According to U.S. District Judge Henry E. Hudson, the same government that requires you to buy retirement insurance (via Social Security) is constitutionally barred from requiring you to buy health insurance.
Apparently some idiot lawyers have gotten it into their heads that the Social Security mandate is okay because it’s called a “tax”, whereas the Obamacare mandate is not okay because it’s enforced by what’s called a system of “fines”. From which I infer that if the government taxes you $1000 and uses it to buy you some health insurance, that’s constitutional. Or, if the government gives you a tax credit for buying insurance (after raising taxes to cover the cost of everyone’s credits, of course), then that’s constitutional — just as tax credits for home insulation are constitutional. Whereas if they just require you to buy $1000 worth of health insurance directly, that’s not constitutional even though it has exactly the same consequences as other policies that are constitutional. From which I infer that the law is an ass.
This false distinction is all the more outrageous because unlike the perfectly constitutional Social Security mandate, the constitutionally suspect Obamacare mandate actually serves a legitimate economic purpose. There’s a case to be made that there are a lot of conditions we ought to be able to insure against but can’t, because those conditions manifest themselves before we’re old enough to buy insurance — sometimes even before we’re born. That in turn creates a case for requiring insurers to cover pre-existing conditions, which in turn necessitates a mandate; otherwise everyone would wait until they’d gotten sick to buy insurance. You might or might not buy that rationale, but at least it’s a rationale. When it comes to Social Security, I can’t see any comparable argument. Unlike, say, cystic fibrosis, old age strikes pretty much everyone.
The U.S. government mandates your retirement strategy. It mandates your hiring practices. If you erect a public building, it mandates the number of wheelchair ramps. It mandates the size of your showerhead, for Christ’s sake. There are at least two significant precedents saying, in effect, that under the Commerce Clause, the U.S. government can mandate any damn thing it wants to. The only exception is health care — the one case where a mandate makes some potential sense.
Don’t get me wrong. I oppose every one of those mandates. But not as vehemently as I oppose a legal system that pretends to have some basis in logic when it is in fact nothing but a bunch of laughably arbitrary decisions based on random and meaningless distinctions that lawyers keep creating so that lawyers can “earn” a living maintaining and interpreting them. The law is an ass, and it deserves a good kicking.
“…that pretends to have some basis in logic when it is in fact nothing but a bunch of laughably arbitrary decisions based on random and meaningless distinctions…”
Hey, not everyone has the benefit of working only with rational actors.
In California, where I live, I believe it is in general illegal for a merchant to charge a fee or surcharge for accepting payment by credit card. However, it’s perfectly okay for a merchant to offer customers a cash discount for not using a credit card.
The problem that you just never seem to understand is that we need to protect people from themselves because if we don’t then we will feel the need to take care of them anyway.
Sure it makes no sense to force someone to save 12.4% of their income for retirement if they need that money to make a mortgage payment to stop the loss of their house. The forced sale and forced move will cost far more than 12.4% of a single pay check.
However, until we decide that it is our best interest to let people die in the street because of lack of food or healthcare then we might as well admit that we are going to provide some kind of food and some kind of healthcare.
Then the question becomes what is the best way to provide a minimal standard of living in retirement (or any time) and minimal healthcare.
Our system is far from perfect, I know.
Frankly, I want something like Canada’s health care system because it gives similar value at a far lower cost. I think we NEED to ration healthcare. If we don’t then we will end up rationing healthcare.
Steve – My thoughts exactly. What’s more, why is legal for the government to mandate that all drivers have auto insurance, which is also enforced through a system of fines, but not health insurance?
I disagree with your final point. I think it is more likely that the arbitrary distinctions you discuss are made by judges and legislators because they help them be reelected. Voters like silly distinctions.
For your explanation to make sense you would have to find a mechanism by which lawyers who earn a living maintaining and interpreting laws would compensate each legislator or judge for his illogical decisions. Otherwise, you are assuming that each legislator or judge acts altruistically for the good of his own kind. This is the sort of assumption that underlies conspiracy theories.
I think you have “economist blinkers” on if you see no distinction at all between a tax or tax credit and a law requiring everyone to buy something commercially. The money takes a different path, there are different potential conflicts of interest, and different incentives for individuals. In this case there may be few differences, and it is far from settled whether it is constitutional or not. Maybe it will eventually be decided in favor of the law, and your objections will become moot. It seems a good idea to scrutinise a measure that has the potential to go beyond the powers Government usually exercises.
That said, the law is an ass, and constitutional protection is an illusion. The constitution can be interpreted many ways, and these shift and change according to current social and political mores. The law is a cumbersome and unweildy system, and far from perfect. The problem is that the law is so obviously imperfect, and in some cases just plain stupid, but we do need to have something to provide the checks and balances on executive power. Perhaps a bit of a kicking would be in order.
Prof. Landsburg, I completely agree with your punchline.
Truth is, every one of these mandates was always unconstitutional. It wasn’t until the Supreme Court was threatened and bullied into keeping their traps shut that they were deemed okay. At least, according to all the history books I’ve read, that’s how it happened.
