprudence.
(The link to the ACA litigation blog is really helpful, BTW. That blog includes links to the PDFs of the complaints and the US motions to dismiss.)
July 18, 2010, 9:10 amAdam Berkowicz says:
I thought Randy predicted that, regardless of his personal views, he still didn’t believe it could muster 5 votes to repeal that part of the bill.
July 18, 2010, 9:19 amruuffles says:
http://www.bbc.co.uk/news/10375877
This is true. I have to wait three weeks just for a consult with a general surgeon. This is not in the middle of nowhere but at a major US teaching hospital.
July 18, 2010, 9:19 amruuffles says:
This is the most amusing part. Would you say the state governments have that power then?
July 18, 2010, 9:20 amAlicia says:
Many cases have applied the test in Goetz v. Glickman or a precursor to it, such as Cities Service Co. v. Federal Energy Admin., 529 F.2d 1016(Temp. Emer. Ct. App. 1975) and Rodgers v. United States, 138 F.2d 992, 994 (6th Cir. 1943).
The problem is every time I can find this type of analysis by SCOTUS, it was a challenge to a federal law where the challenger claimed it *was* a tax, and the Court upheld the law as a valid exercise of the commerce power. This greatly weakens the notion that the test is one that can be applied to invalidate an act of Congress as a tax.
Has any case since Pollock invalidated a federal act as an improper tax?
July 18, 2010, 9:29 amcboldt says:
The test articulated in Goetz v. Glickman appears to be based on Edye v. Robertson, 112 US 580 (1884), linked in case anybody wants to read “higher authority.”
July 18, 2010, 9:31 amThe point of including regulatory fees and taxes in the power to tax is to avoid the result that federal laws that have fees (like the landing fee in Edye, or licensing fees, etc.) aren’t found unconstitutional on account of the fee. The size of the fee is limited by the obligation to account for the distribution of proceeds, with distribution being limited to the purpose of the act.
Brian says:
I’m not sure whether you meant “amusing” in a kind of patronizing Englishman sense (How droll! How amusing!) but I’ll answer anyway. The conventional law school understanding is that while the federal government is limited by the doctrine of enumerated powers, the States enjoy a general police power to make law for citizens’ “health, safety, and welfare,” which in practical terms means they can do anything not specifically prohibited to them by the federal constitution, including the amendments.
But respected libertarian theorists have a more restrictive gloss on the States’ police power, and would limit it according to the natural rights of Americans, both enumerated and unenumerated in the federal constitution. And in this paper – which I hesitate to summarize except in the most general terms – Randy Barnett argues that the 14th Amendment provides a greater restraint on States’ police powers than conventionally thought.
July 18, 2010, 9:47 amAlicia says:
But there are different constraints on acts under the Commerce Clause (i.e. there must be a regulation of interstate commerce) verses the Taxing Clause (direct tax must be apportioned). If the act of Congress is based on the taxing power, it must also comply with the taxing power.
This is like a plaintiff who has to elect his remedy…. he prevails on a tort action under 2 different statutes, one provides attorney fees, but no treble damages. The other provides treble damages, but no attorney fees. He can’t get both treble damages and attorney fees.
July 18, 2010, 10:00 amPraetorius says:
Wow, three weeks?
In Canada you could wait a year (or more) assuming you first got a referral from your GP. In the UK, it could be 6 months or more for an NHS appointment.
In the US, you can always find another surgeon.
July 18, 2010, 10:15 amORID says:
The government can’t set up a regulatory scheme that forces you to do pay a tax on the basis of living. Social security, well you are working, property taxes, you are owning a home, but with the individual mandate you aren’t doing anything other than living and you’ll be subject to this tax or buying health insurance.
July 18, 2010, 10:37 amCornellian says:
If it was Congress’ broad discretion to label these things as penalties rather than taxes, I have a hard time believing the executive can ignore such broad discretion…
We welcome this newly discovered concern for the prerogatives of the legislative branch over the executive branch.
July 18, 2010, 11:01 amgeokstr says:
Agreed.
I’ve noted here before how lawyers and law profs will argue to the point of coming to blows about whether the bark on a particular limb of a specific tree should properly be described as “gnarly” or “knotty”, while the forest burns down around them.
July 18, 2010, 11:07 ambill-tb says:
And now insurance companies are tax collectors?
My guess is they fear the lawsuits and will try the same lies FDR did with Social Security … Which is why all the Socialist Security money has long since been spent instead of placed in the now empty lock-box.
Will America fall for it again?
July 18, 2010, 11:18 amPickled Tink says:
Actually, Social Security money is generated by FICA and has historically produced a surplus, in that more money is raised by the tax than is spent on social security benefits. This surplus is placed in a trust fund held by the U.S. Treasury and is used primarily to pay off other government debt. The trust fund currently has ~ 2.5 trillion dollars in it; hardly “money… long since been spent.”
Why do you think all the social security money has been spent? Who told you that?
Note: This does not mean I support social security, merely that I disagree with the proposition that it is bankrupt.
July 18, 2010, 11:30 amMichelle Dulak Thomson says:
It’s a pity that Randy Barnett hasn’t opened comments on his new post on this topic. I imagine many here will have a lot to say.
July 18, 2010, 12:03 pmbyomtov says:
The Justice Department brushes aside the distinction, saying “the statutory label” does not matter.
As indeed it does not.
July 18, 2010, 1:12 pmAllan Walstad says:
There’s one joke that never ceases to draw a sick laugh.
July 18, 2010, 1:24 pmJJ says:
The historical surplus was a result of a tax being levied immediately on a large working population, while benefits to the same delayed by several decades. The annual surplus has been declining sharply in recent years, as the baby boomers retire, and the ratio between workers contributing money to retirees withdrawing benefits is drastically reduced (from 16:1 in the 50s to about 3:1 today). The money is not gone (yet), but it is clear that within 30 years or less, there will not be enough to pay benefits at the current level, unless significant reforms are enacted.
July 18, 2010, 1:28 pmAlicia says:
“If it walks like a duck, quacks like a duck, and looks like a duck, then it’s a duck.” BMC Indus., Inc. v. Barth Indus., Inc., 160 F.3d 1322, 1337 (11th Cir. 1998).
July 18, 2010, 1:38 pmepluribus says:
I don’t think he ever opens comments. It’s not his style.
July 18, 2010, 1:43 pmAllan Walstad says:
Fascinating. Word-gaming has long been the basis for claiming Constitutionality of patently unconstitutional federal actions. Like, the feds’ ban on gun possession within 1000 ft of a school is “regulation of interstate commerce.” Same with intruding on a farmer’s growing of grain for family consumption. Regulation/banning of fully automatic rifles (1934)? Of marijuana (1937)? A tax. By all means, let’s cut past the parsing of words to the practical operation, and dump a crateload of federal law.
July 18, 2010, 1:45 pmSteven J. Willis says:
As my co-author and I explain in the current issue of Tax Notes, the “penalty” violates Congress’ taxing powers. The NYT article focuses on “general welfare,” which is the least significant of the Constitutional restrictions regarding taxes.
To be Constitutional, a tax must be:
1. A Uniform Impost
2. A Uniform Duty
3. A Uniform Excise
4. Imposed on “derived income” under the 16th Amendment, or
5. A properly apportioned Direct or Capitation Tax.
No one suggests the Health Care Penalty satisfies numbers one or two. It fails number three because it is not, as consistently required, imposed on a transaction, the use of property or services, or on the exercise of a privilege. It is also not a “pass-on” tax, which is typical of nearly all excises. The only “failure to act” excises are easily distinguished as either substantively on actions or on entities, rather than on individuals. Thus this is not a Constitutional Excise.
Despite it being nominally a function of income, the important “trigger” involves the potential for an individual to “shift costs” to others. The Government makes this argument in its Michigan brief; indeed, that is a substantial concession by the Government. But, as the Supreme Court has repeatedly found, such “potential” income is not yet “derived” under the 16th Amendment. In short, the “income” being taxed does not yet exist at the time the penalty will apply – hence the tax is premature. Thus it fairs number four.
That leaves number five: a Direct Tax or a Capitation Tax, which is exactly what the tax penalty amounts to; however, it fails the essential “apportionment” by population requirement which appears twice in the Constitution.
Thus, as Nakku Chung and I explain in the Tax Notes article, the tax penalty is unconstitutional. Randy Barnett and others adequately discuss the constitutionality of the “mandate” (as opposed to the “penalty”) under the Commerce Clause and the Tenth Amendment.
July 18, 2010, 1:49 pmyankee says:
“Used to pay off other government debt” is another way of saying “consists of U.S. Treasury bonds”—i.e. a promise by the government’s left hand to pay money to the right.
i’m not an accountant, but I don’t think it makes actual sense to count the government’s own bonds as program assets. There are only two ways those bonds can turn into U.S. dollars that can be given to seniors: either they must be sold to the market in exchange for dollars, or they must be given to the Treasury in exchange for dollars. The former is indistinguishable from simply issuing new debt, and the latter is indistinguishable from Congress appropriating money out of general revenues. Either way the existence of the bonds has no substantive fiscal impact.
Of course, the federal government would never default on those bonds, but that’s only because when it defaults on obligations to seniors we don’t call it “default.” Instead we call it “means-testing,” “raising the retirement age,” or something similar. That is, instead of “defaulting” on its obligations, the government simply redefines the amount of money it owes.
July 18, 2010, 1:51 pmMichelle Dulak Thomson says:
Pickled Tink,
Why do you think all the social security money has been spent? Who told you that?
As I understand it, what’s in the Social Security “trust fund” is mostly not actual money, but rather IOUs [=Treasury bonds] from the Federal government to SS. The solvency of the fund is therefore predicated on the Federal government’s being able to hand over (or, more realistically, borrow) the money when it’s needed.
The OMB describes it as follows [thanks, Wikipedia!]:
These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense…. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)
July 18, 2010, 1:52 pmDuracomm says:
Pickled Tink said,
In-the-Red State
When we properly account for Social Security, our national deficit proves worse.
In May 2009, the Social Security Trustees’ annual report projected that revenue for Social Security would reach $848 billion, including $120 billion in interests collected on its $2.5 trillion holdings of Treasury bonds.
July 18, 2010, 1:57 pmCarl The EconGuy says:
Regulation or a tax, what a load of mumbojumbo legalese making irrelevant distinctions. Whether a regulation collects money for the govt or not, it’s always perceived and acted upon by private parties in exactly the same way as if it were a tax. That is, in its economic consequences a regulation is usually indistinguishable from a tax on activities, and the only difference, from a legal perspective, is that what the market perceives as a tax from regulation is a dead-weight loss that is not transferred to the govt, whereas regulatory fees and taxes generate revenue. But, economically speaking, a tax is a tax is a tax whether the govt collects the money or just throws it away.
