Monday, September 21, 2009

Mandatory health insurance vs mandatory Social Security 

STEPHANOPOULOS: You were against the individual mandate...


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.
From the Encyclopedia of taxation at p. 375 (and I stand advised that "if you have to look it up," the President will think that "indicates to me that you're stretching a little bit right now.")
In economic terms, any appropriate of resources from individuals or firms by the government and be considered a tax. For example, economists frequently talk about the inflation tax, since inflation appropriates resources to the government. Legally, though, it is clear that inflation is not a tax since it does not involve a payment by the taxpayer to the government. Similarly, regulatory requirements can have the same economic consequence as taxes. For example, a legal requirement for employers to provide health insurance to their employees may have the same economic effect as a tax imposed on the employer; the revenues from this requirement are used to provide health benefits to employees. For purposes of economic analysis, the two are equivalent, but from a legal point of view they are not. Public finance economists therefore do not spend much time discussing whether a particular levy is a "tax" or not.
The article in the encyclopedia says the legal definition of taxes is malleable. If Obama sees something malleable, rest assured it's getting hit with a mallet.

It's worth noting from this article that, unlike the USA, many countries consider Social Security taxes to be "contributions" and not taxes, as they entitle someone to a benefit. Had Stephanopoulos wanted to press the issue, that was the question: What is the difference between being forced to buy the benefit of health insurance and being forced to buy the benefit of Social Security payments? If there's none, why is one called a tax and the other not?

UPDATE: The accountants, who might know a thing or two different from the legal scholars, say it's a tax:
"If you put something in the Internal Revenue Code, and you tell the IRS to collect it, I think that's a tax," said Clint Stretch, head of the tax policy group for Deloitte, a major accounting firm. "If you don't pay, the person who's going to come and get it is going to be from the IRS."

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