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June 28, 2012 – 11:49 p.m.

Roberts Hands GOP a Theme: It’s About Taxes

By Sam Goldfarb, CQ Staff

There is the war over health care, and there is the war over taxes. And now two of the Republican Party’s most powerful issues are coming together — just in time for the 2012 campaign.

The Supreme Court health care opinion, written by Chief Justice John G. Roberts Jr., reinforced the authority of Congress to use tax policy to achieve social and economic goals.

Roberts agreed with his fellow conservative justices that requiring individuals to buy health insurance is unconstitutional under the Commerce Clause, but he said the mandate, to be enforced by the IRS, can be read as a tax. In doing so, he essentially sided with many economists who have argued that the mandate is similar to other incentives sprinkled through tax law.

Republicans seized on Roberts’ opinion as evidence that the administration is overreaching through overtaxing, two of their favorite campaign themes.

“The president of the United States himself promised up and down that this bill was not a tax,” Senate GOP Leader Mitch McConnell of Kentucky said in a floor speech after the ruling. “This was one of the Democrats’ top selling points — because they knew it would have never passed if they said it was. The Supreme Court has spoken. This law is a tax.”

Mitt Romney, the presumed Republican presidential nominee, said Thursday that the law would raise taxes by “approximately $500 billion.” That figure refers to the sum that would be raised by a variety of tax provisions in the health care law, not merely the levy on those who do not buy insurance.

“What the court did today was say that ‘Obamacare’ does not violate the Constitution,” Romney said. “What they did not do was say that Obamacare is good law or that it’s good policy.”

Intent on providing broad health care coverage and using the individual mandate as a pillar, Democrats found the tax code to be the easiest path to enforcement when they pushed the law through Congress in 2010. For lawmakers, the code is often a reliable vehicle for getting an outcome it wants.

Sander M. Levin of Michigan, ranking Democrat on the House Ways and Means Committee, said Democrats decided to have the IRS administer the mandate because the agency could easily collect penalties through annual tax returns, not because it would make the law more constitutional.

“It was the best way to implement” the law, Levin said. “We always looked at it from the point of view that it was constitutional as a tax. We also thought it was constitutional in terms of the Commerce Clause. And the majority decided to take the tax argument.”

Tax Provisions in the Law

Tax levies are peppered throughout the health care law and were used to offset its cost.

Among the law’s provisions scheduled to go into effect in 2013 are a 3.8 percent tax on investment income for individual tax filers making at least $200,000 and joint filers earning at least $250,000. The law also imposes a tax on medical device manufacturers. And, beginning in 2018, it will tax health insurance providers on “Cadillac” plans that are worth at least $10,200 for individuals and $27,500 for families.

Roberts Hands GOP a Theme: It’s About Taxes

The individual mandate is supposed to expand the health insurance pool by imposing a tax on those who do not purchase coverage. Once it is in effect in 2015, it will be enforced by the IRS, although the federal government will have no power to arrest those who disregard the law, only to impose the tax for not having insurance.

The tax, Roberts wrote, “is not so high that there is really no choice but to buy health insurance; the payment is not limited to willful violations, as penalties for unlawful acts often are; and the payment is collected solely by the IRS through the normal means of taxation.”

Most tax breaks are positive incentives while the mandate works as a negative incentive, imposing a cost on those who do not take part, said Martin Sullivan, an economist who writes for the trade journal Tax Analysts.

The tax code, for instance, allows businesses to pay lower taxes if they spend money on research and development. The health care law’s mandate, on the other hand, imposes a levy on those who do not buy insurance. But “from an economic perspective, there’s no difference between those two,” Sullivan said.

In his opinion, Roberts acknowledged the point and wrote that it does not matter whether the tax is a positive or negative incentive and that the label of the payment as a “penalty” or “tax” is not a concern.

Roberts likened the law to federal and state taxes on such things as cigarettes that are aimed at influencing behavior.

In that sense, the health insurance levy fits the definition of a “Pigovian tax,” named for Arthur Pigou, a British economist of the last century who favored using tax policy to enforce desired behavior when market forces do not provide an incentive.

“The shared responsibility payment merely imposes a tax citizens may lawfully choose to pay in lieu of buying health insurance,” Roberts wrote.

This process will produce “at least some revenue” for the government, he wrote. “Indeed, the payment is expected to raise about $4 billion per year by 2017.”

GOP lawmakers already have attacked the tax-focused enforcement of the law through the appropriations process, although they have consistently fallen short.

The House fiscal 2013 Financial Services appropriations bill (HR 6020) would prohibit transfers of funds between the Department of Health and Human Services and the IRS to implement the health care overhaul. The House made similar efforts last year, but the restrictions were not included in the final appropriations law, and Senate Democrats are once again sure to stand firm.

At a Senate Appropriations Committee markup on a spending bill this month, Democrats turned back an amendment from South Carolina Republican Lindsey Graham to prohibit the IRS from using appropriations to implement the individual mandate of the health care law.

Partisan Arguments

Roberts Hands GOP a Theme: It’s About Taxes

The ruling gives Republicans an opening to assert that the high court pulled the cover off of a hidden tax increase that will fall primarily on low- and middle-income individuals, violating President Obama’s promise not to raise taxes on families earning less than $250,000 a year.

The ruling is “bad news for workers, whose paychecks and jobs are threatened by the hundreds of billions of dollars of new tax hikes and crippling uncertainty from the massive law,” said Paul D. Ryan, R-Wis., chairman of the House Budget Committee.

“I am reminded that an earlier chief justice, John Marshall, warned us in the early days of the republic that the ‘power to tax was the power to destroy,’ ” Rep. Kevin Brady, R-Texas, said in a written statement. “Today, in finding most of the provisions of Obamacare constitutional, the Supreme Court confirmed that view.”

In response to the GOP attacks, Democrats contend the health care law contains tax credits to help low-income earners pay for insurance, as well as tax penalties.

Some experts said Thursday that in ruling that the law is largely constitutional, the court may have made it more difficult for Republicans to gain support for their efforts to cut off its financing.

Republicans have lost an “arrow from their quiver,” said Sarah Binder, a senior fellow at the Brookings Institution. “They have been pushing all year and finding little pots of money” from which to try to take or slow funds for the health care overhaul, Binder said.

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