However, the heart of the case before us is not tax v. regulation at all. As Randy Barnett keeps pointing out, it’s the individual mandate that is at issue, whether it’s a tax or a regulation. It’s a tax for non-participation in the market, or it’s a regulatory fee for non-participation in the market. That’s the constitutional issue, not the label.
So, here’s the question. We’ve consented to regulations, with fines and sometimes imprisonment, for buying things prohibited by the govt — drugs, for example. That’s been declared constitutional, and it’s a clear infringement on individual and state rights, for the purposes of general and individual health and welfare, I presume. Under that argument, I think the step towards *forcing* individuals to buy something the govt deems good for them is miniscule. I don’t see the control of not-buying v. buying as being very different at all. Both are, in my libertarian view, completely indefensible. But if the courts agree that the constitution allows infringement on my right to buy something, I don’t see why it should not equally well extend to forcing me to buy something else, if the state thinks that’d be good for me or society, under majoritarian rules. In either case, we’re arguing simply that a collective decision about individual liberties should supersede individual judgments. If we can stretch the constitution one way, to not-buying, surely we can stretch it the other way, to buying. If we’re going to be majoritarian one way, let’s go whole hog, for the principle is already established — collective rights trump individual liberty.
So, under the argument that the Obama liberals are proposing, it should be ok not just to prohibit and regulate prostitution, but equally well to force women (or potentially men too since prostitution is bi-sexual), under a penalty of a fine, to have regular intercourse with their husbands, lovers, roommates, and anyone else for that matter, if that would enhance general welfare — in the political, majoritarian sense of course. Myself, I think that kind of society really sucks, but I realize that others are entitled to their own opinions.
July 18, 2010, 2:02 pmPickled Tink says:
I see what everyone is saying, and I think I better understand, now, what the original author meant. Social security is a ponzi scheme, and the money traded out of social security has been used to pay off other federal debts in return for IOUs, that the U.S. Treasury counts as “assets” which is questionable.
Having said that, even if the $2.5T is funny money, the fund isn’t insolvent until outlays exceed revenues. Typically, they don’t, which is why social security is servicing other federal debt (EDIT) rather than federal surplus servicing social security debt, at least not yet.
July 18, 2010, 2:27 pmjrose says:
In 2010, it is projected that Social Security revenues (less interest payments which are in IOUs) will fall short of its outlays. It wasn’t supposed to happen for another 7 years or so, but the recession has accelerated that date (at least temporarily).
However, blaming Social Security for the borrowing necessary to make up this deficit doesn’t make sense to me. The blame goes to spending the prior-year SS surpluses instead of using them to retire debt (the latter being what Gore poorly analogized as a “lock box”).
July 18, 2010, 2:42 pmwhitby says:
It’s nice to see that Mr. Adler, and Mr. Barnett, are now concerned when a presidential administration doesn’t call things by their proper names.
I’m curious, where was this latent concern when the Bush administration was calling “torture” enhanced interrogation?
I wonder, are you really concerned about honesty and stamping out double-speak, or are you just a petty partisan hack?
July 18, 2010, 2:43 pmJ. Aldridge says:
I thought Congress can only tax property or income?
July 18, 2010, 2:43 pmyankee says:
Yeah, but the point Adler is trying to make isn’t a constitutional one. From a constitutional perspective what Obama told ABC is irrelevant: there’s no judicial doctrine of Presidential interview estoppel.
Adler’s point is a political one. “Tax” is a very negative label in U.S. politics, so you win, politically, if you can successfully characterize the other side’s policies as “taxes.” That’s why we see things like state politicians trying to raise revenue by imposing a lot of new “fees” that are hard to distinguish from taxes or the Republican initiative to brand cap and trade as “cap and tax” even though it doesn’t involve any new “taxes” per se. Adler is just doing his part to get the “tax” label associated with the Affordable Care Act.
July 18, 2010, 2:45 pmPickled Tink says:
I thought social security excess could only be spent towards retiring Federal debt. Again, just my understanding, if in 2007 outlays for debt were ~$400B but on the books they only count as net outlays of ~$230B because the ~$170B was being “borrowed” and paid out of social security excess.
July 18, 2010, 2:57 pmjrose says:
What’s the controlling case? Do you have a link to the brief?
July 18, 2010, 2:58 pmjrose says:
Yes, the debt would be $170B higher without the SS surplus. But, it went up nonetheless, Gore’s “lock box” was that all $170B would go towards reducing the absolute value of the debt rather than insuring it went up by a smaller figure. That is, the non-SS budget would be balanced.
July 18, 2010, 3:06 pmPickled Tink says:
I’m having a hard time with this.
If the $170B is spent on servicing interest on the national debt, that goes towards reducing the absolute value of the debt. Outlays are outlays, and whether it went towards interest or some other outlay, it still reduces the overall debt. What else can be done with the $170B to reduce the overall deficit?
Might be a dumb question, but I’m trying to educate myself.
July 18, 2010, 3:23 pmSteven J. Willis says:
I cite to the Michigan brief in the article at note 45 as well as to many controlling cases. I do not have an electronic link to the brief, at least not at my fingertips. I notice the ACA Litigation Blog linked above lacks links to the Michigan litigation.
Indianapolis Power deals with “potential” income. Just because a taxpayer might someday have income from a “deposit” does not render the “deposit” a “payment.” An event evidencing the earning of the income or the accession to wealth is required. Although the case dealt with the statutory language of section 61, those words are verbatim from the 16th Amendment.
Macomber, Independant Life, Kirby Lumber, and Glenshaw Glass are the most important cases which illustrate the evolution of the “realization” requirement stemming from the “derived” language of the 16th Amendment. An analysis of the various methods of accounting would render the same result. The Supreme Court decisions in Sanford & Brooks and North American Oil further illustrate the need for some event or realization. While the Court approved an annual rather than a transactional system – per event system – it still focused on something happening.
The potential to shift costs or the potential to take advantage of pre-existing coverage insurance is not of itself a sufficient event under these cases. The individual needs to actually shift some costs or purchase coverage that covers a prior condition – that would produce wealth and would be a sufficient event to trigger an income tax.
July 18, 2010, 3:34 pmjrose says:
Pickled,
X=non-SS deficit. S=SS surplus
Case 1: X>S. Publicly-held debt goes up X-S, would have gone up X without SS surplus
Case 2: 0<X<S. Publicly-held debt goes down by X-S, would have gone up X without SS surplus
Case 3: X<=0. Publicly-held debt goes down by X+S, would have gone down by X without SS surplus
In all 3 cases, publicly-held debt is smaller by S thanks to the SS surplus, but only Case 3 is the "lock box".
July 18, 2010, 3:43 pmKazinski says:
Adler wrote the Administration brief? And the NY Times article? I had no idea he was that powerful.
July 18, 2010, 3:50 pmCurious says:
Ruffles, what is the Commonwealth Fund’s purpose and why should you tell us about it? What is the problem with polling patient experiences and expectations?
July 18, 2010, 3:59 pmepluribus says:
U.S. treasury securites are considered AAA investments around the world. China buys them by the boatload. Investment advisers counsel conservative investors to invest their life savings in them. There has never been a default on a U.S. treasury security in the history of the world. But when the Social Security trust fund buys them, they are dismissed as mere IOU’s, not worth the paper they’re printed on. What should the trust fund invest in? Derivatives issued by Goldman Sachs? The latest hot stocks on the NASDAQ? Somee people here are merely expressing their disapproval of Social Security.
July 18, 2010, 4:00 pmKazinski says:
Let’s run a thought experiment. Say in 5 months you have a 5,000.00 tuition payment due, so you dutifully set aside 1000.00 a month in your checking account to pay for your upcoming tuition bill. However, because you have been so flush you have also been going on a spending binge with your credit card, and every month you have been getting a credit card bill of about 1500 a month. So you then figure will be better off using the money in your checking account to keep your credit card balance down, until you need the money for tuition.
Now the 5 months is up. Your checking account balance is $0, and you only owe 2500.00 on your credit card because your net borrowings are much lower than they would otherwise have been. But your tuition is due. Now you have three choices, borrow 5000.00 more from your credit card, default on your tuition, or go out and sell a kidney to come up with the 5 grand you need for the tuition.
July 18, 2010, 4:02 pmBama 1L says:
Using legislative history to assess the constitutionality of legislation naturally leads to such a doctrine!
July 18, 2010, 4:03 pmKazinski says:
Oh, I’m sure were good for it and they’ll get paid off eventually. But the difference between us and China, is that we are they ones that have to pay them off, not China. When a lender makes a loan, his only consideration is whether the debtor has the capacity, and commitment to pay off the load, whatever the pain it eventually entails. The debtor though not only has to figure out whether or not he can pay it, but whether the future pain is going to be worth the present benefit. And there certainly will be some pain involved.
July 18, 2010, 4:13 pmleo marvin says:
It’s because of something Lysander Spooner once wrote about the original public meaning of “blog.”
July 18, 2010, 4:19 pmMichelle Dulak Thomson says:
epluribus,
U.S. treasury securites are considered AAA investments around the world. China buys them by the boatload. Investment advisers counsel conservative investors to invest their life savings in them. There has never been a default on a U.S. treasury security in the history of the world. But when the Social Security trust fund buys them, they are dismissed as mere IOU’s, not worth the paper they’re printed on.
I think the point is that when people hear that there’s $2.5 trillion in the Social Security Trust Fund, they tend to assume that the money is actually there, ready to disburse. That isn’t the case. Yes, the US government is pledged to honor those commitments, and I imagine it would try almost anything rather than actually default on SS. Still, it’s no good pretending that there’s an actual $2.5T sitting somewhere, waiting to be sent out to SS recipients. There isn’t. When the recipients are due to receive it, it will be borrowed or raised through tax increases or both.
July 18, 2010, 4:20 pmepluribus says:
Of course, that’s the difference between a debtor and a creditor. But the fact that China is willing to buy them, as are millions of other conservative investors around the world, doesn’t lend much credence to the “mere IOUs” arguments on this thread. I wish the debt was a lot, lot smaller, but wishes aren’t facts. I’m glad that some of our debt will be paid to Social Security recipients in the US and not to foreign governments.
July 18, 2010, 4:20 pmepluribus says:
Michelle, are you really arguing that U.S. Treasury securities aren’t money? What would you accept as real money? Gold and, maybe, wampum?
July 18, 2010, 4:22 pmHarvey says:
I see that lawyers do not understand finance.
Some of you think that the so-called Social Security Trust Fund would hold something of real value if only it had kept its “dollars” and not “invested” them in Treasury Bonds – a distinction without a difference (except that the government now “pays” itself “interest,” another fiction.)
So what would be preferable, for the Fund to hold corporate securities? Isn’t government ownership of the means of production exactly what K. Marx advocated? Hmm.
The fact is that SS is a real-time redistribution scheme and there is absolutely no “burden on future generations” just as there can be no accrued savings in the Fund to mitigate current costs/benefits.
