Archives: July, 2010

Obama Flip-Flops on the Individual Mandate (Again)

The individual mandate has been a tricky issue for Barack Obama, leading him to make some impressive self-reversals.

When campaigning against Hillary Clinton for the Democratic presidential nomination, Obama came out hard against an individual mandate to purchase health insurance, alleging that Clinton would garnish workers’ wages and that Massachusetts’ individual mandate has left many residents “worse off”:

He even dismissed an individual mandate by saying, “If a mandate was the solution, we could try that to solve homelessness by mandating everybody buy a house”:

Once president, of course, Obama endorsed and signed into law both an individual mandate and an employer mandate.

During the debate over ObamaCare, Obama likewise mocked George Stephanopoulos – no really, he mocked the poor guy– for suggesting the individual mandate is a tax. Obama didn’t mince words: “I absolutely reject that notion.” The relevant exchange begins three minutes into this video:

Now, the Obama administration says the individual mandate is a tax. According to The New York Times:

When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”…

Administration officials say the tax argument is a linchpin of their legal case in defense of the health care overhaul and its individual mandate, now being challenged in court by more than 20 states and several private organizations.

(My colleagues Randy Barnett and Ilya Shapiro explain how this flip-flop shows the constitutional challenges to ObamaCare aren’t quite as frivolous as supporters claim.)

The next time Obama is in the mood to reverse himself on the individual mandate, he might consider this statement from June 2009:

When you hear people saying, “socialized medicine,” understand that I do not know anybody in Washington who is proposing that–certainly not me.

When the government makes health insurance compulsory, that is socialized medicine.  (Why else would ObamaCare win plaudits from Fidel Castro?) It would be nice to hear the president admit it.

Government Essentially Concedes Commerce Clause Challenge to Obamacare, Calls Individual Mandate a Tax

This Sunday’s New York Times had a fascinating story about how the defense of the individual mandate has shifted from the Commerce Clause – even though the law itself is replete with boilerplate about “economic activity” – to Congress’s taxing power.  Here’s the first paragraph (h/t Jonathan Adler):

When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s “power to lay and collect taxes.”

This is huge.  After months of arguing that cases like Wickard v. Filburn (Congress can regulate the wheat farmers grow for personal consumption) and Gonzales v. Raich (Congress can regulate personal growth of state-allowed medicinal marijuana) justify the requirement that every man, woman, and child buy a health insurance policy, government lawyers (and spokesmen) now say the mandate is just a regulation accompanying a lawful tax (the penalty you pay for not buying insurance).  After I spent most of April and May criss-crossing the country debating the constitutionality of Obamacare, it turns out that my opponents were barking up the wrong tree!

But don’t just take it from me.  Here’s Georgetown law professor and Cato senior fellow Randy Barnett’s dissection of the Times story and its significance.  An excerpt:

Now there are cases that say (1) when Congress does not invoke a specific power for a claim of power, the Supreme Court will look for a basis on which to sustain the measure; (2) when Congress does invoke its Tax power, such a claim is not defeated by showing the measure would be outside its commerce power if enacted as a regulation (though there are some older, never-reversed precedents pointing the other way), and (3) the Courts will not look behind a claim by Congress that a measure is a tax with a revenue raising purpose. 

But I have so far seen no case that says (4) when a measure is expressly justified in the statute itself as a regulation of commerce (as the NYT accurately reports), the courts will look look behind that characterization during litigation to ask if it could have been justified as a tax, or (5) when Congress fails to include a penalty among all the “revenue producing” measures in a bill, the Court will nevertheless impute a revenue purpose to the measure. 

Now, of course, the Supreme Court can always adopt these two additional doctrines. It could decide that any measure passed and justified expressly as a regulation of commerce is constitutional if it could have been enacted as a tax. But if it upholds this act, it would also have to say that Congress can assert any power it wills over individuals so long as it delegates enforcement of the penalty to the IRS. Put another way since every “fine” collects money, the Tax Power gives Congress unlimited power to fine any activity or, as here, inactivity it wishes! (Do you doubt this will be a major line of questioning in oral argument?) 