At first, it’s just the mandate that people want. They “just” want Social Security. They “just” want ObamaCare. Or whatever. Never does anyone stop to consider what impact that will have on the law itself. But a law with no logical underpinnings isn’t much of a law at all. Then again, I’ve always subscribed to Hayek’s views on the Rule of Law, so that makes me a bit of an anachronism.
Nice to see someone else blogging about it, though.
Biopolitical: there’s also the possibility that the kind of analytical thinking Steve_Landsburg displays is extremely lacking among the people who become lawyers (and therefore judges) and so doesn’t even realize how pointless these distinctions are.
I agree entirely with the premise that lawyers want the world to be as convoluted as possible so that they can make a living. Unfortunately, this means regular people with functioning reasoning facilities and only a passing knowledge of the law can NEVER know what the law is ahead of time. You have to be a “professional” (in bullshit) to know exactly what the law is. This is a good thing if you happen to be a lawyer, but a bad thing if you have any appreciation for the “rule of law.”
I’m reading Harvey Silverberg’s “Three Felonies a Day,” and he actually is making the argument that even practicing lawyers cannot predict ahead of time which actions are “legal” and which actions are “illegal.” To “know” this requires that they “know” the whims of many prosecutors and judges.
My guess is, because of their profession, lawyers want the law to be capable of coming to any conclusion that suits them at the moment. (They are in the business of “arguing for the desired conclusion,” not the business of “honest truth-seeking based on agreed-upon principles.”) Having a reasonable and well-defined system of logic and rules undercuts this goal. Under such a rational system, you MUST accept the conclusions that fall out of reasoned arguments.
“Harvey Silverglate,” not “Silverberg”
Just a thought.
It is perfectly acceptable and legal for a STATE to require an insurance mandate. It probably is acceptable for the Federal government but it is absolutely legal for a STATE government.
Lawyers make lots of distinctions that economists think are meaningless. My favorite–lawyers seem to think that a tax levied on the seller of a product is somehow substantively different from a tax levied on the buyer of the same product.
I think in this case I agree with your thesis that this is an irrational decision. I think that the conclusion is less that “the law is an ass” than “this particular judge is biased.” Virginia’s judiciary is only slightly less notorious than its state government for how out of whack (or, frankly, frakking insane) they can be.
My brother recently received the (unofficial) opinion of a lawyer that the healthcare law would be on firmer ground if it only applied to people who use the US mail.
I think that there is a distinction theoretically and that is what people are thinking. The distinction is that in theory the qualified insurance companies which are not run by elected officials could get together and double all premiums netting a huge profit and the law would still mandate that you buy the insurance. Of course the politicians could then use price controls to combat that but people do not think that far.
There is at least one difference between Social Security taxes and the penalties for not buying health insurance. You can avoid the penalties by buying health insurance, but the Social Security taxes are taxes on working, and you have to pay them whether you provide for your own retirement or not. In this respect, the health-care penalties are like speeding tickets, which you can avoid by not speeding. To call the Social Security tax a penalty we’d have to call it a tax on work. Contrary to your description, the government does not “require you to buy retirement insurance.” The payroll taxes are just taxes, and for many years the money they raise has been spent on lots of things besides retirement benefits. (The so-called Social Security Trust Fund being an accounting fiction.) Contrary to what the politicians like to pretend, the Social Security tax and benefits provisions have almost no connection to each other. The government taxes us and it pays benefits to old people and some disabled people, but except for some trivialities like (some) benefit levels and some qualifyications for coverage there are no connections between the taxes and the benefits. The politicians just like to pretend that there are so that we won;t realize how heavily we are taxed.
But you are certainly right in saying that a Federal government that can force you to do just anything Congress wants to ought to be able to force you to buy health insurance. That’s the real problem; the Constitutional limits on Federal power, which the judge in the Virginia case invoked, have become a joke. On the one hand, it is absurd to say that a grant of power to the Federal government to “regulate commerce … among the several states” creates a power to run a national health care system. On the other hand, a government with the power to make it a federal felony to fold a sheet of paper into the shape of an airplane and give it to someone (CPSIA) is in fact a government with unlimited power, so why pretend otherwise? We haven’t been “the land of the free” for a long time.
Fourth sentence in above comment should read. “To call the Social Security tax a penalty, we’d have to call it a penalty on working.”
Dear Professor,
please cut the law (and us poor lawyers) a little bit of slack. While you are, of course, absolutely right about the economic equivalence of “taxes” and “fines,” the recent opinion from the eastern district of Virginia invalidating a part of ObamaCare (the individual mandate) is actually perfectly sensible and, I’d say, right.
The question the court had to answer was not “Is there some means by which the federal government could have accomplished the same ends as the individual mandate?” The answer to that is pretty clearly yes.
The question for the court was “Were the means that the federal government actually used to create an individual mandate within the federal government’s powers?”
Among the powers vouchsafed the federal government two here are relevant: the power to tax and the power to regulate interstate commerce.
I have no doubt that if the government had chosen to use the taxation power, it could have imposed the individual mandate. But the government, from the lawyers all the way up to the president, swore up and down the aisle that they were not using the taxation powers. Wouldn’t dream of it! What an outrageous suggestion! Calumny!