Yes, individuals can accrue financial assets (which are claims on others), but the government already has such a claim, i.e., its power to tax, so what can be the meaning of hoarding its own fiat currency or bonds?
Social Security beneficiaries consume resources which otherwise would have been consumed by others today and taxpayers and/or holders of depreciated dollars forfeit consumption today. That is the alpha and the omega.
July 18, 2010, 4:35 pmPickled Tink says:
So if you have a $170B SS surplus and a $400B X, what do you do with the $170B under the “lockbox” theory?
What I am still not getting, probably because I am stupid, is if the endgame is to get S>X or X0 and >S (EDIT) don’t we need to service X with S?
July 18, 2010, 4:35 pmSuperSkeptic says:
Nothing? Weren’t they supposed to be saving it for old people?
July 18, 2010, 4:44 pmPickled Tink says:
Above should read “endgame is to get S>X or X<=0
July 18, 2010, 4:44 pmepluribus says:
Michelle, I have a very conservative cousin, Tea Party type, who recently informed me that he had sold all his stocks and invested the proceeds in “treasuries.” He thinks his life savings are a lot safer in treasuries than in stocks or other assets. Why? Because treasuries haven’t had a default in the history of the world, and they pay a stated rate of interest. What do you think the trust fund should be invested in? Look at the folding money in your pocket. “Federal Reserve Notes.” These are also promises to pay. “Mere IOUs.” Would you be happy if the trust fund was all in Federal Reserve Notes?
July 18, 2010, 4:49 pmSuperSkeptic says:
Or, since we’re speculating, it could be because Professor Volokh puts some sort of onus on co-bloggers on his site to monitor or otherwise supervise comments, a requirement which professor Barnett has either no time or inclination to meet.
July 18, 2010, 4:50 pmjrose says:
Steven,
That was a thought-provoking article, particularly the notion that in order to qualify as an excise tax, it must wait until a non-exempt, non-insured person uses a substitute for not having health insurance.
On the other hand on first blush, I find the distinction between a credit/deduction and a “penalty” tax logically unsatisfying.
FYI, I find Eugene’s argument that the Necessary and Proper clause, as applied to the Commerce Clause, more compelling than the Taxing Power argument because of the questions you raise (I find it persuasive that it promotes the general welfare).
July 18, 2010, 4:55 pmPES says:
So, even if this particular challenge to the healthcare bill is successful, all Congress would have to do to achieve the same result is effectuate a nominal increase in marginal income tax rates and enact a properly tailored income tax credit for the purchase of qualifying health insurance. Relative to the current bill, this procedure would be nominally revenue neutral (actually revenue positive as it would have the added downside (for mandate opponents) of actual enforcement by the IRS). And clearly that legislative fix would be within Congress’s taxing powers. I don’t see the real benefit of this type of challenge, unless one suspects that a post-challenge Congress will be sufficiently different in composition such that it would not enact the legislative fix.
July 18, 2010, 4:59 pmSuperSkeptic says:
Just to echo CarltheEconGuy here: Isn’t this some of the essence of the objection to this scheme (all labels aside)?
July 18, 2010, 5:03 pmjrose says:
The lockbox is equivalent to having X<=0.
July 18, 2010, 5:05 pmMichelle Dulak Thomson says:
epluribus,
Again, this is the OMB:
These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense…. They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337)
The Trust Fund has let the US government borrow money from it, with a promise to pay it back. That’s what Treasury bonds are. It’s quite true that the US government hasn’t ever defaulted on such a promise. But as the US government is running on debt right now, and has been for the last decade or so, its ability to keep these promises will last only as long as people are willing to keep lending it money.
July 18, 2010, 5:12 pmPES says:
Completely agree. Anti-mandate folks gave up the ghost a long time ago — specifically, when they accepted that Congress can give tax credits/deductions that in no way reflect economic income. Congress is already “penalizing” you for not mortgaging your home or not installing energy efficient insulation or not going to college or any number of other failures to act. Given that the health mandate/penalty does not impose criminal penalties and is only indirectly enforceable by the IRS, and that it is imposed in proportion to income, it seems much less intrusive than the home mortgage interest deduction or the Lifetime Learning Credit or the residential energy efficiency credit. Those measures force private persons to enter into commercial dealings with other private entities every bit as much as the healthcare mandate. It seems to me that Barnett grossly exaggerates the gap between the status quo before any decision upholding the mandate and the status quo after such a decision.
July 18, 2010, 5:20 pmBrett Bellmore says:
The basic problem with looking at it this way, is that the SSA isn’t independent from the US government, it’s just another of the Leviathan’s tentacles. If the government decides that it doesn’t want to pay back the SSA, there won’t be a “default”, the SSA will simply be directed to refrain from asking for repayment.
This makes the SSA very different from, say, the Chinese.
July 18, 2010, 5:36 pmMichelle Dulak Thomson says:
PES,
I see. So there are in fact “mandates” to buy homes on mortgage, to install energy-efficient insulation, and so on and so on for as many tax credits as you want to list. If you don’t buy the house (or the insulation, or whatever), you pay the tax penalty. (Of course, it’s only even arguably a penalty if you itemize, which many, many Americans do not, but I digress.)
Weirdly, though, no one ever described this sort of thing as a “mandate” before now. We didn’t have a buy-a-home-on-mortgage “mandate” or an insulate-now “mandate” or a buy-solar-panels “mandate.” It’s almost as though people thought of tax credits and penalties administered through the IRS as separate things.
July 18, 2010, 5:41 pmKenneth C. Brooks says:
Tax or no tax I do not believe that the 16th Amendment can be interpreted as allowing the government to use its Taxing power to undermine the First Amendment right to free association. Along those lines, can anyone tell me if this has ever been adjudicated with respect to the marriage penalty? It always seem to me that the marriage penalty was a blatant violation of the First Amendment’s right to free assocation.
July 18, 2010, 5:44 pmPES says:
That is true for some credits and not others. For example, all of the education credits can be taken even if you do not itemize.
July 18, 2010, 6:01 pmBobDoyle says:
epluribus, the point is that we, the people of the US are responsible for the US debt, including the SS debt. So, as beneficiaries of SS (most US citizens) we have SS Trust fund IOUs worth $2.5 Tr, (an asset) but we also have $2.5 Tr in IOUs that we we owe (a liability) as the taxpayers of the US, so the two parts cancel and we have exactly zero dollars in net worth. It really does not matter if the Trust fund balance is $2.5 Tr. or $250 Tr, or $0; its all a fiction because the net worth of our position in either case is $0 because we both own and owe the same amount on each side of the ledger!
July 18, 2010, 6:04 pmPES says:
And, actually, it is a penalty regardless of whether or not you itemize, because you could itemize; it is just that an additional penalty is imposed for failure to itemize. If you mortgage a house and do not itemize, you are paying the penalty for failure to itemize. If you just don’t mortgage the house, you’re paying the penalty for failure to mortgage the house AND failure to itemize.
July 18, 2010, 6:06 pmBob says:
It sure wouldn’t be the first funny use of the taxing power. Previously controls were put on narcotics by levying a federal tax and conditioning its payment on the use of certain forms that were not available to the general public.
July 18, 2010, 6:16 pmMichelle Dulak Thomson says:
PES,
And, actually, it is a penalty regardless of whether or not you itemize, because you could itemize; it is just that an additional penalty is imposed for failure to itemize. If you mortgage a house and do not itemize, you are paying the penalty for failure to itemize. If you just don’t mortgage the house, you’re paying the penalty for failure to mortgage the house AND failure to itemize.
The mortgage-interest deduction is actually the only one most Americans will ever encounter that makes it worthwhile to itemize. If you don’t have a mortgage, chances are the standard deduction is more than your itemized deductions would be.
But you’re missing my point, which is that no one ever thought of the mortgage-interest deduction as part of a mandate that everyone go out and buy a house on credit, with tax penalties for not doing so. If I’m in CA and I install solar panels on my roof, I get (as I understand it) a tax credit; it is not said that everyone but me has to pay an extra tax because they haven’t bought solar panels. This is the first case in US history, so far as I can tell, where the default assumption is that you should buy something, and if you don’t you’re penalized. In every other case I know of, the default assumption is that you won’t buy something, but if you do you’ll be rewarded.
July 18, 2010, 6:20 pmColoComment says:
This was a nice article explaining the SS situation. Here’s an excerpt that describes the double problem:
“If the government’s need for money for other programs is such that it has had to borrow every last cent of the Social Security surplus, when the surplus vanishes, the government has a problem. No longer will it be able to supplement other tax revenue with the Social Security surplus, and it will have to begin to redeem IOUs. So not only will less money be coming in, but also more money will be going out.”
http://www.philly.com/dailynews/opinion/20100413_The_Social_Security_jar.html#ixzz0u4hLH4Ho
July 18, 2010, 6:20 pmPES says:
And my point is that your point is an issue of semantics, particularly in the present case because there are no consequences of violating the mandate other than potentially paying more when you file your tax return (or don’t get your refund). Maybe semantics are important, but in terms of actual effects on the ground, Congress has possessed this sort of power for a long time.
The only important difference between the two situations is that Congress would have to raise the marginal tax rates in order for a credit mechanism to be revenue neutral. But this isn’t a question of whether Congress can “force” people to enter into private transactions by requiring payment of higher taxes if one refuses to do so. It is a question of whether it is politically expedient to do so. These are entirely separate questions, and anyone attacking this provision would be well-served recognize that fact.
July 18, 2010, 6:25 pmPES says:
So, yes, maybe there is a valid constitutional attack to be made on the mandate, but it has much more to do with whether Congress should be allowed to sidestep a general tax hike than with whether Congress has the power to “mandate” the purchase of health insurance by increasing the uninsured’s tax bill. My initial point was that Barnett’s entire argument rests on the proposition that Congress could make us do anything if this provision was upheld. That argument is a loser, in my mind, because to the extent that it is relevant to this provision as it is written, the fact is that they already can.
July 18, 2010, 6:37 pmAllan Walstad says:
On SS, Harvey gets it.
Look, if the SS tax is just another tax, and if SS benefits are just another fed spending program, and if everybody understands this, then SS is no more fraudulent than anything else the feds do. Taxes come in, benefits go out. As long as the SS taxes exceed the benefits, the surplus goes for other stuff that would otherwise be supported by borrowing or other taxes. When the benefits exceed the SS taxes, the shortfall must be made up by borrowing or other taxes. All we have is a non-means-tested welfare program for older people, plus a payroll tax that has nothing really to do with that program (except rhetorically).
The problem is, that’s not how SS is portrayed, and not how it was sold. SS is portrayed as a fund that has our savings in it, from which we withdraw our retirement and other benefits. But the “fund” only has IOUs from the feds to the feds.
A REAL savings fund would own REAL property, either real estate that can be sold or productive capital that creates wealth to pay your retirement expenses. But most folks (outside the long-discredited hard socialist camp) understand that we can’t have government owning the land and productive resources of the country. So SS not only is, but could never have been anything other than, a ponzi scheme.
