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A bad day for Obamacare’s supporters

at 12:54 PM ET, 03/27/2012

The quick read is that today went very badly for supporters of the individual mandate. As one of the experienced Supreme Court watchers who runs SCOTUSblog tweeted, “Paul Clement” — the attorney arguing against the health-care law — “gave the best argument I’ve ever heard. No real hard questions from the right. Mandate is in trouble.”

As Lyle Denniston writes, this still looks like Justice Anthony Kennedy’s case to decide. But however he decides it, it’s worth keeping in mind what an oddly narrow principle is actually being debated.

According to tax economists, there’s no economic difference between the individual mandate and the policies leading Republicans support to give large tax credits to Americans who purchase health-care insurance and deny them to those who don’t. But while the mandate might get overturned, everyone agrees that discriminatory tax credits are constitutional.

By now, you should know how the individual mandate works: Starting in 2016, those who don’t carry insurance will be assessed a $695 fine, per year, or 2.5 percent of their income, whichever is higher. There are exemptions for those who can’t afford health-care insurance, but that’s the basic gist of it.

Here’s how Paul Ryan’s health-care plan works: Individuals who purchase insurance will get a $2,300 tax credit. Individuals who don’t purchase insurance forgo the tax credit. There’s no affordability clause such that, say, someone who can’t afford health insurance nevertheless gets the tax credit.

If anything, Ryan’s plan might be a little harsher on those who choose to go without insurance. There’s no actual enforcement mechanism behind the individual mandate. The IRS can’t dock your pay or throw you in jail. If you choose not to pay it and you simply ignore the letters the government sends your way, nothing actually happens.

Conversely, under Ryan’s plan, if you don’t buy insurance, you really don’t get the tax credit, and so you do, in effect, pay a large tax penalty compared to a world in which you did buy insurance — larger, in fact, than the penalty under the individual mandate.

To an economist, there’s no difference between these two policies. Just to be sure, I asked William Gale, director of the Tax Policy Center, just to be sure. “It’s the same,” he shrugged. “The economics of saying you get a credit if you buy insurance and you don’t if you don’t are not different than the economics of saying you pay a penalty if you don’t buy insurance and you don’t if you do.”

Now, various conservative legal minds have argued that there is a profound difference between these two policies: One is penalizing a particular form of economic inactivity, while the other is encouraging a particular form economic activity. And perhaps that’s so. But it’s not a difference very many Americans would notice when it came time to pay their taxes.

 
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