It is the practice of courts to take such assertions seriously. If you refuse to make a certain claim, the court will not make it for you. That may or may not be sensible, but it is the practice. So the court said, quite rightly, “Ok, you are not using the taxation power” and we are not going to look at if you could do what you wanted to do under that power.
So then the court examined whether fining somebody for not buying health insurance is a regulation of interstate commerce. It concluded, again rightly I’d say, that it is not.
Therefore the court ruled that the individual mandate was unconstitutional.
Is that so asinine?
“There are at least two significant precedents saying, in effect, that under the Commerce Clause, the U.S. government can mandate any damn thing it wants to.”
Well that’s the point at issue it seems to me. Do the precedents really say that, and were they correctly decided? If the first answer is yes then the second is no because the gov’t is explicitly one of limited powers. So maybe the ruling breaks with precedent, but should. Insert your favourite ruling here (usually Brown v Board). Given the inability to have a mulligan there will always be places where the law is a ass. If any ruling anywhere overturns a precedent one of them had to be wrong, and the ass dictum applies.
I think there can be solid political economy reasons for preferring a system where it’s much easier to tax people in order to provide service X than to require that they provide it for themselves or that others provide it for them. Taxes make the cost of rules much more salient to voters. (Protest if you like that they’re identical, but first poll your intro micro class and tell me if they unanimously agree with you. The point is not to say they’re right, but that the belief that they’re right influences how people vote.)
This is why CAFE standards are popular but gas taxes are unpopular, even though the latter are always more efficient and (if combined with some combination of lowering income taxes & making them more progressive) could in principle lead to a near-Pareto improvement.
Actually, I think the purpose of the health insurance mandate and Social Security are the same–to protect the majority against irresponsible actions of others. Like it or not, democratic government acts “as if” it is altruistic to poorer members of society, and as such there is a “Samaritan’s dilemma” situation whereby this fact can be exploited. In the case of health insurance, people needing emergency care they cannot afford cannot be denied service in our “compassionate” society. They know it in advance and some will forgo buying insurance when they are healthy becasue they can seek uncompensated care when they get sick or injured. The purpose of the health mandate is to protect the rest of against that.
Similarly, in our compassionate society we cannot see old people, who no longer able to work, out on the street homeless because they were not responsible enough to save for their old age, so we protect against that moral hazard by making them prepay their social security.
If we can commit ourselves to a compassionless society, we can get rid of all these mandates, but is that politically realistic?
@Ken B
The two precedents usually cited for the proposition that the federal government can do anything it damn well pleases under the Commerce Clause (and that the rest of Article I Section 8 are therefore just surplusage introduced to battle the great ink glut of 1787) are Wickard v. Filburn and Gonzales v. Raich.
Wickard held that the federal government can regulate a farmer growing wheat on his own farm to feed to livestock on that same (single-state) farm as interstate commerce. Reading this case along with other leading New Deal cases, such as those approving of Japanese internment, as a law student broke my faith that the judicial system can be relied upon to protect the Constitution against power. It was screamingly obviously wrongly decided. Unfortunately, the Supreme Court, despite some hints giving hope to the contrary, in Gonzales v. Raich, the recent medical marijuana case, held that Wickard is just a-ok.
That said, even those who approve of Wickard, merely claim that it gives the federal government *almost* plenary jurisdiction. The recent ObamaCare case involves a colorable–if not necessarily slam-dunk–claim that the fining inaction is among the few things outside the Commerce power, even under Wickard.
Which really is more asinine: arguing that a document that places limits on govt power can forbid certain exercises of power, or arguing that a clause intended to regulate interstate tariffs overrides and vitiates all other clauses of the document?
@Alan_Gunn:
To call the Social Security tax a penalty we’d have to call it a tax on work.
Um, bullet bitten. (In fact, Steve_Landsburg has discussed it frequently as such.) Now what? If you’re making such distinctions in the first place, you make a wrong turn somewhere.
Neil,
If the justification behind mandates is that if you choose not to provide for yourself then you are (through the power of human compassion) imposing a cost on others, then how can we justify Medicaid or SS? Doesn’t expanding those constitute imposing a cost on others as well? Seems like that would argue against most parts of the state that aren’t about specifically public goods or possibly externalities (i.e., most of the modern state)
@Alan_Gunn:
Same reply to the corrected version of the quoted sentence.
Ryan yin,
To get Social Security, you have to pay FICA tax on your insured earnings for at least 10 years and your benefit is based on your insured earnings. It is not welfare. Although not precise, there is a link between taxes paid (sometimes euphemistically call “contributions”) and benefits received so you are not posing a cost on others like you do if you go on welfare when you are old. You have “prepaid” for your benefit. You could view SS as forced saving, although because it is a pay as you go program, there really isn’t any saving going on. A similar argument can be made for Medicare.
Medicaid is a welfare program with no “contributions” require.
The reason, by the way, the federal government refused to argue that the individual mandate was a constitutional exercise of the tax power is, of course, that candidate Obama had sworn not to raise taxes on people earning less than $200k. To create the individual mandate under the tax power would have involved such a tax.
In other words, the Obama administration was hoist on its own petard. One more reason, I had a considerably more favorable reaction to the decision than the good professor.