Some might point to the fact that private retirement plans also invest heavily in fed securities. True. And that’s a big problem, for at least a couple of reasons. First, it’s obvious that US debt has entered territory where is will not be paid off at face value. The likely mechanism of default will be high inflation. So anyone stuck with loads of treasury bonds paying low interest is going to see the real value thereof dry up. Second, it’s one thing for the feds to run up debt that is paid off in a few years, and quite another to carry massive and increasing debt obligations for generations. Unlike, say, stocks, whose value is backed up by the productive capital of corporations, government debt is backed up by the prospective willingness and ability of future pols to take resources in sufficient quantity from future taxpayers. Government debt rolled over for many years is nothing other than an imposition on future generations who had no say it its run-up.
July 18, 2010, 6:42 pmjrose says:
How a policy is thought of is political spin (who says it’s a mandate). Maybe the ability to spin separate types of taxing provisions that result in the same outcome is sufficient to distinguish the provisions in the eyes of a constitutional analysis, but as I said the logic is unsatisfying to me.
July 18, 2010, 6:42 pmepluribus says:
People of a certain political persuasion insist on misunderstanding the relationship between the Social Security trust fund and Treasury securities I suppose it makes them feel better to suppose that “idiots” are in charge. I’m sure somebody will reply, “Yes, idiots are in charge!” Go ahead, I’m sure it will make you feel better–but the “idiots” who are in charge are actually the voters. A Treasury security (a note, a bill, a bond) is backed by the full faith and credit of the United States government. The United States government is backed by its full taxing and borrowing power and ultimately by the value of all the assets and labor in the United States. When the Social Security administration receives a tax payment, it has to do something with it. There are not enough matresses in the world to hold those assets. So it invests the money in Treasury securities, the safety investments in the world. The Treasury securities will be paid, as they always have been in the past. In the meantime, of course, there will come a time (sooner rather than later) when some adjustment will have to be made in the Social Security system. Lower the retirement age for benefits; increase taxes; or a combination of the two. The adjustment will not be necessary because the trust funds are held in the form of Treasury Securities. I have news for the “mere IOU” crowd here. If the United States Treasury ever defaults on its full faith and credit debt, you will not need another form of money. Gold will be essentially worthless. You will need a hole in the ground stocked with canned goods and guns and ammunition enough to keep your neighbors from trying to get those canned goods away from you. All money will be worthless.
July 18, 2010, 6:47 pmAllan Walstad says:
PES
Among rational people arguing issues on their merits, the argument is a winner, because the Constitution was written to delegate only limited powers to the feds, so any interpretation that would imply unlimited fed powers is incorrect.
July 18, 2010, 6:49 pmepluribus says:
Sorry for the typos in the previous post. And, of course, I meant “raise,” not “lower,” the retirement age. (Yes, there are “idiots” even on this board.)
July 18, 2010, 6:49 pmjrose says:
You don’t need a general tax hike. You could reduce the amount of some credit or deduction if the person doesn’t have insurance. I’d like to know if Steven J. Willis thinks that approach would be constitutionally permissible.
July 18, 2010, 6:50 pmcboldt says:
– If the United States Treasury ever defaults on its full faith and credit debt, you will not need another form of money. Gold will be essentially worthless. You will need a hole in the ground stocked with canned goods and guns and ammunition enough to keep your neighbors from trying to get those canned goods away from you. All money will be worthless. –
July 18, 2010, 6:56 pmStates and/or localities will issue money. See wooden money, Tenino, Washington, etc. The only revelation will be that US (federal) money is worthless.
Not to say it won’t be a big deal, just that the collapse of the US government does not mean people lose the ability to “invent” and circulate money.
PES says:
First, no one said anything about “unlimited fed powers,” but I guess that is only apparent to “rational people arguing issues on their merits,” so I’ll give you a pass on that one. What I said was, to the extent that Barnett was arguing that the federal government could “force” us to enter into any private commercial transaction by raising our tax bill (so, not really force at all, just add costs to the decision), he misses the fact that the federal government already does so on a daily basis. Maybe, as a matter of theoretical constitutional interpretation, the entire system of federal tax credits is unconstitutional on that basis and, therefore, so is the mandate. But for those of us living in the real world, where the system of tax credits has been upheld, that particular argument is a loser.
Second, please consider making your next post without the needless ad hominem intro, and just go right into your argument. See how unpleasant the alternative makes things?
July 18, 2010, 7:00 pmAllan Walstad says:
Not idiots, epluribus. The pols are clever. The question is whether they are wise, and whether people generally were wise or well-informed in following pols like FDR into the SS morass.
Well, it’s backed by the taxing and borrowing power to the extent that future pols calculate that the requisite amount of taxation and borrowing is conducive to their political good fortune. But the “value of all assets and labor” part of your comment is most revealing. When I borrow money, my assets and labor are on the line — things that belong to me. Your statement carries the implication that everything we have and everything we might do are the property of the federal government. Thanks for clarifying that.
July 18, 2010, 7:02 pmepluribus says:
People here are constantly referring to a “mandate.” As I pointed out in many previous discussions of this issue, the term is a misnomer, and the misnomer gives rise to a serious (perhaps fatal) misunderstanding of the law. If a person subject to the law (many millions are not because they are already covered by employer-sponsored health insurance or Medicare or some other plan) chooses not to buy health insurance, he or she will be subject to a tax. Call it a “penalty.” If the person does not pay the tax (“penalty”), there will be no further punishment. No jail time; no imprisonment; no torture; no waterboarding; nothing but owing the tax (“penalty”). So if you don’t want health insurance, don’t buy it. You will owe a tax (“penalty”), which will increase your tax bill. That’s the end of it. We are all subject to higher tax bills than other people because of particular choices we make. If I choose to rent a house rather than buy one, I will owe more taxes than someone who buys because I won’t have a mortgage-interest deduction. Is that a “mandate” that I buy a house? No. If I have dependent children and my neighbor doesn’t, I will owe less taxes than my neighbor, because I will qualify for the credit for dependent children. Is that a “mandate” that I have children? No. If I give money to charity, I will owe less taxes than someone who doesn’t. Is that a “mandate” that taxpayers give money to charity? No.
July 18, 2010, 7:03 pmAllan Walstad says:
PES, allow me to quote once more your own written words (emphasis added):
Now, I take it that if the feds can “make us do anything,” then they have unlimited power over us. If you see another reasonable interpretation of “make us do anything,” by all means share it.
July 18, 2010, 7:09 pmepluribus says:
Let’s cut the nonsense, OK? I do not believe nor did I say that all of the assets and labor in the United States are the “property” of the federal government. Of course, they aren’t. They are, however, subject to taxation to back the promises of the federal government. Taxes are subject to the will of the people and constitutional restraints. The people have in the past and will in the future prefer to pay taxes rather than to cause the U.S. government to default on its debt like some other nations have. They can in the meantime exercise their franchise to urge the government to get its fiscal house in order.
July 18, 2010, 7:10 pmjrose says:
Do you believe there are any tax credits or deductions that are unconstitutional?
July 18, 2010, 7:13 pmAllan Walstad says:
epluribus
So, Obama could have increased everybody’s taxes by X, then given a tax break of X to anybody who buys a certain level of health insurance. He didn’t do that. Think for awhile about why.
July 18, 2010, 7:19 pmDuracomm says:
epluribus said,
That would be the people who continue to believe the fiction that there is any kind of trust fund.
The government does not have to default on the securities it just has to default on social security program. Neat, easy, and effective, no drama required.
The groundwork for this default is already underway with John Boehner and the republicans talking about raising the retirement age.
Social Security never worked as what it was sold as (a retirement plan). It has always been nothing more than a massive Ponzi scheme.
Obamacare is just adding more fuel to an entitlement system that is in the process of burning down.
July 18, 2010, 7:20 pmAllan Walstad says:
Seems like a non-sequitur to me. What next, are you going to ask me if I like short skirts?
July 18, 2010, 7:21 pmjrose says:
Or, he could have reduced an existing deduction/credit for those who don’t buy health insurance.
July 18, 2010, 7:22 pmPES says:
Clever, maybe. Meaningful, no. Basing a supposedly dispositive argument on an imprecise phrase taken completely out of context does not make your argument better. I can point to a pretty reasonable interpretation of “make us do anything,” that does not point to unlimited fed power — make us pay money (contingent on income) if we don’t do what they say we should do. Since those are the actual facts of this “mandate,” and the subject of the entire discussion, that seems like a reasonable interpretation of the phrase “make us do anything.” Context clues are a pain, I know
July 18, 2010, 7:22 pmAllan Walstad says:
I’m sure you don’t, PES. It’s just the clear implication of your comment, which, now that I’ve pointed it out, you might ponder for awhile.
July 18, 2010, 7:29 pmjrose says:
It’s on point, because PES was mocking the argument that the federal government can “make us do anything”, because they can do so only through tax penalities, or deductions and credits, which PES believes isn’t “making us do anything”.
So, it would be illuminating to know if you think there are credits or deductions that are unconstitutional.
July 18, 2010, 7:29 pmPES says:
That actually wasn’t me, Allan. Another failure of close reading, I suppose.
July 18, 2010, 7:38 pmAllan Walstad says:
PES, in context, “make us do anything” implies there’s no limit to what the feds can make us do. Read it:
Barnett’s argument surely does not rest on the proposition that there is something the feds can make us do. Is that what you thought? That Barnett argues that the provision should not be upheld simply because it implies there’s something the feds can make us do? No, it’s because it implies the feds can make us do anything, anything they please, anything at all — i.e., that the feds’ power is unlimited.
This is too obvious to argue further.
July 18, 2010, 7:38 pmSteven J. Willis says:
Good question, which I believe we discuss in the article, albeit briefly (space was very limited).
A credit for having insurance would be easier to justify than would the reduction of a credit for lacking it. I would view the reduction of a credit as a tax because of the way credits work. A credit itself is more properly analyzed under the Spending Power.
Deductions are much easier to justify. Generally, Courts say they are a matter of “Legislative Grace.”
Certainly, I believe Congress could accomplish its apparent goal in some other fashion using the tax system; however, it enacted what it enacted. Form matters and Congress chose an unconstitutional procedure – an un-apportioned Direct Tax.
I personally do not view deductions as “taxes.” I believe Congress could directly subsidize individual health insurance and also could grant a deduction for it, just as it has long granted various exclusions for employer-provided health insurance and for employee/employer subsidized cafeteria (127) plans. Credits are more complicated. Granting a credit is much like Spending, but denying a credit is more like taxing. If Congress chooses that method, I’d be pleased to write about. But, as we said, that is not what Congress did.
July 18, 2010, 7:39 pmepluribus says:
If you argue that “it can’t be a tax because they didn’t call it a tax,” why can’t you argue “it can’t be a mandate because they didn’t call it a mandate”?
