Penalties and Credits: Same Idea, Different Results

In his column appearing at Ten Miles Square today, Ezra Klein notes with irony that there’s not that big a fundamental difference between the penalty-backed health insurance mandate that may be deemed unconstitutional by the Supreme Court, and the new tax credit for health insurance Paul Ryan wants to create–or for that matter, the tax-based system that makes Medicare a universal program:

The tax credit is…essentially indistinguishable from the mandate. Ryan’s plan offers a $2,300 refundable tax credit to individuals and a $5,700 credit to families who purchase private health insurance. Of course, tax credits aren’t free. In effect, what Ryan’s plan does is raises taxes and/or cut services by the cost of his credit and then rebate the difference to everyone who signs up for health insurance. It’s essentially a roundabout version of the individual mandate, which directly taxes people who don’t buy health insurance in the first place.

“It’s the same,” says William Gale, director of the Tax Policy Center. “The economics of saying you get a credit if you buy insurance and you don’t if you don’t are not different than the economics of saying you pay a penalty if you don’t buy insurance and you don’t if you do.”

So all the caterwauling about the mandate being like slavery is ludicrous. Nobody would go to prison for failing to buy health insurance under ObamaCare. They’d pay a penalty, much smaller in size than the tax credit they’d forego if they failed to buy health insurance under Ryan’s system. Why is this such a big deal? Could be the politics, eh?

The constitutional argument over Obamacare is a dispute over a technicality. We agree that it’s constitutional for the government to intervene far more aggressively in the market. We agree that it’s constitutional for it to intervene in an almost identical, albeit slightly more roundabout, manner. We’re just not sure if the government needs to call the individual mandate a “tax” rather than “a penalty,” or perhaps structure it as a tax credit. As Pauly puts it, “This seems to me to be angelic pinhead density arguments about whether it’s a payment to do something or not to do something.”

Of course, this battle isn’t really about the constitutionality of the individual mandate. Members of the Republican Party didn’t express concerns that the individual mandate might be an unconstitutional assault on liberty when they devised the idea in the late 1980s, or when they wielded it against the Clinton White House in the 1990s, or when it was passed it into law in Massachusetts in the mid-2000s. Only after the mandate became the centerpiece of the Democrats’ health-care bill did its constitutionality suddenly become an issue.

The real fight is over whether the Affordable Care Act should exist at all.

That’s pretty clear. I don’t, however, necessarily agree with Ezra’s assumption that we’ll wind up with something similar to the mandate anyway. Here’s his argument:

If the mandate falls, future politicians, who will still need to fix the health-care system and address the free-rider problem, will be left with the option to move toward a single payer system or offer incredibly large, expensive tax credits in order to persuade people to do things they don’t otherwise want to do. That is to say, in the name of liberty, Republicans and their allies on the Supreme Court will have guaranteed a future with much more government intrusion in the health-care marketplace.

I don’t know that “future politicians” on the right are going to feel any obligation to “fix the health-care system.” The old Republican interest in a market-based approach to achieving universal health coverage has decisively given way to a peculiar conviction that the only real problem in the health care system is risk-sharing, and an atavistic desire to go back to the pre-1960s era of “individual responsibility” when you paid your doctor or just stayed sick and maybe died.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.