Had you been drinking when you wrote this? It’s so out of line with all of your other posts in terms of tone.
I like it though.
Neil,
I’m sorry, but I have to disagree. It’s not really forced savings (since nothing is actually saved), and there’s no necessary connection between how much you put in and how much you take out (we know this in particular because early entrants in the system get much more than they put in, and later generations will get less). And since there’s no inalienable, one-to-one relationship between FICA taxes and SS benefits (which is, after all, why we debate changing benefits, or how we can cut payroll taxes w/o implying we’re cutting SS in the future), there are deadweight losses to FICA & SS … which means that (in addition to the transfer aspect) expanding SS really does impose costs on society collectively.
This argument is if anything, much stronger with Medicare.
On further consideration I would like to withdraw my previous comment. In particular, the Volokh Conspiracy blog has a very interesting post at http://volokh.com/2010/12/13/thoughts-on-todays-ruling-striking-down-the-individual-mandate/ in which the blogger (Ilya Somin) points out that the judicial decision may have been written to a deliberate slant with an eye toward eventual SCOTUS review. I recommend the blog piece and after reading it I’m willing to agree that the opinion was not a product of a judge operating outside the norms, but one who is appealing to a specific hoped-for future judgment.
It seems like I recall one of landsburg’s friends saying that there is no such thing as legal theory. This seems to be the case.
@Silas Barta:
Sure, a payroll tax discourages work. But it would be odd to say its purpose is to penalize work, although that is of course one of its effects. Is your argument that there is no difference, ever, between taxes and penalties? If that’s so, the whole Constitution was just a silly mistake: the taxing power makes everything else meaningless. I took the post’s argument to be that all these limits on Federal power had become meaningless because of past judicial actions, which is pretty close to being true today, but wasn’t until the 1930s. You seem to think the argument is that the Constitution never really limited Federal power to the things it said it did because all penalties are justified under the taxing power. Indeed, the argument would, I suppose, go further: It would be impossible to give a government with taxing powers any kinds of limits on its other powers because it could always penalize what it didn’t like and call the penalties taxes.
Consider the debate about red-light cameras. These are supposedly “penalties,” meant to discourage dangerous driving. A lot of evidence suggests that they are really tax measures, enacted for the purpose of raising money and contributing little or even nothing to safety. Are you saying that anyone engaging in this debate is a fool, because all taxes and all penalties are the same?
While there will of course be line-drawing problems, it seems to me that in principle it ought to be possible to distinguish revenue-raising measures from penalties, even though both do raise revenues, just as it is possible to distinguish “tax expenditures” (tax breaks meant to encourage particular activities) from true tax-relief measures. Some have argued that the tax-expenditure concept is meaningless because you can’t tell the difference. I don’t agree, and hardly anyone else does either; most industrialized countries now publish annual tax-expenditure budgets. When people argue that the mortgage interest deduction is a tax expenditure, they are making a coherent point (though one I disagree with, for reasons not relevant here).
Well Duh; That’s because the law is a monopoly!
Logic might seem to speak with one voice on issues such as these.
But only Free Markets incentivize actors to discover what that one best Truth might be. Government courts “of last resort” long ago subverted the market forces that were building a rational Common Law.
Political Laws are an extremely poor substitute, whether they come from asses or elephants.
@Alan_Gunn: Sure, a payroll tax discourages work. But it would be odd to say its purpose is to penalize work, although that is of course one of its effects. Is your argument that there is no difference, ever, between taxes and penalties? [red light camera issue description] Are you saying that anyone engaging in this debate is a fool, because all taxes and all penalties are the same?
Yes, in that all that matters is the substance of the policy, not its label. Generally, your values should be nominally invariant — changing the name of the terms used to describe outcomes and policies should not change how you rank them. (This is a version of Rationalist Taboo.)
If your preferences do hinge on whether something is called a tax or a penalty, the decision theory you operate under is either inconsistent, or reflectively inconsistent (the latter meaning that there exists a class of problem on which you wish you used a different method for deciding whether you favor or disfavor a policy).
@Silas Barta:
I think you and SL are missing a point. The consequences need not be the same, so the difference could be more than a mere label. Here is an example of how. You reluctantly buy what you believe is health insurance. But the IRS rules it inadequate, and penalizes you. You are now out the premium and the penalty.
I am not arguing this is a basis of an objection to the law. I am arguing you have not proven that there are no ECONOMIC differences (because I just gave one), much less that there are no OTHER differences.
So, Steve, what you’re implying is that a single (government) payer plan WOULD be constitutional. Because then we would tax everyone based on some metric (income, flat amount, etc.) and then provide health care, and that’s okay. It would be interesting (albeit unlikely) if this decision drove us into the arms of a single payer plan.
Professor Landsburg,
In a reply on a post on your “The Great Compromise” blog, you mentioned:
“the issue is not just “disincentives to work”, the issue is *distortionary* disincentives — that is, disincentives that decouple the private reward to work from the social value of that work. The effect you’re describing is not distortionary.”
I’ve never studied economics, but I have to tell you that this seems like a meaningless distinction.