July 18, 2010, 7:47 pmPES says:
Yes, and I suppose all paragraphs and all discussions are composed of a series of sentences completely divorced from each other. There is context in a sentence, and there is context in a paragraph, and there is context in a discussion. People engaging in discussions generally respond on the basis of context from the discussion, not solely on context from the sentence.
July 18, 2010, 7:48 pmAllan Walstad says:
I’m sure you don’t, epluribus. It’s just the clear implication of your comment, which, now that I’ve pointed it out, you might ponder for awhile.
Sorry if I’m having a hard time keeping you and PES straight.
July 18, 2010, 7:50 pmepluribus says:
I’ll bet if makes you feel real good to call the trust fund a “fiction.” Yet there are millions of people who get checks out of that trust fund every month. They buy their food with it, pay their rent with it, buy their gas with it, take vacations with it. Without it, many millions would be in abject poverty. Kind of gives a new dimension to the word “fiction,” doesn’t it?
July 18, 2010, 7:51 pmjrose says:
Is there precedent supporting this distinction?
Do I have you have your argument correct? To be judged under the Taxing Power: direct tax penalties, denying a tax credit. To be judged under the Spending Power: granting a tax credit, granting a tax deduction, denying a tax deduction.
July 18, 2010, 7:54 pmepluribus says:
Allan, you are confusing private property with the tax base. My income is my private property, but it’s also part of the tax base in my state and country. That is why Treasury Securities are safe investments–they are backed by the greatest tax base in the world. Now, I know there are lots of people who object to the income tax. But it is a clear part of our Constitution and laws. So my income is part of the tax base, as is the car I buy, the gas I burn in that car, the stocks and bonds I buy and sell, the liquor I drink. They are my private property, but they are also part of the U.S. tax base, whether the taxes be imposts, excises, or income taxes.
July 18, 2010, 7:56 pmDavid Schwartz says:
The taxing power is, all by itself, just the power to levy taxes. But when combined with the commerce power, it allows you to do things other than levy taxes. For example, you can regulate commerce and incentivize various behaviors by engineering tax policy.
For example, Congress can use its taxing power to give people who own a home a tax break. This “break” is not a tax, it is social engineering by regulation. But it is a valid exercise of Congress’ power to regulate and power to tax in combination. (Achieving a regulatory aim by a change in tax policy that is not a tax.)
The Administration pointing out that it is not a tax is not a mere quibble over meaningless words. It is a fundamental point that it is social engineering, not revenue raising.
July 18, 2010, 8:00 pmjrose says:
You missed PES’s argument:
1) Barnett argues if the law is upheld, the feds will be able to make us do anything.
2) PES counters that through deductions and credits, the feds can already do the things Barnett fears will come to pass if the law is upheld.
3) Therefore, either Barnett should back down from his claim that unrestricted tax penalties amount to the feds having the power to make us do anything, or Barnett should concede that power already exists and there is nothing (additional) to fear if the law is upheld.
July 18, 2010, 8:03 pmAllan Walstad says:
jrose: Look, if the power to tax or to regulate interstate commerce includes the power to require individual people to buy health insurance, then those powers patently admit of no principled limit. Such “interpretations” of the Constitution are just shyster-lawyer games. As for penalties not forcing us to do anything, the same could be said of prison — you can always just choose to go to prison.
I actually do look askance at tax deductions generally. If the feds and other levels of government weren’t robbing us blind, there would be no call for tax deductions for, say, charity or mortgage interest. It wouldn’t amount to that much. As to whether such things should be viewed as unconstitutional, I don’t know. The Obamacare no-buy penalty is not structured as a deduction, so that line of argument is dead. If Obamacare WAS structured that way: if it raised everybody’s taxes by X and gave health insurance purchasers a deduction worth X, it would still be just a ploy; what’s actually going on is the feds trying to penalize people for not purchasing health insurance, and thereby trying to force people to do so. There’s no Constitutional power to do that.
Wife says dinnertime.
July 18, 2010, 8:06 pmPES says:
Allan, my point is that you are conveniently side-stepping any engagement with the argument I made by mischaracterizing the argument. Your response, while being so obvious as to be a truism, does not speak at all to the question at hand. Of course, the federal government’s powers are limited. But one power it clearly does have is the power to tax income. It is generally accepted that part of the government’s power to tax is to give deductions and/or credits, even if those deductions or credits have nothing to do with anything a respectable economist would call income. Some or all such credits operate as incentives to engage in private commercial dealings. The mandate, as written, also encourages people to engage in a private commercial transaction. A large part of Barnett’s argument rests on the idea that if this type of “mandate” were upheld, Congress could use similar “mandates” to encourage any private transaction. The gist of my point was two-fold: First, characterizing the healthcare mandate, as written, as a reach for the power to “force” people to do everything Congress could conceivably tell them to do is a gross mischaracterization/exaggeration because the effects of the mandate are exactly the same (actually, less onerous) as the effects of a tax credit or deduction (one untied to income, anyway). Second, and relatedly, Congress can already do exactly what this mandate does, in effect if not in form, by instituting a tax credit or deduction on the purchase of health insurance, so it seems spurious to base an argument for unconstitutionality on that type of argument.
Form is important, and that is why I think there is at least a colorable argument to be made against the form of the mandate. But that facet of Barnett’s argument, at least, has nothing to do with form and everything to do with irrelevant substance.
July 18, 2010, 8:11 pmjrose says:
Alan,
Unless you are arguing that deductions/credits are sometimes unconstitutional (and that’s why I asked you if you thought deductions/credits can be unconstitutional), your reply is not responsive to this point:
Either Barnett should back down from his claim that unrestricted tax penalties amount to the feds having the power to make us do anything, or Barnett should concede that power already exists and there is nothing (additional) to fear if the law is upheld.
July 18, 2010, 8:15 pmSteven J. Willis says:
Yes, that is a fair statement of my opinion, as a Tax Professor for 30 years and a CPA for 36.
Precedent? As a civil law native, that is not a term I typically use. While I am confident of my opinion, no, I cannot cite to a Supreme Court opinion making all those particular distinctions. Clearly, as we explain in the article, I believe I have abundant authority that the “penalty” is a direct tax. I also believe we cite adequate authority that granting a deduction (or for that matter an exclusion) would be under the Spending Power. Courts, however, typically discuss them in terms of statutory authority and require clear statements of deductions because they are matters of “Legislative Grace.” I take that to mean Congress can generally do what it wants with deductions, but Courts will not infer use of the Power – Congress needs to be explicit. Not quite authority for classifying it under “Spending,” but good enough for me. In any event, that is not what the Act did. Congress taxed the lack of individual insurance. It did not subsidize the insurance. Carrots and sticks are not the same in tax law and Constitutional Law.
As I said, credits are more complicated. I would view the denial of a credit as a tax because that is what it is substantively. The Pollack II and Macomber cases told us to examine tax provisions for their substance rather than form, at least when analyzing Constitutionality . . . and particularly if the substance is unconstitutional. In other words, Form can hurt but not help. Again, though, Congress did not choose the credit denial route; hence, that analysis is collateral.
July 18, 2010, 8:15 pmHarvey says:
The federal government actually does have an unlimited claim on all income and, because it can issue unlimited amounts of fiat currency it can effectively seize the value of financial credits in the economy. The Founding Fathers thought that their Constitution had prohibited the foregoing, but it seems they were mistaken. (Score one for the anti-Federalists.)
Why should the government ever choose to “default” when it can simply print legal tender? But, of course, that is a default under another name.
Many other countries have survived universal debt cancellation via inflation and we, too, are sailing merrily along even though my gold has gone from $35 to $1,200/oz. (Well, some of us are merry, anyway.) How many T-bills for a hamburger in 2014? But no default, oh, no.
July 18, 2010, 8:30 pmSuperSkeptic says:
So, CarltheEconGuy was exactly right, then?
July 18, 2010, 8:34 pmMark Horning says:
Agreed.
It’s not an income tax. It’s not an excise tax, nor is it a tariff. It’s an unapportioned direct tax, tnd thus unconstitutional.
July 18, 2010, 8:38 pmSuperSkeptic says:
But, the way “the power to tax income” is being described here in this conversation (regardless of whether it already existed in the form of credits/deductions or whether it will exist if the mandate is upheld) is a contradiction of the first sentence.
July 18, 2010, 9:10 pmDavid Schwartz says:
Mark Horning: It cannot be an unapportioned direct tax because it’s not a tax. It is a non-tax use of the taxing power. (We can argue the law ought not be this way, but it is what it is.)
July 18, 2010, 9:12 pmArthur Kirkland says:
You can make fun all you want, but our Nation is at stake. I know that might seem a bold statement, but can’t you see what is happening? If Obama gets away with this — which is just about dollars, by the way, although I agree that Satan is behind it — the next step will be for Federal officials to claim War Powers without a Declaration of War (a direct affront to the Constitution by this un-American madman, bypassing the Original Intent of the Founders).
And if you don’t think that is a big deal — interfering with Natural Freedom of Citizens — you must not be smart enough to know what is coming: Limitless detention, kidnapping in the name of National Security, huge expansion of Government Surveillance (accompanied, of course, by its evil twin, Government Secrecy). Even, eventually, suspension of Habeas Corpus.
Don’t believe me? It will get even worse! Obama and his Chicago-style thugs will abuse prisoners, to the point of beating shackled men (and not convicts mind you, but people who have never been Convicted of anything) to death, and engaging in waterboarding, and various other traditional forms of Torture — while denying it is Torture!
I wish I were kidding. But if you think letting him get away with ignoring the difference between “Tax” and “not a Tax” is a minor thing, just because it is “only Currency of the United States” at stake, I warn that you will one day regret to learn that I am right. We need to stop this man NOW! It’s just a word, but someday many good and innocent People will DIE if this man is permitted to twist words!
I pray God delivers Sarah Palin to the White House. Now that God has seen fit to straighten out that trainwreck daughter of hers and arrange a proper marriage (and not with another girl, I would point out), her heart is ready to provide her Leadership to a Nation that needs it. If only enough Americans are wise enough not to refudiate her.
July 18, 2010, 9:16 pmSuperSkeptic says:
I mean, I guess I just don’t see the merits of defending against the argument that “if this is upheld, Congress will have unlimited powers” with “Well, if this is upheld, there is no difference between then and the status quo, really, because the power upheld is the flip side of the same coin of the power Congress holds now” because such an argument really just validates the original argument that Congress will actually have unlimited powers – because Congress actually has unlimited powers now!
July 18, 2010, 9:29 pmLaches says:
Cite?
July 18, 2010, 9:46 pmjrose says:
… and therefore there is nothing (additional) to fear if the law is upheld.
July 18, 2010, 9:52 pmSuperSkeptic says:
…except (further) proof that the Constitution places no limits on Congressional action. Not to mention the subsequent and inevitable adjustment(s) in congressional (and presidential and judicial) attitudes toward their powers and the conditioning and acquiescence in the people with those enormous powers. I mean, do I really need to explicitly make the slippery-slope argument once we all openly acknowledge that Federal power is unlimited???