Well, at least they’re not (yet) relying on Rep. John Conyers’s “Good and Welfare Clause.”  (Conyers, remember, is a lawyer and chairman of the House Judiciary Committee).

For a concise legal argument against the use of the taxing power to justify the individual mandate, see Cato’s amicus brief supporting Virginia’s challenge to the health care reform.  And for a great resource on all the state lawsuits against the new law, see this new blog/website run by Santa Clara law professor Brad Joondeph.

There’s Nothing Free about ObamaCare, Cont’d

Last week, I criticized major media outlets for reporting that ObamaCare’s preventive-care mandate will provide “free” or “no cost” preventive care. A prominent reporter responded:

I can’t say I exactly agree with your critique. The fact is that there will be no direct cost to consumers who do not have to shell out for a co-pay for the selected services. And while the benefit will likely be offset in some way…that is true of almost everything.  A tax cut, by your standards, should not really be called a cut!

A few points. First and most important, there is always a cost to consumers – even if there’s no co-pay. Second, as I blogged earlier, the fact that (some of) these articles eventually explained that consumers would pay in the form of higher premiums does not make the phrase “free preventive care” true.  It merely explains that the phrase is untrue. Third, reporters should call a tax cut a tax cut just like they should call a subsidy a subsidy.  But they should no more say that a subsidy results in “free preventive care” than they should say a tax cut results in “free money.”

Here’s a question for still-skeptical journalists. The federal government is currently sending $250 checks to seniors who enter Medicare’s “donut hole.”  Same law. Two different subsidies.  If it’s okay to use the phrase “free preventive care” when reporting on one, is it okay to use the phrase “free money” when reporting on the other?

ObamaCare Still Unpopular, Especially among Voters

As of mid-July, it appears the American public still opposes ObamaCare, with the opposition strongest among those most likely to vote.

Judging by the latest data at the poll-aggregating site Pollster.com, a solid plurality of adults continues to oppose ObamaCare (46.8 vs. 40.1 percent):

The trendlines don’t look so good for supporters of the law.  (The public isn’t so hot about President Obama’s handling of health care, either.) Yet the above graph includes (polls that include) adults who are neither registered nor likely to vote.

If you want to know how public opinion about ObamaCare will influence the November elections, you’ll want to look at polls of likely voters. Those suggest a majority opposes the law (51.3 vs 42.9 percent):

It’s hard to know what to make of the trendlines, since the last poll of likely voters was in April and Pollster.com’s trend estimates can be skewed if the most recent poll is aberrant.

Polls of registered voters (which include both likely and unlikely registered voters) again show that a majority opposes ObamaCare (50.7 vs. 42.7 percent). Compared to the graph of likely-voter-only polls, the “oppose” trendline appears flatter, while the “support” line appears to have the same slope:

Yet the “support” trend-estimate among registered voters started from a lower base, so that the July point estimate (42.7 percent) is roughly the same as that for likely voters in April (42.9 percent).  And the most recent spread between opponents and supporters is roughly the same in the two graphs (8.4 vs. 8.0 percentage points).

Combining polls of likely voters and registered voters produces a higher ratio of likely-to-unlikely voters than looking at just registered voters.  It also shows that a majority oppose ObamaCare (50.7 vs. 41.2 percent), with a persistent gap of about 9 percentage points:

(NB: The figures I cite in this post are the figures that appeared on these graphs on July 17.  Since these graphs are embedded from Pollster.com, the figures in the graphs will change as as Pollster.com adds new polling data to their graphs.)

Americans Voting with their Feet

The Financial Times reports that the number of Americans giving up their citizenship to protect their families from America’s onerous worldwide tax system has jumped rapidly. Even relatively high-tax nations such as the United Kingdom are attractive compared to the class-warfare system that President Obama is creating in the United States.

