Sorry, O: It Is a Tax

by Michael D. Tanner

"When I use a word," Humpty Dumpty told Alice, "it means exactly what I want it to. No more and no less."

President Obama has clearly been studying at the Lewis Carroll school of oratory.

During his blitz of Sunday's morning news shows, the president told ABC's George Stephanopoulos that his proposed mandate for every American to buy health insurance — policies that offer a specific, government-designed minimum-benefits package — is not a tax increase.

Not only that, he said, but no one thinks it is.

No one? Well, that would come as news to most health-care economists, who are nearly unanimous in calling such mandates "taxes."

Princeton University's Uwe Reinhardt, generally seen as the dean of health economists, writes: "[Just because] the fiscal flows triggered by a mandate would not flow directly through the public budget, does not detract from the measures' status as a bona fide tax."

Think of it this way: If the government took money directly from you, then turned around and gave it to an insurance company, everyone would agree that you've been taxed. How is that any different from the government mandating that you pay the insurer directly? At the end of the day, you still have less money to spend the way you want.

The No. 1 reason why today's uninsured say that they haven't bought insurance is that they can't afford it. Now the president is going to force them to either buy it — or pay a penalty (another non-tax, according to the president).

That penalty would be 2.5 percent of a person's income under the main House bill, and up to $1,900 for a family under the bill emerging from the Senate Finance Committee.

Sure, some of those people may have some of their costs offset by subsidies — but many will be considerably worse off. Will they be happy just because the president says it's not a tax?

There's more: Obama's mandate doesn't just hit today's uninsured: It zings anyone whose policy doesn't match the government-set specifications. If you're not paying for the benefits that Congress (or bureaucrats working at its direction) insists on, you'll have to switch to a new policy — probably a more expensive one.

That's more Americans who'll have to pay more — and keep less of their own money. But, hey, Obama says it's not a tax.

Of course, if my health-care bill already had more than $700 billion in direct taxes, as does the House bill, or included a 40 percent tax on some insurance plans, as does the Senate Finance Committee proposal, I wouldn't want to admit that even more taxes are hidden in the plan, either.

Nor should we forget the other mandate the president supports: a requirement that employers offer insurance to their workers.

Because insurance costs businesses, on average, about $12,000, the president will be raising the cost of hiring a worker by $12,000. Employers will have to offset that cost somehow, whether by lowering wages, cutting future pay increases, cutting other forms of compensation (good-bye, 401(k) match; so long, credit union) or benefits like vacation or retirement contributions — or by laying off workers or not hiring back workers they've laid off during the recession.

Whatever the mix of employer responses, at the end of the day, workers will be worse off. Well, at least they won't have been "taxed."

And, as with the individual mandate, this won't just affect companies that don't offer insurance now. Firms will have to switch from their current plans to the new, more expensive government-designed plans.

Of course, at least one prominent economist has said that such an employer mandate "is just like a tax from both the employer and employees' point of view."

The "nobody" who said that was Larry Summers, chairman of President Obama's Council of Economic Advisers.