Tax vs. Penalty is More Than a “Mere” Argument About Semantics

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I’ve now read about a hundred blog posts claiming that the question of whether the individual mandate is a tax or a penalty is “just a question of semantics.” But it’s not.

I know this seems obvious, but it is, in fact, also a legal question. And there’s all sorts of past precedent that judges can use to guide them on this question. In last week’s Obamacare decision, Chief Justice John Roberts basically said that it doesn’t matter what Congress calls the mandate; what matters is how it operates. His conclusion, based on a variety of precedent, is that the mandate is a tax because (a) it raises revenue, (b) it’s administered through the tax code, and (c) it’s fairly modest, meant to nudge rather than punish. And, as Roberts says, “taxes that seek to influence conduct are nothing new.”

In the dissent, Scalia¹ says this is horseshit. The law itself repeatedly calls it a penalty, it’s not primarily designed to raise revenue, and it is plainly designed to punish people who decline to buy insurance. “We cannot rewrite the statute to be what it is not,” Scalia says. “We have never held—never—that a penalty imposed for violation of the law was so trivial as to be in effect a tax. We have never held that any exaction imposed for violation of the law is an exercise of Congress’ taxing power—even when the statute calls it a tax, much less when (as here) the statute repeatedly calls it a penalty.”

I don’t have any big point to make here, and I don’t have a strong opinion on the merits of this argument, which is based on legal precedent I’m unfamiliar with. (Though I’m sympathetic to Roberts’s view that the court should always bend over backwards to adopt legal readings that allow Congress to work its will if there’s any reasonable way to do it.) I just want to point out that there actually is a legal argument about this that was carried out in the pages of the Obamacare decision. This isn’t purely a matter of dictionary games.

¹Technically, we don’t know who wrote the dissent. But the tax section sure sounds like Scalia, doesn’t it?