Is the Individual Mandate a Tax?

From my 2010 paper “Obama’s Prescription for Low‐​Wage Workers; High Implicit Taxes, Higher Premiums”:

President Obama argues that a legal requirement for individuals to purchase health insurance is not a tax. Yet many economists, including some of President Obama’s economic advisers, consider it to be a type of tax.


Princeton University health economist Uwe Reinhardt writes, “[Just because] the fiscal flows triggered by [the] mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax.”


MIT health economist Jonathan Gruber writes, “Suppose … the government mandated that everyone buy full insurance at the average price.… This would not be a very attractive plan to careful consumers … who could view themselves as essentially being taxed in order to support this market, by paying higher premiums than they should based on their risk.”


President Obama’s National Economic Council chairman Larry Summers writes, “Essentially, mandated benefits are like public programs financed by benefit taxes.”


Sherry Glied, President Obama’s appointee to assistant secretary for planning and evaluation at the Department of Health and Human Services, writes, “The individual mandate … is in many respects analogous to a tax. It requires people to make payments for something whether they want it or not.”


When the Clinton administration proposed an individual mandate in 1993, the CBO went so far as to treat the mandatory premiums that Americans would pay as federal revenues and include them in the federal budget. So far, the CBO has not done the same for the mandates in the House and Senate bills. (As Reinhardt suggests, that does not imply that those mandates are not a tax.)


Each bill would also impose penalties on individuals (and employers) who do not comply with the health‐​insurance mandates. Those penalties would be paid to the Internal Revenue Service along with one’s income taxes.