Also, when looking at the same data, some economists think that a progressive tax is a good thing. Others think that it is a bad thing. I’m not an economist, but I have to tell you that this seems laughably arbitrary.
I could come to the conclusion that:
Economics that is in fact nothing but a bunch of laughably arbitrary decisions based on random and meaningless distinctions that economists keep creating so that economist can “earn” a living maintaining and interpreting them.
I am willing to admit though that this conclusion might be wrong and that in any complex field of study there are distinctions that are very important inside of the field even if they are not apparent to me.
I’m also willing to admit that in a complex field of study experts can look at the same data and come to different conclusions about what is consistent.
One thing I keep seeing in debates is that people bemoan our “capitalist fat-cat greedy” healthcare system and the horrors of the free market (with CEO’s making tons of money, denying claims, etc.) The only proposed solution is socialized medicine where everyone gets all the health care they want and they get lollipops after their check-up. (neil wilson, I’m looking in your direction)
Our system is so so NOT ‘free market.’ It’s regulated in such a way that it almost guarantees that it will suck. Your employer has an incentive to choose the plan you get (and you indirectly pay for it), Medicare drives costs way up, and people can’t really shop around for better prices (and they don’t really have a good reason to do so). The choice is not “current system vs. Canada health care” and we need to stop pretending that that dichotomy exists.
I have a question.
In Malaysia, everyone’s compulsory retirement contribution go into a savings account (called EPF, or Employee Provident Fund) that earns a decent dividend, and that people can only access when they retire (or under certain special circumstances). For those whose accounts are insufficient at the end, there’s no pension to fall back on.
In Australia there’s a mixed system – everyone has a personal retirement account (called Superannuation). They have some choice about how that will be managed, there is even the option to manage it oneself. There is also a pension (not a very generous one) for anyone who falls through the cracks – even if this happens at the age of 99. The pension is paid out of government revenue as a budget item, not out of a special account funded by a special tax.
In both Malaysia and Australia there is a certain mandatory contribution to the retirement account – a percentage of nominal pre-tax salary. People can avoid making this contribution by certain methods, principally by reducing the amount of income earned as wages.
What is the system like in the USA?
@Silas Barta:
Nobody is arguing that the distinction between a tax and a penalty depends on what it’s called; this ought to be clear from my example of the red-light camera penalties, called penalties but really taxes because the legislature’s purpose in adopting them is revenue raising.
The law is a ass–a idiot. C. Dickens
@SuperFly : Tim Harford’s “The Undercover Economist” (http://amzn.to/hlSMAX) in his chapter on the Lemon Theorem outlines three healthcare systems – the “capitalist” US one that people hate, the “socialist” UK one that people strongly dislike, and the Singapore one that people like more. If you are interested in a third way, I suggest reading that chapter. In a nutshell, there is a compulsory deduction from everyone’s pay into a personal healthcare account. This money can be used only for healthcare, and is inheritable.
Tim Harford argues that this allows the healthcare to be market-based – it avoids both the non-existence of a market in “socialist” systems, and the market failure due to asymmetric information in “capitalist” systems.
“Just a thought.
It is perfectly acceptable and legal for a STATE to require an insurance mandate. It probably is acceptable for the Federal government but it is absolutely legal for a STATE government.”
The difference being that the federal government is one of enumerated powers, while the state are not. State governments have police powers – things like making you buy car insurance if you voluntarily buy a car, seat belts laws, helmet laws – that the federal government does not have.
So your thought is off-the-mark.
What this ruling means, succintly:
“You may not penalize people for not buying private insurance by adding fines to their taxes; However, raising their taxes by the same amount, and using that money to buy them insurance from those same companies, is permissible.”
However, the law is not yet an ass here. This ruling is not being enforced, and contradicts rulings by other federal courts. We have yet to see if it will be upheld. The ruling is an ass, but it’s not the law yet.
Another similarity between Social Security and the Healthcare bill is that Americans have decided that they are trivial enough to allow supreme courts decide whether or not they are valid over time.
This contrasts with income taxes which Americans decided the supreme court can’t remove.
Above AIV said “It would be interesting (albeit unlikely) if this decision drove us into the arms of a single payer plan.”
It would also be interesting (who knows how likely) if the current originalist court ruled it unconstitutional for the government to force any insurance to be purchased by employers or employees. Driving people to challenge social security and unemployment insurance based on the new ruling and eventually overturning them.
I think that Cos makes a good point that this hasn’t finish playing itself out yet.
Neil: “If we can commit ourselves to a compassionless society, we can get rid of all these mandates, but is that politically realistic?” I am not sure if you are being ironic here. I don’t want to live in a compassionless society.
Mike H: “the “socialist” UK one that people strongly dislike”. Actually people in the UK have a great deal of affection for the NHS, and very high satisfaction levels. It is conmpletely wrong to say they “strongly dislike” it.
I am not sure I have all the issues right here. The purpose of the bill is to get everyone to have insurance. One reason for this is otherwise the insurance companies will not cover pre-existing conditions. Another reason is that everyone needs healthcare sometime, so it reasonable to make everyone contribute when they are able. The different options Steve is saying are the same are:
1) To require you to buy health insurance, then fine you if you don’t, and spend the fine on health insurance for you.
