Observations on ObamaCare: Taxation, Regulation, Krugman, and Fried
There are a number of constitutional and logical slips in the seductive argument that Paul Krugman puts forward in favor of the constitutionality of the individual mandate. First, the question why any form of health insurance involves a question of “interstate commerce” at all. Under the current elastic and indefensible definitions of interstate commerce, any form of local activity that influences the quantity and price of goods in interstate commerce becomes itself a form of interstate commerce, at which point there is precious little that lies outside that domain.
Note the potential reach of this argument by the standard definition that Krugman embraces, getting sick and buying insurance influences the ability of the United States to deal with foreign nations, so that Congress can presumably regulate it as a form of commerce with foreign nations. More impressively, since the health of their populations influences health in this country, why not say that the Constitution gives the Congress the power to expand the health care benefits that Canada, Great Britain and the rest of the world supplies to their own population. It is a form of constitutional newspeak to treat all these local activities as though they were commerce among the several states, when they are, most emphatically anything but.
At this point the discussion switches to taxation, and on that issue, it important to note that the taxing power is distinct under our constitutional design from the commerce power, and was, at least under the original design, wholly inapplicable to the kinds of transfer payments here. The original power to tax and spend was intended to remedy the defects of the Articles of Confederation which gave unto an ineffectual Congress no power of taxation, even though the powers of taxation were necessary to discharge the limited public functions that the Constitution—then a doctrine of limited and defined powers—conferred on the federal government. Its text thus reads as follows:
The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;
Note that the three enumerated purposes for taxation all refer to standard public goods, such that those which are supplied to one person must necessarily be supplied to another. For those goods, taxation is necessary to overcome the well-understood collective action problem, whereby independent decisions by each actor in the absence of state compulsion yields a final result of too few public goods, such that each citizen is worse off by his own lights without the tax than he is with the tax and the benefits it provides.
Note that there is nothing about the taxes involved with ObamaCare that are intended to create this form of public good. Indeed the implicit assumption of the mandate was that it is needed to allow for the creation of subsidies from one group of individuals to another, which is the exact antithesis of the standard public good, and which is subject to the influences of faction and intrigue that necessarily arise, but in much milder form, when taxation is limited to the formation of public goods. Modern welfare economists often gravitate to taxes that redistribute but that are no part of the original constitutional plan. Properly understood the Commerce Clause and the Spending Power dovetail nicely because they are animated by the same small government policy, which is why in the United States v. Butler, the two clauses were treated as more or less coterminous in their objects, so that the taxing power could not be used to make an end run around the then regnant limitations of the commerce power.
That was then, and this is now, and so the question is how should we think about this question when all these sensible limitations have been obliterated by judicial decisions of the New Deal and Post New Deal period which trashed the earlier constitutional learning? Now both taxes and commerce are very broad, so we are told, read them in tandem. But at this point the same objection can be raised. There has never been an instance of using the commerce power to force people into any line of business. The older (and sensible) distinction between manufacture and commerce has been obliterated, but there is no ability of Congress even today to force people to enter into trade or to build factories for government to regulate. In my view, even state governments cannot engage in those activities under their police power, so a fortiori, the federal government, with limited powers, cannot regulate or tax in the fashion that ObamaCare wants to do.
Krugman, and for that matter Charles Fried, finesse this issue by saying that it is all right “to tax everyone—healthy and sick alike—and use the money raised to provide health care coverage.” But imposing that tax has a different incidence than the mandate that selects a subset of the population, which means that the interest group politics of its passage are completely different. More generally, what both Fried and Krugman neglect to say is that there is no such thing as a tax on everyone. There are taxes that relate to income earned; taxes relating to transactions entered into; taxes relating to property owned. Congress could surely do any of these, none of which it has attempted. The closest that comes to this mandate is the reviled head tax. But even that will not do the job because it difficult to imagine the construction of any head tax that is other than a fixed amount on all persons. And it is difficult to imagine how this head tax could match the set of complex cross subsidies that are embedded in this proposal, let alone backstop the guaranteed issue provisions that allow people to buy insurance only when they know they need it.
All this leads to a second question. If these are so slender, and so formal, why didn’t Congress use a conventional mode of taxation or regulation instead of wading into treacherous seas that impose mandates of a sort that have never been used in the United States? Put otherwise, if there is a safe path and a risky one, why did Congress go down the risky one?
For political reasons. In all likelihood, the path of political resistance is less if the powerful senior citizen lobby could push the burden of cross subsidy on the young because of their greater political clout. The moment you switch to an orthodox tax the incidence of the financial obligation will switch from that subset of the population to a broader group within society. The whole point of a sensible constitutional system that requires general taxation is to prevent political factions from making this kind of gain, which is exactly what the mandate does.
So strike this all down, and let the Congress do it right the next time. It will fail, and for the same reason that it would have failed the last time. There is insufficient political support at the national level for the use of conventional broad based taxes to fund the mandate.