July 18, 2010, 10:47 pmPES says:
And, if you want to make a principled decision to strike the current law down on that basis (not the basis of which form of tax is being used), then you have to get rid of the entire system of credits, too. My argument isn’t about whether or not it is good for Congress to have this power. It’s about the scope of the power they have under current law.
July 18, 2010, 10:50 pmPES says:
Again, no one is saying that federal power is unlimited. They’re only saying that the (current) limits encompass a somewhat broader area than what some (including, presumably, you) might want them to. The ability to put in place monetary incentives or disincentives is not an unlimited power, though it certainly is a broad one.
July 18, 2010, 10:55 pmSarcastro says:
[Wow. Suddenly I feel...inadequate. Bravo.]
July 18, 2010, 11:09 pmJoe says:
A tax, imposed on each person for simply being alive
If you have insurance, you are still alive, but you aren’t taxed. So “simply” being alive isn’t the rule. It is being alive PLUS something. That’s where the excise comes in.
Of course, in most cases, an income tax on an individual or company/corporation is involved. In the remainder, inaction of a certain type negatively affects interstate commerce (insurance and the negative effects of a flawed health insurance system on commerce — as much as segregation negatively affected commerce in many contexts, at the very least) and the general welfare.
Likewise, it isn’t even simply “inaction” — if you don’t buy insurance, you will self-insure, buying various things in the process, that is, affecting interstate commerce. Again, you are not simply alive. What people simply “alive” are left? And, even if (I’m not saying any are) some exist, a general tax system can’t fall because of a tiny amount of obscure exceptions. I’d like to see the few halfway credible as applied challenges left. So, let’s see — no income, not a company/corporation, no alternate health spending [surely not use of free health care at a local clinic] that affects the market … someone “simply alive.”
Good luck with that.
July 18, 2010, 11:22 pmSuperSkeptic says:
PES,
Well, “no one is saying federal power is unlimited” expressly. But it seems implicitly so. Although you correctly surmise my own opinion, can you articulate any limits to this “broad” power, conceived as you have so conceived it?
July 18, 2010, 11:24 pmAlicia says:
Under this theory, Congress can require everyone to buy a new GM car because falling GM sales negatively affects interstate commerce, or else pay a fine.
July 18, 2010, 11:33 pmPES says:
I’m having trouble following your line of reasoning, Professor Willis. It seems that if granting a credit is spending, then not granting that credit would be “not spending.” But if not granting a credit is “taxing,” then it seems that we have “taxing” = “not spending,” which just seems contrary to any common understanding. I know I’m relying on an assumption of transitivity here, but I don’t see why that would be an unjustified assumption. Maybe that is the way the case law goes, but it does seem illogical. It seems to me that any logically coherent system would require that credits (granting or denying) be treated under the same power.
July 18, 2010, 11:37 pmIf the taxing power, then it would seem that denying credits (i.e., taxing) would be an unconstitutional direct tax if the healthcare mandate is such a tax. Further, it seems that the very act of granting a credit (i.e., not taxing) would only be constitutional if everyone got it, because if not everyone got it, then you would necessarily be not granting the credit to someone (i.e., taxing). On the other hand, if it is the Spending power, then granting the credit (spending) would clearly be ok, and denying the credit (not spending) would clearly be ok if the classification was rationally related to a legitimate governmental interest (assuming that the credit was not based on a suspect classification).
Alicia says:
Uhhh…. no. The tax is for being alive. If I want to avoid the tax, I have to actively do something (i.e. buy insurance).
Does someone with no income have to pay it? I mean the guy who has *no* income, and lives off the cash stuffed in his mattress. So maybe the income tax actually allows Congress to tax someone for not making any income?
I make about $200K a year off of royalties. I’m redoing my contract, to get about $700K now, up front, and then no income for the next 3 years. We’ll see how Obama likes that.
That’s the problem with the government’s attempt to justify this pig under the taxing power. It isn’t an income tax, because it has nothing to do with income (leaving it to the IRS to collect doesn’t change that). It isn’t to raise revenue, it is to punish noncompliance. The only way this can qualify under the taxing power is as a direct capitation tax — which must be apportioned. Anything else is a regulatory scheme and penalty as part of commerce clause power. This whole taxing power argument is a waste of time — literally — as they want to try to delay court action by denying standing.
July 18, 2010, 11:49 pmPES says:
There are a number of limits: one could limit the power to impose such (dis)incentives such that it would be unconstitutional for Congress to make the (dis)incentive so onerous that it amounts to a compulsion (much like the “anti-coercion doctrine” of NY v. US in the 10th amendment context); one could limit such incentives/disincentives to “economic activities” in the same way that the Commerce Clause is presently limited; one could limit it merely as a structural matter (i.e., rely on voters to limit it) in the same way that the Republican Form of Government Clause and many 10th amendment problems are currently enforced; finally, and perhaps most obviously, one could limit it by prohibiting the government from using it to encroach on the enumerated (and unenumerated/substantive due process) rights of the Bill of Rights.
The point is, it is not unlimited in and of itself.
July 18, 2010, 11:52 pmKazinski says:
Hence the Tea Party movement. Any Party that thinks that a majority gives them unlimited power, and appoints judges that endorse that view, needs to be punished at the ballot box until they sincerely reform, or the join the Whigs in the ash bin of history.
July 18, 2010, 11:54 pmAlicia says:
I welcome being informed with a citation to the contrary, but I am unaware of this ever being done with income taxes, or in fact, ever being done under the taxing power at all except for imports and excise taxes. See Harvey W. Peck, The Use of the Taxing Power for Non-Fiscal Purposes, 183 Annals of the Am. Academy of Political and Social Science 57 (1936). Cases such as License Tax Cases, 72 U.S. 462 (1866) and McCray v. United States, 195 U.S. 27 (1904), were imposed under the Commerce Clause, not the taxing power.
July 19, 2010, 12:04 amPES says:
The healthcare mandate penalty/tax is not imposed if you have no current income. Or if you have very little income. And if you have income, the penalty/tax is a percentage of that income. So it seems to be imposed if (a) you have income and (b) you do not get health insurance. Not just because you are alive. Yes, being alive is a prerequisite, but being alive is also a prerequisite to any tax (before we get snarky about the estate tax, the person had to be alive before he could have an estate and the beneficiaries are alive — or have been — too).
July 19, 2010, 12:08 amSuperSkeptic says:
Well, that’s like what we have here. The Courts would then be setting unprincipled lines such as “a $5,000 disincentive is too much for X” or “a $50,000 disincentive would be too much for Y.” The Court’s anti-coercion doctrine has the same subjective problem, absent an obvious coercive directive.
I would differ with you in your characterization of the commerce clause as presently so “limited.” I think Raich made clear that it is not limited to economic activities at all – since all intra-state non-economic activities can be “aggregated.”
That’s not a structural limitation at all. That is precisely the lack of a structural limitation. It is only a political limitation and is where we are currently if your conception of the rule prevails (or has already prevailed). The only limit is what the simple majority of the voters permit or suffer at any given time. This is the lack of the “constitutional” in constitutional republic.
This is simply ad hoc judicial fiat, and obviously the most unprincipled of “resolutions.” (The bill of rights excepted – score 2 for the anti-federalists…)
July 19, 2010, 12:19 amAlicia says:
Hmmm… I was operating under the impression it was imposed differently, but I’ll accept your representation. But this highlights the difference between imposing an income tax on everyone, and then providing a deduction if you take some act, versus taxing the failure to buy something because failure to buy that something negatively affects the economy. So instead of taxing fat people, we tax everyone, and give a deduction to those who have a BMI that meets certain limits.
July 19, 2010, 12:27 amRicardo says:
Regard the “ponzi scheme” SS meme, this is a half-truth at best. A ponzi scheme is a system where the amount it must pay out grows more rapidly than its ability to take in money.
In reality, according to the latest Social Security Trustees Report, the program could be brought back into solvency over a 75-year time horizon with an immediate increase in payroll tax from 12.4% to 14.4% and/or an immediate decrease in benefits of 13%.
Social Security spending currently makes up 4.4% of GDP. This is projected to rise and stabilize at the level of around 6%. Medicare is where the real problem is: SS just is not that big of a deal at the end of the day.
July 19, 2010, 5:26 amSteven J. Willis says:
You raise good points, which is why I said credits are more complicated to analyze. Pollock II and Macomber said to examine closely the substantive effect of taxing provisions to ensure we do not have a Direct Tax disguised as an excise or – to take it a bit further – as an Income Tax (16th Amendment-type) or perhaps even Spending. We had no credits at the time of those cases, however.
In my opinion, a credit is Spending. I suppose you are correct: in some cases I can imagine denial of a credit effectively being the same. However, I can also imagine a very broad credit with narrow exceptions having the substantive effect of a tax. It all goes to the carrot/stick discussion in our article. Psychologically, people react differently to punishment and reward.
Last night, I generally suggested an exclusion is more like Spending. I had not been thinking of the denial of an exclusion – e.g., the Alternative Minimum tax provisions, which are probably taxes. They certainly have that feel to them.
Confusion is understandable, as the categories are arbitrary. They are very real, mind you, but still arbitrary. The same is true of Indirect versus Direct taxes and thus Uniformity versus Apportionment. Arbitrary and not necessarily obvious rational distinctions . . . but distinctions with real differences nevertheless.
Remember, however, the Health Care Penalty does not involve a credit or the denial of one, so all this is speculative and collateral. It is interesting and relevant to an extent; however, the Court should not – and I think will not – justify the penalty merely because Congress could have accomplished the same purpose in some other Constitutional manner. The Act must stand on the procedure chosen, not on what might have been chosen. Because the politics of the matter have changed, this is very important.
July 19, 2010, 6:58 amjrose says:
No, because you conceded we are are already at the bottom of the slope.
July 19, 2010, 7:53 amSuperSkeptic says:
No, only with regard to unlimited powers, not to what can be done with them.
July 19, 2010, 8:31 amjrose says:
Steven J Willis,
In your paper you state the Necessary and Proper clause is “irrelevant for obvious reasons” as the basis for treating the penalty as a permissible regulatory fee. Not only am I missing what you believe is obvious, it seems plausible to me in light of Eugene’s argument:
1) The overall regulatory scheme, including requiring insurance companies to cover those with pre-existing conditions, is a permissible regulation of interstate commerce.
2) The individual requirement to purchase health insurance is necessary and proper for the execution of the overall regulatory scheme.
3) The penalty for not purchasing health insurance is essential for enforcing the indiviudal requirement and therefore also necessary and proper for the execution of the overall regulatory scheme.
What did Eugene miss?
July 19, 2010, 8:32 amjrose says:
So, you think that without this law being upheld, Congress would be restrained in its already-acknowledged unlimited power to use credits and deductions, but if the law is upheld Congress would act as if the flood gates were open?