2) Tax you and spend the money on health insurance for you.
Are the fines actually going to be spent on purchasing a policy? If the penalties are the same as the insurance cost, and they are actually spent on health insurance, then the total money going to insurers is the same. But this does not mean that the two are in fact the same. Some differences:
a) If you are required to buy health insurance, you can buy it from whoever you like. If the Govt. provides it, you get what you are given. This is undermined a bit by restricting you to approved insurance to avoid the fine.
b) If the Govt collects and distributes the tax, there is a cost, which is avoided by you going direct.
c) Money raised by tax is rarely ring-fenced. Raising taxes to pay for health insurance risks having it spent on something else as Govt. priorities shift.
d) The Govt income from tax could be diverted to providing healthcare directly, the Govt. acting as the insurer.
e) Anyone with health insurance is unaffected. It would be difficult to tax only those without health insurance.
It may be argued that the differences are all in favor of the forced purchase, but as there are differences, it is surely valid to examine them. Probably the biggest issue is the setting of precedents. If this is the first time the federal Govt. has required all citizens to purchase anything, it may be a good idea to strike it down, even if it would have been the best option in this particular case.
@Harold – I won’t dispute what you say. I was quoting from memory from a book I haven’t read in some time.
@Steve – at the end of your 1994 book, you present an apparently logical argument for having two streams of government sponsored research institutions, as a “solution” to the problem of asymmetric information in academic appointments. You mentioned this was the subject of ongoing research. What would the same reasoning lead to as a solution to the problem of asymmetric information problem in health insurance?
Harold: Definitely irony. My point is we are a compassionate society to a degree, so how can we commit to being something we are not? But this means we (individually or collectively) will inevitably help others who are in need even when their misfortune is due to their own irresponsible behavior (not buying health insurance, not saving for old age and infirmity, dropping out of school, etc.). So does not society have a right to protect itself against this Samaritan’s dilemma with mandates and compulsion? I am curious about a pure libertarian’s opinion on how to deal with thisproblem (I am an impure one myself). I am guessing that a pure libertarian would say “let the chips fall where they may”–that is, commit to being compassionless and then this sort of thing won’t happen.
Neil,
You could just say, compassion doesn’t only come through the state, and that private charity is better at handling moral hazard problems than the state. Or you could point out that conservative estimates of the costs of PPACA put it at several times the cost of uninsured people going to emergency rooms and the like (e.g., you don’t spend $100 billion, not counting the costs you impose on others, to solve a $40 billion problem of your own making).
Or you could say what I said above in re the contradiction between saying “people imposing on other people’s compassion is a problem we need to solve” and support for any sort of state transfer system.
Ryan,
No one says compassion comes from the state. It comes from individuals. The state is an instrument for making collective choices, and we make collective choices when individual choices are not efficient because of public good problems, etc. Since altruism for the poor is shared, it is of the nature of a public good like national defense, and there is an argument for collective actions that allow Pareto improvements.
@Jeff -I think that the cash discount is part of merchant agreements with credit card companies. In order for a merchant to be able to accept credit cards, Visa/MC, etc. require that they cannot charge a surcharge on customers using the cards. Antitrust law does not allow such contracts to specify how other forms of payment are treated, hence the cash discount.
thedifferentpupil: Mastercard and Visa, I believe have such a merchant agreement, American Express does not. So it would not be possible for a merchant to add on a fee for Visa or Mastercard anywhere. In addition, some states, including California, have passed laws making it actually illegal to charge a fee. It sounds very stupid to me. the card companies charge the merchant, why should he not be able to recover this from the purchaser? It is an example of monopoly power again. No merchant can afford to turn down card payments, so they either have to take the loss themselves, or in fact put up the prices for everyone. I don’t see why the states should get involved by forbidding surcharges at all.
So what is the difference between 1)surcharging card users, and 2) putting up the price by the surcharge amount and giving discounts for cash? Well, the amount paid by each consumer would be the same. The difference is that in 1) the card user pays more than the advertised amount, but in 2 the cash buyer gets it for less. You can argue that it is unfair to charge more than the person expects to pay. If the cash buyer feels it unfair for them to pay less than expected, they could always refuse the discount. (By this reasoning, all state taxes should be included in the advertised price also.)
Neil,
There is that argument, but it’s not terribly strong. You can make utilitarian arguments for a welfare state, but to argue it’s a Pareto improvement is a bit strained. Public goods exist, but transfer payments (in-kind and via cash) aren’t really one of them.
But more generally, it’s not that I’m saying there’s no possibility of gross benefit to state provision here. What I was pointing out there was that there’s a lot of moral hazard and there’s an argument to be made that private methods of providing charity can at least somewhat mitigate the “leaky bucket” problem. So if you’re looking for a libertarian argument, there you are
thedifferentphil and Harold: You are both right. Before the current Visa and MasterCard merchant agreements came into effect, one local store finessed the issue under California law by posting a single sign that said all the posted prices were the cash discount price, and that the standard price was 3 percent more. Before that, they had posted two prices for each item, a standard price and a cash discount price. All their advertisements included a notice that the advertised price was the cash discount price.
