Consider the following two policy options:
- Option A: You are required to buy health insurance. If you do not, you must pay a penalty of X dollars.
- Option B: Everyone’s taxes are raised by X dollars. If you have health insurance, you get a tax rebate of X dollars.
How are these options different? In simple economic terms, they are functionally equivalent. The only significant difference is that under option A, the non-insured are effectively lawbreakers. Under option B, they are not. Being a classified as a lawbreaker may have a range of implications on a person’s later life.
In recent months, many people have gotten all worked up about the mandate aspect of Option A. But if you are someone who would not be insured otherwise, both options A and B have the effect of either mandating that you pay X dollars to the government or mandating that you buy insurance. Both policy options are mandates that are, in dollar terms, equivalent (though A has the additional stigma of being a lawbreaker).
I see no reason to get any more worked up by the mandate in option A than the mandate in option B. And the problem is those with an anti-mandate fetish get diverted from focusing on issues that really matter, such as the fact that ObamaCare is lousy policy for so many other reasons besides the mandate (which actually has some upsides as well).
Now we have Chief Justice saying that, since the two options are functionally equivalent, we might as well call them both taxes. He understands the equivalence between options but does not seem to understand the larger implications of his decision. In an attempt to preserve some limited scope for the commerce clause, he has essentially rendered it superfluous. If everything can be cast as a tax (which a clever economist can always do), and government’s power to tax is unconstrained, then the commerce clause is irrelevant.
Which brings us to the question of real import: what should the government do in terms of changing the provision of health insurance? That is what the debate should be over, not what type of policy tool the government uses to coerce us to pay for it.
Addendum: Richard Epstein summarizes things nicely (as usual): “Chief Justice Roberts has ignored this fundamental principle: If direct regulation is beyond the scope of the Commerce Clause (as he held), then taxation as an indirect route to the same regulation should be off limits as well (as he failed to hold). This is a baby that should not be split. His attempt to do so undermines his ruling, the court and the Constitution.”