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The mandate -- a tax or a penalty?


Three times on "Meet the Press" last Sunday, House Minority Leader Nancy Pelosi said the payment individuals must eventually make for failing to buy insurance under the health-care law is a penalty, not a tax.

"It's a penalty that comes under the tax code," Pelosi said, "for the 1%, perhaps, of the population who may decide that they're going to be free riders" by not buying insurance.

Moderator David Gregory persisted. "But it's a new tax. It is a new tax on the American people," he said.

"No, no, no, no," Pelosi responded. "It's not a tax. It's a penalty for free riders."

So what is the payment that virtually all citizens must make if they decline to obtain health insurance when that provision of the Affordable Care Act takes effect in 2014?

In his Supreme Court opinion declaring the law constitutional under Congress's taxing authority, Chief Justice John Roberts called it a tax no fewer than 26 times. The health-care law itself repeatedly refers to the payment as a penalty, but Roberts said that didn't matter. The conclusion about what it is, he said, "should not change simply because Congress used the word 'penalty.'" 

For him, the issue is how it actually works, not the label attached to it in the statute.

Penalties, Roberts said, work much differently from taxes. Quoting an earlier Supreme Court decision, he said a penalty "is an exaction imposed by statute for an unlawful act." But failing to buy health insurance is not unlawful, because a citizen has an alternative -- either buy insurance or pay a tax. The conclusion: It cannot be a penalty.

"Neither the Act nor any other law attaches negative consequences to not buying health insurance, beyond requiring a payment to the IRS," Roberts wrote. "The shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance."

It is, he put it succinctly, “a tax on going without health insurance.”

Is all this semantics, or does it matter? It made all the difference to Chief Justice Roberts. His opinion makes it amply clear that if he thought it wasn't a tax, he would not have voted to find it constitutional. Under the law of the case, the Supreme Court declared that payment a tax, not a penalty.