July 19, 2010, 8:37 amepluribus says:
Ricardo says:
Another distinction is that in a Ponzi scheme investors are told that their money is being invested for great returns, while in fact it is not being invested at all, but is simply being used to pay off previous investors. A Ponzi scheme is fradulent because the operator of the scheme is deliberately concealing the facts so that the investors won’t know the truth of what is happening to their money until the whole scheme collapses. Social Security, in contrast, is a public program, fully disclosed to all who will take the trouble to hear. The money is invested in Treasury securities, the safest investments in the world. And the fact that adjustments must be made to make the program more sustainable over a long time is constantly publicized to the public. The Ponzi scheme description is a tired cliche, repeated over and over again by those who despise Social Security simply because it is a government program, without any understanding of why the cliche doesn’t fit Social Security. But cliches are popular. That’s how they become cliches.
July 19, 2010, 8:44 amHarry O says:
Shane says: “I’m interested in seeing a citation for this.”
Here you go. From ABC News
http://blogs.abcnews.com/george/2009/09/obama-mandate-is-not-a-tax.html
STEPHANOPOULOS: You were against the individual mandate…
OBAMA: Yes.
STEPHANOPOULOS: …during the campaign. Under this mandate, the government is forcing people to spend money, fining you if you don’t. How is that not a tax?
OBAMA: Well, hold on a second, George. Here — here’s what’s happening. You and I are both paying $900, on average — our families — in higher premiums because of uncompensated care. Now what I’ve said is that if you can’t afford health insurance, you certainly shouldn’t be punished for that. That’s just piling on. If, on the other hand, we’re giving tax credits, we’ve set up an exchange, you are now part of a big pool, we’ve driven down the costs, we’ve done everything we can and you actually can afford health insurance, but you’ve just decided, you know what, I want to take my chances. And then you get hit by a bus and you and I have to pay for the emergency room care, that’s…
STEPHANOPOULOS: That may be, but it’s still a tax increase.
OBAMA: No. That’s not true, George. The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase. What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore than the fact that right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase. People say to themselves, that is a fair way to make sure that if you hit my car, that I’m not covering all the costs.
STEPHANOPOULOS: But it may be fair, it may be good public policy…
OBAMA: No, but — but, George, you — you can’t just make up that language and decide that that’s called a tax increase. Any…
STEPHANOPOULOS: Here’s the…
OBAMA: What — what — if I — if I say that right now your premiums are going to be going up by 5 or 8 or 10 percent next year and you say well, that’s not a tax increase; but, on the other hand, if I say that I don’t want to have to pay for you not carrying coverage even after I give you tax credits that make it affordable, then…
STEPHANOPOULOS: I — I don’t think I’m making it up. Merriam Webster’s Dictionary: Tax — “a charge, usually of money, imposed by authority on persons or property for public purposes.”
OBAMA: George, the fact that you looked up Merriam’s Dictionary, the definition of tax increase, indicates to me that you’re stretching a little bit right now. Otherwise, you wouldn’t have gone to the dictionary to check on the definition. I mean what…
STEPHANOPOULOS: Well, no, but…
OBAMA: …what you’re saying is…
STEPHANOPOULOS: I wanted to check for myself. But your critics say it is a tax increase.
OBAMA: My critics say everything is a tax increase. My critics say that I’m taking over every sector of the economy. You know that. Look, we can have a legitimate debate about whether or not we’re going to have an individual mandate or not, but…
STEPHANOPOULOS: But you reject that it’s a tax increase?
OBAMA: I absolutely reject that notion.
July 19, 2010, 8:47 amcboldt says:
Social Security can’t be a Ponzi scheme, because participation is mandatory.
July 19, 2010, 9:47 amBut, one can examine the promises made, and see if they are maintained. Increasing the age at which payout starts, changing the rate of payout (dollars per month to a recipient), or means testing payout – are those material changes to the representations made?
Now, if SS was a Ponzi scheme, there would be ways to keep it running longer, such as delaying payout, reducing payout, or denying payout to some fraction of the mark.s
Demosthenes says:
The beautiful thing is that the difference between a credit and a penalty tax, especially this particular penalty tax, lies in these two answers, and yet neither of you sees it.
Scenario: You pay an annual income tax of $x. You are eligible for a federal credit. If you choose to take it — that is, if you choose to act — you will now pay income taxes of $(x-y). If you choose not to take it, however, or if you don’t know you can, your income tax payment does not change. You still pay $x.
Scenario 2: For whatever reason, you fail to buy healthcare under the new mandate. Your income tax was $x. Now, through your failure to act, it is ($x+z). In the previous scenario, taking positive action could lower your tax payment, and failure to act simply left it as it was. Now, failure to act actually RAISES your payment, and you must take positive action to keep it at the same amount.
This is where I would generally hear something like “But isn’t failing to act just another type of action?” Under some circumstances, yes…but failure to act does not always constitute an action. Nor can failing to collect a reward, for whatever reason, be fairly equated with a penalty. Even if you refuse to recognize that this does, in and of itself, constitute a “logical distinction” (and it does), surely you will concede that there is a clear PRACTICAL distinction.
July 19, 2010, 9:48 amjrose says:
What if a tax deduction is reduced because you failed to buy insurance?
July 19, 2010, 11:10 amDuracomm says:
Arthur Kirkland,
Your shtick would be lot more entertaining if obama was not maintaining and expanding bush’s secrecy and surveillance policies.
Issues that were of critical importance to liberals when bush was in office are now responded to by the cacophony of crickets chirping and little else.
What we really have with respect to civil liberties is an obushma administration.
Obama ‘Even Worse’ Than Bush On Secret Wiretapping Case
July 19, 2010, 11:13 amDuracomm says:
Arthur Kirkland,
Your shtick would be lot more entertaining if obama was not maintaining and expanding bush’s secrecy and surveillance policies.
Issues that were of critical importance to liberals when bush was in office are now responded to by the cacophony of crickets chirping and little else.
What we really have with respect to civil liberties is an obushma administration.
July 19, 2010, 11:15 amDuracomm says:
For some reason the link to the above article won’t post. Try
http:// blogs.sfweekly dot com/thesnitch/2010/04/obama_wiretap_ruling dot php
Obama ‘Even Worse’ Than Bush On Secret Wiretapping Case
July 19, 2010, 11:22 amThink Tank West...ideas from the top think tanks in the world,Cato institute,Brookings,Carnegie,Rockefeller,War college,Aspen,Wilson,Claremont,Levy,Milken says:
[...] activity” — to Congress’s taxing power. Here’s the first paragraph (h/t Jonathan Adler): When Congress required most Americans to obtain health insurance or pay a penalty, Democrats [...]
July 19, 2010, 11:50 amShelbyC says:
Now that’s the funniest thing I’ve heard in a long time. An entity “loaning” itself money is not investing.
July 19, 2010, 12:06 pmJaimeInTexas says:
Social Security is a Ponzi scheme. The definition has nothing to do whether it is mandated (Mr. Ponzi would have loved that one very much) or the rate of at which the schemer spends the money or in what it spends the money. It is to the schemer’s benefit to do what he can to maintain the “viability” of his scheme.
Social Security is not an insurance.
FLEMMING v. NESTOR, 363 U.S. 603 (1960)
July 19, 2010, 12:08 pm(snip)
The Social Security system may be accurately described as a form of social insurance, enacted pursuant to Congress’ power to “spend money in aid of the `general welfare,’” … It is apparent that the noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.
(snip)
But the practical effectuation of that judgment has of necessity called forth a highly complex and interrelated statutory structure. Integrated treatment of the manifold specific problems presented by the Social Security program demands more than a generalization. That program was designed to function into the indefinite future, and its specific provisions rest on predictions as to expected economic conditions which must inevitably prove less than wholly accurate, and on judgments and preferences as to the proper allocation of the Nation’s resources which evolving economic and social conditions will of necessity in some degree modify.
To engraft upon the Social Security system a concept of “accrued property rights” would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.
(snip)
We must conclude that a person covered by the Act has not such a right in benefit payments as would make every defeasance of “accrued” interests violative of the Due Process Clause of the Fifth Amendment.
(snip)
PES says:
Superskeptic — Listen, I think you are clearly conflating “what I think is too broad” with “unlimited,” but I think we’ll just have to agree to disagree. If you disagree with pretty much all of modern federalism jurisprudence, if you think all of it is just unprincipled line-drawing, that is fine. But unless you’re going to support your statements with something other than ipse dixit, I think we’ll just have to call it a truce.
July 19, 2010, 12:09 pmepluribus says:
Sure, the distinction is in the amount of tax you will owe. In your first scenario, you will pay less. In your second scenario, more. I haven’t yet seen where Congress’s power to raise or lower taxes has been questioned. Can you point me to a source?
July 19, 2010, 12:10 pmArthur Kirkland says:
If Obama is part of the problem, it becomes even more important to train spotlights. Which is where the Washington Post — one of the most important remaining reliable defenders of American values — comes in. If you have ever wished to watch a Pulitzer Prize be forged day-by-day, you can start today.
July 19, 2010, 12:13 pmepluribus says:
I see you have a great sense of humor. Congratulations. Now read the posts that preceded yours, and you will find this whole matter has already been discussed–at some length. Then you can laugh some more.
July 19, 2010, 12:13 pmShelbyC says:
Yeah, I see you’ve convinced yourself that issuing debt to yourself is investing. That makes it even funnier. I guess all Mr. Ponzi had to do was issue securities in his own scheme and he would’ve been legit, right? Sure, Ponzi’s bonds would’ve been higher risk, but I’m not sure that that matters.
July 19, 2010, 12:23 pmepluribus says:
Shelby, I’d respond to you ipse dixit argument if there was anything new in it. But I’ve already discussed the issues with other posters. Have a good (maybe I should say a funny) day.
July 19, 2010, 1:00 pmShelbyC says:
You havn’t discussed didley, you’ve simply asserted that the SS funds are “invested”, and that that fact is one thing that makes it different from a Ponzi scheme. However, as I pointed out, loaning money to yourself (as opposed to loaning money to somebody else), simply isn’t investing, no matter how much you want it to be. So your assertion is just flat wrong.
July 19, 2010, 1:26 pmJaimeInTexas says:
Description SS “lockbox” Rest of FedGov
————————– ———— —————-
Alleged current SS balance ______ 170B
Est. current National Debt __________________ – 1300B (or 13T)
(excluding SS???)
Transfer to General Fund ________ – 170B ____ + 170B
New SS balance ___________________ 0
New National Debt ________________________ – 1130B
Since the SS is also part of the FedGov, the FedGov WILL have to borrow to pay SS recipients. I read somewhere that it will be this year that the outflows will exceed the inflows this later this year.
When your inflow exceeds your outflow, your upkeep will be your downfall.
Folks, the Ponzi scheme has reached its tipping point and the alernatives are not pretty to contemplate.
