Wednesday, March 28, 2012

The Absurdity of the Individual Mandate Argument

The U.S. Constitution gives Congress the power to tax. If Congress wants, it could impose a payroll tax to fund healthcare. It could provide a credit against that tax for the purchase of an approved insurance policy. It could contract with private insurers to provide insurance for everyone subject to the tax who doesn't use the credit.

Instead of using this approach, Obamacare requires those who don't buy a qualified insurance plan to pay a "penalty," but the penalty looks like a tax. Aside from calling the payments by those without a qualified insurance plan a "penalty" rather than a tax, the major difference between the system above is the extra paperwork for those buying qualified insurance plan. Presumably, HR departments would not have to file paperwork to the taxing authority showing the amount they are paying for the plan and the tax owed. Those who actually buy individual policies would not have to file paperwork to get their credit.

Apparently, Congress could skip the extra paperwork and rather than taxing all workers, it could tax people who don't have health insurance that meets certain requirements. The uninsured individual payroll tax. Then, the only difference is the use of the word "penalty" rather than "tax."

As a practical matter, this does matter. There are many legal issues where there is basically no substantive question and just a failure to follow some procedure. If you fail to file some paperwork by some arbitrary deadline, and then you are out of luck.

Further, there has been an election between the time Obamacare passed and when some new, "formally-correct" version might pass. It is almost certain that there will be another election before any change could pass.

So, clearly it matters. If the Supreme Court overlooks the formality, then repeal of the individual mandate would need to be able to pass the House and Senate where it can be filibustered, as well as survive a veto. None of that is possible today, and it is unlikely it will be possible in six months.

On the other hand, if it is overturned, the individual mandate is unlikely to implemented any time soon. The economic crisis, the unpopular wars, the kowtowing to the religious right, resulted in a massive rejection of the Republican party, particularly among independents. This providing an opening for the Democratic party to greatly increase government intervention in the health insurance market.

Should the failure of the Obama administration to use the term "tax" rather than "penalty" enough to overturn this narrow window of opportunity? Should the Supreme Court impose a "penalty" on the faction that had this great bit of luck and require them to go back to trying to build something closer to a consensus? Perhaps.

What I find most irritating is that apparent that many people, including some Justices, are blind to this fundamental reality. Is there some kind of market failure in the insurance market that this legislation is aimed at correcting? Is there some kind of public purpose in paying for healthcare? Is that conditional on government requiring that the healthcare be provided?

These questions are irrelevant. It would be possible to answer yes, and simply point out that the federal government does not have the authority to deal with these issues, and that if these problems are to be dealt with by government, they must be dealt with by state or local government. Of course, that is really not too relevant because the U.S. Constitution does not limit limit on the taxing power in a way that prevents the use of credits and deductions. And so, the question is merely one of procedure, and one of politics. Did the Democrats waste their tiny window of opportunity to push this policy on the American people by failing to follow the proper procedure?

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