I’m sympathetic to Harold’s suggestion that advertised prices should include the tax. Especially for items with hard-to-predict taxes, such as cell phone minutes or automobiles.
Last month, in an effort to encourage the use of environment-friendly reusable bags, the Los Angeles County Board of Supervisors voted to ban most plastic bags from grocery stores and impose a 10-cent fee for each paper bag given out at the checkout stand. I bet it would have been more palatable to voters had they chosen instead to order a 10-cent discount or refund for each paper bag not given out, and the two policies should be equivalent to the grocers after the appropriate adjustment of baseline prices. (My local Whole Foods currently refunds 5 cents each time a customer’s reusable bag is used in place of a paper bag.) I gather the county is not planning to collect the 10 cents as tax revenue, but rather to leave the money with the grocers anyway.
I think behavioral economics suggests that consumers will feel the sting of the fee more than the pleasure of the refund (perhaps twice as much). Other things being equal, the fee should therefore be the more effective (and more unpleasant) incentive, unless the fee is too small, in which case some people who were formerly bringing their own reusable bags as a matter of moral principal or social norms may instead choose to pay the fee with a clear conscience.
I don’t know anything about the alleged environmental impact of paper or plastic bags.
@ Harold:
“In addition, some states, including California, have passed laws making it actually illegal to charge a fee. … I don’t see why the states should get involved by forbidding surcharges at all.”
In a democracy, the state and federal governments get involved in things that citizens (humans and corporations) are righteously angry about. “I can’t believe that buses don’t have to stop at railroad crossing.”, “I can’t believe that I’m not getting a government subsidy for my corn crop”, “I can’t believe that we don’t have a government agency protecting the environment.”
The reason a state forbids surcharges is that a group of citizens became upset and was able to either convince their representative that there ought to be a law or convince fellow citizens to vote for some state initiative.
If you are at the point of being righteously angry, start working with others to forbid California from forbidding surcharges through a state initiative. You might find that some wealthy citizens (VISA, Mastercard, Walmart, etc.) are just as upset as you and be willing to provide resources in your campaign.
If enough Americans agree with you and your supporters, then you can modify the U.S. Constitution so that states can’t forbid surcharges.
So is the point that laws that aren’t totally rational (or, in practice, that a judge doesn’t think are rational) ought to be ignored? How is a democratic system supposed to come up with such sublimely rational laws?
Let’s say you’re charged with a silly crime. Now let’s say your lawyer tells you he can get you off on a technicality, a silly distinction in the law that doesn’t make sense to anyone who’s not a lawyer. Would you be willing to put your freedom where your mouth is is and tell your counsel to not bother with silky distinctions? That you want her to have a meeting of the minds and find what the most logical way to proceed is? How about if you had a contract dispute with someone? Or if the government is forcing you to do something you don’t think it has the constitutional authority to do, even though they don’t on some arbitrary distinction cooked up in the common law courts in England hundreds of years ago?
It’s not that lawyers have it out to keep the law arcane and impenetrable (though it definitely does benefit them). It’s that these arcane and silly rules benefit individual clients in individual cases. And judges, for whatever reason, don’t like just picking and choosing the rules that seem more reasonable at the time and ignoring all the others.
I really don’t get how you think that dynamic is supposed to away.
(disclosure: I’m a law student. I’m not a full blister in the majesty of the law by any means, but I also don’t see how any of the alternatives to some level of arbitrariness are better or even possible.)
*full believer. Commenting with iPhone
Will A: I am not against Govts getting involved where they can do some good. In the surcharge case they are pretending to be on the side of the little guy: “look, we have stopped them charging you extra for using your card – aren’t we great!” In fact they are protecting the credit card companies by forcing all stores to include the credit card fee in their prices, thus disguising it from customers. Visa and Mastercard will be all for the law, Walmart possibly less so.
It doesn’t bother me enough to mobilise against it.
“According to U.S. District Judge Henry E. Hudson, the same government that requires you to buy retirement insurance (via Social Security) is constitutionally barred from requiring you to buy health insurance.”
In all fairness, Judge Hudson may not think SS is constitutional either.
I don’t think the problem is the law. The problem is citizens that can’t recognize when the judges do their job and when they don’t. Judge Hudson did his job. Other judges have not.
“We”‘re okay with judges not doing their job, as long as we like the outcome. Amazingly enough, whether Judge Hudson did his job or not is almost split down an ideological line.
SS is not constitutional. Lots of things are not constitutional. They could be constitutional if Article V was used to make them so. But, that’s too hard and isn’t necessary as long as we can pick judges who don’t do their jobs.
What’s constitutional? We all have different opinions. There is only one that counts: the majority opinion of the supreme court. Almost anything can be argued to be constitutional or not – just look back in history to see what was considered constitutional not that long ago. So the question now becomes not “is it constitutional?”, but “will the supreme court judge it to be so?”. The answer to that one depends on the individuals on the bench.
“There is only one that counts”
I disagree. Who appoints Supreme Court justices? Who elects those people? What “we” (as a group of voters) think is Constitutional does matter. If we elect people who wish to believe untrue things like the commerce clause gives Congress unlimited powers, then that’s our fault.