The FedGov will have no choice but make drastic changes to the SS outlays. The SCOTUS already ruled that the SS is not guaranteed.
July 19, 2010, 2:45 pmJeff Norman says:
It seems undeniable that the tax/penalty is triggered by noncompliance with the requirement to buy health insurance, and won’t otherwise be imposed. So if courts rule that the mandate is NOT authorized by the Commerce Clause, wouldn’t that mean the tax/penalty doesn’t even exist? In other words, if the thing that was supposed to trigger it is unconstitutional, what’s then left to trigger it? Hasn’t Congress backed itself into a corner because of how the legislation is worded?
July 19, 2010, 2:46 pmSarcastro says:
No no no! Ya gotta assume nothing will change ever! Ponzi and insolvent! PONZI AND INSOLVENT!
July 19, 2010, 3:11 pmjrose says:
It doesn’t seem fair that SS outlays should be reduced until the Trust Fund is paid back what it lent to the rest of the government.
July 19, 2010, 3:17 pmjrose says:
Not necessarily. Assuming the mandate is not permitted by the Commerce Clause (although I think it is), it’s separately a tax if the Court believes it is designed in part to provide for the general welfare. The next question is whether the form of the tax is permissible.
July 19, 2010, 3:24 pmJaimeInTexas says:
It does not just “seem”, it is unfair. And, may I add, that SS is unconstitutional.
And, according to FLEMMING v. NESTOR the FedGov owes you nothing. Because SS is just another tax to be used as Congress dictates through statue.
July 19, 2010, 3:55 pmjrose says:
In that case, I do not want to ever see another calculation of income tax burden that does not include payroll taxes.
July 19, 2010, 4:12 pmSuperSkeptic says:
No, you (and others) have basically convinced me that there’s nothing stopping them now, except what the people will bear. (Clearly, to adopt your metaphor, it would be more advantageous for them to flood the plain gradually and strategically.)
July 19, 2010, 4:48 pmSuperSkeptic says:
Fair enough, PES.
July 19, 2010, 5:02 pmDuracomm says:
jrose said,
As long as politicians and advocates discussing social security are required to disclose that
1. There is no trust fund, congress has already spent all of the money social security taxes brought in,
2. Money paid in social security taxes does not belong to the person who paid the taxes.
3. The government is defaulting on social security through actions like raising the retirement age.
July 19, 2010, 7:12 pmDuracomm says:
Politicians and others discussing social security might want to also detail what a horrendous retirement investment it is.
Social security is a simple concept and the politicians managed to make a disaster of it.
Health care is complicated. The social security debacle shows it is pretty much guaranteed that increasing government involvement in healthcare is going to make healthcare worse.
Social Security Ripoff
July 19, 2010, 7:27 pmA Tax That Was Once Not A Tax Is Now a Tax Again « The View From LL2 says:
[...] Tax Is Now a Tax Again July 19, 2010 When I learned recently that the Department of Justice is arguing that the individual mandate falls within Congress’ tax power, I had to chuckle. You see, a while back I wrote my one and only post on the healthcare debate, [...]
July 19, 2010, 10:18 pmRicardo says:
Ponzi schemes invariably promise unsustainable rates of return. SS as it is currently set up promises an average rate of return such that its expenditures will stabilize at around 6% of GDP after about 40 years from its currently level of about 4.4%. That’s not unsustainable at all. And if you think it is, I have to believe you are also in favor of “drastic changes” to military spending which consumes about the same amount of tax money that SS does now.
As I pointed out, SS’s long-term imbalance can be fixed by either a 2% increase in the payroll tax (from 12.4% to 14.4%) or a 13% decrease in benefits. Some combination of the two can also fix the problem.
July 19, 2010, 10:55 pmcboldt says:
– SS as it is currently set up promises an average rate of return such that its expenditures will stabilize at around 6% of GDP after about 40 years from its currently level of about 4.4%. –
July 19, 2010, 11:13 pmI’m thinking that % of GDP is a funky way to dodge demographics. What’s magic about 6%?
Ricardo says:
I’m not sure what you mean. Do you also consider it a “funky way to dodge demographics” to point out that SS would be solvent for the next 75 years by raising payroll taxes from 12.4% to 14.4% or by cutting benefits by 13%? Whether you say SS needs 6% of GDP or about 14-15% of wage income (minus salaries over the maximum threshold) to pay out benefits doesn’t make much difference.
July 20, 2010, 12:08 amShelbyC says:
For what other type of “investment” is a 13% decrease in benefits not a drastic change? SS gets to be a crappier deal every year as they raise the cap, and you want to make it crappier? Why do we do it to ourselves? Why not just stop? And keep in mind, the worse deal SS becomes, the greater the political risk that the younger generation will demand that we do exactly that.
July 20, 2010, 8:35 amSarcastro says:
Way to move those goal posts! “Maybe it’s not Ponzi, but it still sucks and I hate it!”
July 20, 2010, 9:04 amShelbyC says:
Sorry if I was unclear. It’s still Ponzi. In fact, the whole downside of Ponzi schemes is that they suck, right? After all, if the original Ponzi scheme hadn’t sucked, Charles Ponzi would be a hero.
July 20, 2010, 9:39 amJaimeInTexas says:
Ponzi schemes make promises … sure. But the schemer only payes out enough, to some, in order to maintain the scheme and to get others into it.
Any increases in payroll taxes will be a hard burden on my family.
July 20, 2010, 10:21 amPickled Tink says:
It only “sucks” if you view it as a retirement investment plan controlled by the government, which is how it is typically packaged. I would view it as just another redistribution scheme. In that light, it hardly sucks.
If the point is to redistribute money from people with income to people without income, it’s quite effective.
July 20, 2010, 10:23 amJaimeInTexas says:
I forgot, Ricardo, to say yes to the cutting back the size of the Lilypad Empire. After all, I am a Ron Paul Republican and do not think that we have any business in having bases in foreign countries. Is it even constitutional for the FedGov to have military bases in foreign countries when not in an actual, and constitutionally declared, war? Should the FedGov, on foreign soil, own anything other than embassies?
July 20, 2010, 10:29 amDuracomm says:
Pickled Tink says:
If the politicians had been honest about social security it would have been transitioned to a sustainable welfare program years ago. Instead politicians and social security advocates preferred to keep it as an imploding ponzi scheme.
Social security is a massive fail in that respect also.
It takes money from the less well off working young, gives some of that money to to the more well off elderly and blows the rest on government boondoggles and vote buying.
Like the typical ponzi scheme as more people get ready to take there payout the fiscal lie is revealed and the scheme will implode.
July 20, 2010, 10:47 amSarcastro says:
The rare, never-collapsing Ponzi, eh?
July 20, 2010, 10:57 amDuracomm says:
A table comparing bernie madoff and social security
Madoff vs Social Security
July 20, 2010, 11:03 amShelbyC says:
What never collapses? How come folks are saying that if we don’t raise contributions and cut benefits it’s going to collapse?
July 20, 2010, 11:22 amShelbyC says:
It sucks even worse in that light. It redistributes money from poorer, less politically powerful demographics to a richer, more politically powerful one.
July 20, 2010, 11:25 amJaimeInTexas says:
When you can force at gun point contributions into the scheme, well, of course you can expect it to last tad bit longer than the original. If Mr. Ponzi had resorted to armed/forced “buy-in” he would have been charged with extortion. But when the government does it is called democracy.
Do not, also, forget that the FedGov has given itself the power to tax everyone by debasing/inflating the currency whenever by printing/miniting more currency.
July 20, 2010, 11:37 amRicardo says:
Nobody said it was necessarily a good investment. It is a necessary one, though, unless you have a better idea for how to guarantee a minimum income to people who are too old or too disabled to work and who are unlucky enough to not have a pension. I’m not sure if you are included in this category or not, but I find some people with desk-based jobs forget that people who spend a lifetime of doing grueling physical labor are forced by their bodies to give up by age 60 — asking them to put off retirement just is not reasonable.
Private accounts are nice idea in theory but I’ve never seen a proposal that did not involve massive increases in debt over the medium-run. Moreover, there are always going to be some people who are bad at investing and there is an unquantifiable risk that markets will tank in the long-run. If the government is going to stand by to bail out people who lose money on their private accounts, why not simply life and keep a tweaked version of what we already have?
I’m not sure what you mean by “why not just stop?” You mean stop paying benefits? Surely a 13% cut in benefits beats a 100% cut.
Or did you mean stop paying payroll tax? So then where is all the money going to come from to pay current recipients?
July 20, 2010, 12:29 pmSarcastro says:
[With the adjustments noted above, SS will survive for 75+ years, for a total of well over a century. That seems rather secure to me. Or at least secure enough that there are many, many other problems we should look to first.
Do the benefits suck compared to investment? Maybe, but it is not an investment.
As for taking the money at gunpoint, that is true of all taxes. One of the things our society has decided to spend our ax dollars on is taking care of it's elderly and disabled. Lots of societies do this.
Yeah, it was sold as insurance, and it clearly is not. Take it up with FDR. It is what it is, and it seems popular and effective.]
July 20, 2010, 12:33 pmDuracomm says:
Ricardo said,
A simple welfare program for indigent elderly would take care of this nicely.
But it would not provide the same opportunity for vote buying and money skimming social security does.
Which explains the popularity of the current social security ponzi scheme with the political class.
July 20, 2010, 12:40 pmJaimeInTexas says:
As Keynes said, “In the long run we are all dead.”
Yeah, and our children and their children, and their children’s children will have to pay the price of the irresponsible FDR and his generation. We are just begining to experience what they will bear full bore.
July 20, 2010, 4:31 pmcboldt says:
– Do you also consider it a “funky way to dodge demographics” to point out that SS would be solvent for the next 75 years by raising payroll taxes from 12.4% to 14.4% or by cutting benefits by 13%? –
July 20, 2010, 6:03 pmI think so. Reason being that the % figures don’t account for the number of people paying in, vs. the number of people drawing. There is a demographic assumption in there that needs to be stated, because % of GDP (and likewise, income tax rate increase; or benefit cut %; or some combination of those rate increase and payout decrease), without more, is insufficient information to solve the equations.
ShelbyC says:
Both. The problem with a Ponzi scheme is that you just can’t keep growing it indefinetely, somebody has to lose in the end. We may as well stop sticking it to the next generation. And Sarcastro tried to bust me for moving the goalposts, look at you guys with the “first it’s insurance, now it’s welfare”. You’re telling me we can’t keep old people without means from starving for less than 14% of GDP? As I said before, it doesn’t work any better as a form of redistribution than as a form of investment.
July 20, 2010, 6:52 pmcboldt says:
– Or did you mean stop paying payroll tax? So then where is all the money going to come from to pay current recipients? –
July 20, 2010, 8:04 pmHeheheh. From that 2.5 trillion in T-bills. Just pay it out to those currently entitled until the money runs out. If the money doesn’t run out, turn the surplus over to the general use.
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