I run into people like this quite often as part of my travels. They are intensely patriotic to America as a nation, but they have lots of scorn for the federal government.

Statists are perfectly willing to forgive terrorists like William Ayres, but they heap scorn on these “Benedict Arnold” taxpayers. But the tax exiles get the last laugh since the bureaucrats and politicians now get zero percent of their foreign-source income. You would think that, sooner or later, the left would realize they can get more tax revenue with reasonable tax rates. But that assumes that collectivists are motivated by revenue maximization rather than spite and envy.

From the FT article:

The number of wealthy Americans living in the UK who are renouncing their US citizenship is rising rapidly as more expatriates seek to escape paying tax to the US on their worldwide income and gains and shed their “non-dom” status, accountants say. As many as 743 American expatriates made the irreversible decision to discard their passports last year, according to the US government – three times as many as in 2008. …There is a waiting list at the embassy in London for people looking to give up citizenship, with the earliest appointments in February, lawyers and accountants say. …“The big disadvantage with American citizens is they catch you on tax wherever you are in the world. If you are taxed only in the UK, you have the opportunity of keeping your money offshore tax free.”

To grasp the extent of this problem, here are blurbs from two other recent stories. Time magazine discusses the unfriendly rules that make life a hassle for overseas Americans:

For U.S. citizens, cutting ties with their native land is a drastic and irrevocable step. …[I]t’s one that an increasing number of American expats are willing to take. According to government records, 502 expatriates renounced U.S. citizenship or permanent residency in the fourth quarter of 2009 — more than double the number of expatriations in all of 2008. And these figures don’t include the hundreds — some experts say thousands — of applications languishing in various U.S. consulates and embassies around the world, waiting to be processed. …[T]he new surge in permanent expatriations is mainly because of taxes. …[E]xpatriate organizations say the recent increase reflects a growing dissatisfaction with the way the U.S. government treats its expats and their money: the U.S. is the only industrialized nation that taxes its overseas citizens, subjecting them to taxation in both their country of citizenship and country of residence. …Additionally, the U.S. government has implemented tougher rules requiring expatriates to report any foreign bank accounts exceeding $10,000, with stiff financial penalties for noncompliance. “This system is widely perceived as overly complex with multiple opportunities for accidental mistakes, and life-altering penalties for inadvertent failures,” Hodgen says. These stringent measures were put into place to prevent Americans from stashing undeclared assets in offshore banks, but they also make life increasingly difficult for millions of law-abiding expatriates. “The U.S. government creates conflict and abuses me,” says business owner John. “I feel under duress to understand and comply with laws that have nothing to do with me and are constantly changing — almost never in my favor.” …Many U.S. expats report being turned away by banks and other institutions in their countries of residence only because they are American, according to American Citizens Abroad (ACA), a Geneva-based worldwide advocacy group for expatriate U.S. citizens. “We have become toxic citizens,” says ACA founder Andy Sundberg. Paradoxically, by relinquishing their U.S. citizenship, expats can not only escape the financial burden of double taxation, but also strengthen the U.S. economy, he says, adding, “It will become much easier for these people to get a job abroad, and to set up, own and operate private companies that can promote American exports.”

The New York Times, meanwhile, delves into the misguided policies that are driving Americans to renounce their citizenship.

