The Romney campaign on Monday said that Obamacare’s fine for refusing to buy health insurance is a penalty, not a tax. Nancy Pelosi on Sunday (just about) said that it is a tax, not a penalty. The only reason either of these stories ran is both politicians seem to have worked against their own parties’ interests in their characterizations of the health-care law. Democrats don’t want one of its central components to be called a tax. Republicans do, and Greg Sargent reports that they will attack President Obama on that basis.
This semantic dispute is idiotic. Though there are political and, as Chief Justice John Roberts demonstrated, legal consequences to the wording, the policy is basically the same either way. Americans who refuse to purchase health insurance will still owe the government money that Congress has empowered the IRS to collect. Practically speaking, it doesn’t matter if you call that a penalty, a tax or a robot vacuum cleaner.
Underlying what will be no doubt an unending battle over “tax” vs. “penalty” this election year is a dangerous dysfunction of contemporary American political culture: a pronounced aversion to anything called a tax. Taxes on the middle class are widely viewed as perhaps the worst thing any politician could ever propose. Taxes on the wealthy get turned into taxes on “job creators.” The Club for Growth ruthlessly enforces an irrational anti-tax doctrine among Republicans. Even tax-friendly Democrats often do not talk about new taxes any longer — they talk about new “revenue,” and they have not had much luck in obtaining that, either.
Taxation, though, can be an extremely efficient way to achieve social ends as well as fund the government, and any fair conservative economist would recognize this. The tax on those who decline to purchase health insurance is actually a pretty good example, but there are better ones. The best concerns energy policy. Right now, the tax code is shot through with special tax breaks and credits for all sorts of operations in the energy business, renewable and otherwise. This structure is expensive, and it is not getting the country to where it needs to be on carbon emissions. But Congress has built this system because spending money on tax credits is easier for politicians than cutting out all the loopholes, slapping a tax on carbon and letting the private sector pick the winners and losers in the energy business. Instead of an elegant, market-based program, we get congressional micromanagement to the benefit of favored groups, in large part because politicians can’t stand the T-word, unless it is followed by “credit” or “break.”
Not all taxes are good. But some are. In a world that demands serious solutions, not the ideological preoccupations that drive Washington, the government must use all the tools it has to get more out of the national resources it directs. That cannot happen unless lawmakers and the voters who elect them think beyond the old debates about income and corporate rates and view innovative new taxes as legitimate and powerful policy instruments. That might even mean distributing burdens in ways that hurt some middle-class households but help many others, as well as the country at large. Unfortunately, the Obamacare tax-penalty debeate indicates that the most likely alternative is continued squabbling at the edges of the outrageously inefficient system we have now.
UPDATE, 2:47 p.m.: The text above has been slightly edited for clarity.