“We all have different opinions.” Thanks to our poor educational system. We really shouldn’t have different opinions. It’s pretty clear. Just because we don’t like what’s written, doesn’t mean we should be able to misinterpret it. If we don’t like what’s written, there is a mechanism to change it: Article V.
@ Harold:
Based Seth’s comments, it looks like he and I are on different side of the political spectrum, but I think that we are both making the same point. He and I probably disagree on many things.
He might think that Social Security is unconstitutional. The supreme court at one time thought that it was constitutional. Although Seth could argue that they agreed under duress of the Court Packing Roosevelt was threatening. I could argue it’s constitutional because …
However, I might think that Americans should be able elect anyone born in the United States for president that they want. I can not argue though that this is constitutional though because it is clearly unconstitutional.
Also, I would like to apology to Seth for not agreeing with him on Social Security. I am a victim of our poor educational system which has created a country full of conservatives, moderates and liberals.
For sure a curriculum that forces everyone to have the same opinions and thoughts would help make our democracy easier. We wouldn’t have to worry about a 2 party system. Also, it is probably also a much more cost effective way to educate students.
The professor is surely right: the game is lost, the government has unlimited power to regulate everything, action and inaction alike. So we should just acquiesce and move on, including when Congress mandates eating fruits and vegetables, 30 minutes of cardiovascular exercise daily and getting eight hours of uninterrupted sleep each night. The professor may not agree with the specific mandates, but he will be comforted by the logical consistency of totalitarianism.
Will A – I agree. That does look bad. I should have included all of the pertinent words from Harold’s post, “What’s constitutional? We all have different opinions.”
To be clear, I have no trouble with differing opinions or differing opinions on what we think government should do.
I have trouble with such varied opinions with what is actually written in the Constitution. To me it seems about as clear as your example about the President. It also seems clear to me that if you want to change it, there’s a process for that in Article V. But, all that wasn’t clear to me when I learned about it in school. I earned good grades in my civics class, yet came away with the “living document” impression, in the sense that it can be interpreted based on current situations, not in the sense that it can be changed through Article V. I also had the impression that what the authors meant, for a variety of ad hominem reasons, shouldn’t carry much weight.
Further, the differing opinions seems to center around eleven words (“commerce…among…states”, “Welfare”, “taxes”, “no…religion”, “keep and bear Arms”) and individual interpretations of those words seem derive from what we happen to think government should do. I think that’s unfortunate.
@Paul
Great comment. SL obviously likes to be contrarian but in a fundamental way I think he accepts the basic assumption of his class (affluent ivy leaguers) that People Like Us (Those Who Know Best) should be in charge with no constraints. SL would not advocate the same policies of course as Gore or Krugman or Obama but if you read his books he seems quite willing to subsidize or penalize freely to encourage “efficiency”.
Seth:
I don’t understand how it is possible to avoid people arguing over what words in the constitution mean. Let’s go in the “way back machine” to 1970. Everyone agreed that all Adult citizens can vote.
It took us several amendments to define what a citizen is (man or woman, race neutral, born in U.S., etc.)
What is an adult:
– Someone who is able to reproduce?
– Someone who is legally able to drive?
– Someone who is legally able to drink?
I would argue that all are valid definitions. I.e. if you went to Webster’s Dictionary, you wouldn’t be surprised to find these as different meanings.
Our argument then becomes which is most valid definition. I end up calling you fat cat conservative, you end up calling me a bleeding heart liberal. The nation becomes divided between even and odd age states.
Fortunately, we are in 1970 and Americans are about to resort to math and pass an amendment that says “I don’t care what you think an Adult is. If you are 18, you can vote.”
To me the beauty of the constitution is not that Americans can change it. The beauty is that Americans can clarify it.
My only beef is that math/science should be used more in the amendments. E.g. the rights of person to vote should shall not be abridged on the bases of their XY chromosome make up.
And given that SS “insurance policy” rates of return are slightly negative (white males), slightly positive (white females) and moderately positive for blacks because of the redistribution effects (FRB paper mid-90s). can we ALSO infer that the law is an UNPROFITABLE ASS?
If the law holds up does all it mean that Gov. can still require schooling and or education (my state actually requires home schoolers to educate their children in place of school attendance) and start charging the rich and middle class directly to send their children to public schools? This could save a lot of money for tax payers.
Floccina,
I’m not sure what you are asking, but in general, you would probably need to be more specific on “Gov.”.
State government mandates are interpreted differently and usually according to the state constitutions. Massachusetts has a mandate that all citizens buy health insurance. So far this hasn’t been overturned.
As it relates to charging rich and middle class to send their children to public schools, this kind of happens now. Everyone (rich and poor) pay taxes which fund education. People pay the same in taxes regardless of whether they send their children to public schools. So I’m not sure how money is saved.
And on whether taxes for education are a bad thing, I live in an area that has very high property values and good schools. Our community votes to increase our taxes to fund our schools.
The difference in our property values by having a good school district more than off set the cost of the slightly higher taxes we pay.
On home schooling, if you don’t want to educate your children, it looks like your options would be to move to a state where you don’t have to educate your children or challenge your state’s law in court.