Amid mounting frustration over taxation and banking problems, small but growing numbers of overseas Americans are taking the weighty step of renouncing their citizenship. …[F]rustrations over tax and banking questions, not political considerations, appear to be the main drivers of the surge. Expat advocates say that as it becomes more difficult for Americans to live and work abroad, it will become harder for American companies to compete. American expats have long complained that the United States is the only industrialized country to tax citizens on income earned abroad, even when they are taxed in their country of residence, though they are allowed to exclude their first $91,400 in foreign-earned income. One Swiss-based business executive, who spoke on the condition of anonymity because of sensitive family issues, said she weighed the decision for 10 years. She had lived abroad for years but had pleasant memories of service in the U.S. Marine Corps. Yet the notion of double taxation — and of future tax obligations for her children, who will receive few U.S. services — finally pushed her to renounce, she said. …Stringent new banking regulations — aimed both at curbing tax evasion and, under the Patriot Act, preventing money from flowing to terrorist groups — have inadvertently made it harder for some expats to keep bank accounts in the United States and in some cases abroad. Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision.

It Depends on What the Meaning of “Tax” Is

The print edition of the Washington Post and the online Real Estate home page feature this headline:

Debunking rumors of a housing sales tax

The article begins:

Rumors are flying that the health-care legislation Congress passed this year will impose a sales tax on all real estate sales.

So I’m thinking, OK, more crazy Glenn Beck tea-party stories about mythical Obama tax hikes, and the Post is going to debunk them. Then I keep reading:

But the rumors are based only partly on fact. Although there is a new tax, it will not apply to everyone, and existing tax breaks for home sales will remain in place.

The Health Care and Education Reconciliation Act of 2010, which President Obama signed into law March 30, is comprehensive and complex. Section 1402, “Unearned Income Medicare Contribution,” imposes a 3.8 percent tax on profits from the sale of real estate – residential or investment.

But the levy is aimed at high-income taxpayers, leaving most people untouched. And it will not take effect until Jan. 1, 2013.

Let’s look at the facts of this new law.

First, it is not a sales tax, nor does it impose any transfer or recordation tax. It is called a Medicare tax because the money received will be allocated to the Medicare Trust Fund, which is part of the Social Security system.

Next, if your adjusted gross income is less than $200,000, you are home free….

How is the tax calculated? Through a complex formula that could be called “the accountants’ protection act.” As a taxpayer, you (or your financial adviser) must determine which is less: the gain you have made on the sale of your house, or the amount by which your income exceeds the appropriate threshold.

So let’s recap here. Post contributor Benny Kass promises to “debunk” the “rumors” that “the health-care legislation Congress passed this year will impose a sales tax on all real estate sales.” And he concludes, “In the meantime, don’t believe the rumors.” But in fact the health-care law did include a new tax on real estate profits. It’s not exactly a sales tax, and it won’t apply to most people. But the only real inaccuracy in the “rumors” that he said “are flying” was the word “all.” It’s only a 3.8 percent tax on some real estate sales, no doubt only a minority of sales, though perhaps affecting more readers of the Washington Post Real Estate section than people in less-affluent regions where housing prices didn’t soar and then remain high. Frankly, I’ve seen more effective debunkings.

This “rumored” real estate tax is also discussed on page 20 of Michael Tanner’s new study “Bad Medicine: A Guide to the Real Costs and Consequences of the New Health Care Law.” But if you’re really going to try to understand the new health-care legislation, you may want to clip the Kass article to keep with your copy of the Tanner paper, as no one study can guide you through every detail of a 2000-page law. Journalists and HR experts will be kept busy for years tracking down every sub-reference and interaction in the bill.

A Weekend’s Worth of Hayek Interviews

The estimable Francisco Marroquin University in Guatemala has just posted 15 hours of interviews with F. A. Hayek, conducted in 1978, four years after he won the Nobel Prize for Economics.

You know the interviewee is important when the interviewers include James M. Buchanan, Robert Bork, Armen Alchian, Axel Leijonhufvud, and Leo Rosten. Along with the streaming video, there’s a complete transcript posted. What an amazing resource! We are indebted to Armen Alchian, Bob Chitester, the Earhart Foundation, the Pacific Academy of Advanced Studies, and now Francisco Marroquin for making these interviews available.

A few years later Cato Policy Report published two exclusive interviews with Hayek, in print form. Find them here and here.