Critical Condition

What Is a Tax?

I did not watch the president on any of the Sunday talk shows yesterday, but as I understand it he got into a bit of a wrangle with one or more of the interviewers over the question of whether a requirement that individuals obtain health coverage would be ”a tax.” The obvious answer is yes: If someone chooses not to purchase coverage, that decision clearly must be driven by a conclusion that it is not worth what it costs. Accordingly,a mandate that such coverage be purchased anyway means that the individual would not get his money’s worth (negative “consumer surplus” in economic jargon); and there is no distinction — none — to be drawn between that net loss and an alternative requirement that the individual simply write a check to the government for that amount. This is particularly clear given that the central purpose of the individual mandate is to finance coverage for those — people with pre-existing conditions, older individuals, etc. — for whom government-mandated coverage at government-determined prices is a great deal. In short: The mandate is a device designed to transfer wealth, and thus differs from a straightforward tax/transfer fiscal program in absolutely no dimension that is relevant for analytic purposes.

What is relevant in the broader context is that this president has revealed himself to be quite comfortable denying that which our lying eyes can see clearly. And so the implicit-but-heavy energy taxes to be imposed by a carbon-regulation regime would not be “taxes.” Nor would banking regulations ostensibly aimed at “soundness,” but in fact designed to facilitate political control over the allocation of capital, etc.Would such policies impose large economic burdens upon those earning less than $250,000 per year? Well, yes. Would those people thus write checks to the government directly? Well, no. And so in the strange new world of Obama, the costs are not “taxes,” and so do not violate his campaign promises. Does Obama actually believe this? It is hard to say. If he believes that they are not “taxes,” would he then conclude that they would not impose substantial economic burdens upon ordinary people? Given Obama’s utter ignorance about how markets work, the answer to that last question is not obvious, not a salutary observation to be made about any occupant of the Oval Office.

– Benjamin Zycher is a senior fellow at the Pacific Research Institute.