Tax or Penalty: Does It Matter?

There's been a lot of talk about the Individual Mandate being a tax. It isn't. The debate over whether it is a penalty or a tax is merely one of semantics. The Individual Mandate is a requirement that everyone not already covered by health insurance buy health insurance. The idea is to prevent freeloaders who refuse to buy health insurance from getting routine medical services from emergency rooms that can't turn them away and passing the cost on to the rest of us taxpayers. It will bring down overall insurance costs.

Republicans wanted to overturn The Affordable Care Act (which they dubbed "ObamaCare") and they sued, claiming the government lacks the power to make people buy insurance. Now, anyone who drives a car is well aware that the government can require you to buy auto insurance. This was kind of a no-brainer. But the case went all the way to the Supreme Court.

The government has a lot of powers, but it can only exercise powers granted to it under the Constitution. Under the 10th Amendment, all other powers not delegated to the federal government by the Constitution, nor prohibited by the states, are reserved to the states or to the citizens. So the legal question became, what clause in the Constitution gave the federal government the power to enact the healthcare law and specifically, to require people to buy insurance? There were only two clauses that might allow it: the Commerce Clause (Article I, Section 8, Clause 3) and the Taxing & Spending Clause (Article I, Section 8, Clause 1).

Now, I believe the Commerce Clause grants the government the authority to do this, but Chief Justice John Roberts, writing the 5-4 majority opinion disagreed with me. He said the government does have that authority, but it comes from the Taxing & Spending Clause, not the Commerce Clause. This is a bad decision because it will have long term consequences for future interpretations of the Commerce Clause, but that's another matter. From a political viewpoint, the Republicans jumped on the ruling to brand the penalty for not buying insurance as a "tax". The Republican spin machine has told us we are all going to be taxed by ObamaCare. That's a lie. Here's the truth. The penalty (what they label a "tax") only affects freeloaders who refuse to buy health insurance - you know, those people who get routine medical services from emergency rooms that can't turn them away, who then pass the cost on to the rest of us taxpayers. If you have health insurance, THERE IS NO TAX. Also, the amount of the penalty can NEVER exceed the cost of the national average premiums for the lowest-cost “bronze” plans offered through the new insurance exchanges created by the Act. So it's the same amount you'd pay in premiums if you had insurance.

There are also exemptions for those who can't afford coverage, taxpayers with incomes below filing threshold, and hardship. The Act says people who don't pay the penalty can't be put in jail and can't be criminally prosecuted. The minimum "tax" for failing to get coverage would be $7.92 for each month of 2014, $28.75 for each month of 2015, and $57.92 for each month of 2016, when the penalty is fully phased in. According to the LA Times, the Individual Mandate "tax" will affect fewer than 2% of the population. That's right, this so-called tax the Republicans have called "the largest tax in history" does not affect 98% of us. That's a fact. Facts are not Democratic or Republican. Facts are not partisan. They simply are what they are - the truth.