Wednesday, April 04, 2012

Ethics of "Mandate+Penalty" vs. "Tax+Credit"

In regard to the debate on the individual mandate, some people have mentioned that the mandate+penalty scheme is equivalent to a scheme of levying a "health care responsibility tax" on everyone, and giving a tax credit for those who buy an acceptable insurance plan. See, for eg., Ezra Klein, Ed Kilgore and Justice Sotomayor:

"JUSTICE SOTOMAYOR: Could we have an exemption? Could the government say, everybody pays a shared health care responsibility payment to offset all the money that we are forced to spend on health care, we the government; but, anybody who has an insurance policy is exempt from that tax? Could the government do that?"

So here is my question. Is there an ethical difference between these two economically equivalent options:

Scheme A: A legal requirement for everyone to buy an insurance policy, with a penalty of $1000 for failure to do so.
Scheme B: A health care responsibility tax on everyone of $1000, with a tax credit of $1000 for anyone buying an insurance policy.


Matt said...

I see the two schemes as having the same fundamental problem. They both create a situation in which failing to earn $1000 in a given year is against the law.

John Lott said...

No, there is no ethical difference just because you call it a tax in one case and a penalty in the other. The question is what the government makes people do, not what the government calls it. A better question would be should it change the conclusion of whether something is constitutional based upon the two schemes you propose. It appears that Scheme A is unconstitutional, but Scheme B is viewed as constitutional.

Shades of 1984? Was the government in Orwell's book moral because they called "slavery" "freedom" or called "war" "peace"?