Is It a "Tax," a "Penalty," or Perhaps an "Incentive?"

A blog about business and economics.
July 5 2012 8:32 AM

Is It a "Tax," a "Penalty," or Perhaps an "Incentive?"

In the wake of the Supreme Court upholding the Affordable Care Act. we've been treated to a great National Week of Pretending in which folks act as if semantic hairsplitting over whether something is a penalty or a tax is going to move voters or says anything about the merits of the policy. I think Mitt Romney probably explained this best back in 2010 when he was saying that the presence of an individual mandate is one of the things he (at the time) liked about Obamacare and described the provision in question as an "incentive":

In terms of the economics, that's the point. The idea is that if you adopt a "guaranteed issue" law (i.e. insurance companies can't turn you away because you're sick) along with a "community rating" law (i.e. insurance companies can't engage in massive price discrimination against sick people), then you're faced with the problem that nobody's going to buy insurance until they're already sick. To close the circle there has to be a financial incentive for a nonsick person to nonetheless carry an insurance plan and be part of the risk pool.


The incentive could be a tax. Or it could be a fine. In principle it could be something nonfinancial, like the president could show up at your house and punch you in the face if you don't step up. In Massachusetts the dollars and cents of the incentive are actually pretty weak, and the policy seems to be working in part simply through norms, moral suasion, and the fact that lots of people have weak math skills. But in policy terms, what's going on is an effort to incentivize insurance purchasing in a guaranteed-issue world rather than an effort to raise revenue.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



Don’t Expect Adrian Peterson to Go to Prison

In much of America, beating your children is perfectly legal. 

Ken Burns on Why Teddy Roosevelt Would Never Get Elected in 2014

Cops Briefly Detain Django Unchained Actress Because They Thought She Was a Prostitute

Minimalist Cocktail Posters Make Mixing Drinks a Cinch

How the Apple Watch Will Annoy Us

A glowing screen attached to someone else’s wrist is shinier than all but the blingiest of jewels.


Rainbow Parties and Sex Bracelets

Where teenage sex rumors come from—and why they’re bad for parents and kids.


You Had to Be There

What we can learn from things that used to be funny.

Legendary Critic Greil Marcus Measures and Maps Rock History Through 10 Unlikely Songs

Catfish Creator Nev Schulman’s Book Is Just Like Him: Self-Deluded and Completely Infectious

Sept. 12 2014 5:54 PM An Up-Close Look at the U.S.–Mexico Border
  News & Politics
Sept. 14 2014 2:37 PM When Abuse Is Not Abuse Don’t expect Adrian Peterson to go to prison. In much of America, beating your kids is perfectly legal. 
Sept. 12 2014 5:54 PM Olive Garden Has Been Committing a Culinary Crime Against Humanity
Inside Higher Ed
Sept. 13 2014 8:38 AM “You’re More Than Just a Number” Goucher College goes transcript-free in admissions.
  Double X
The XX Factor
Sept. 12 2014 4:05 PM Life as an NFL Wife: “He's the Star. Keep Him Happy.”
  Slate Plus
Behind the Scenes
Sept. 12 2014 5:55 PM “Do You Know What Porn Is?” Conversations with Dahlia Lithwick’s 11-year-old son.
Brow Beat
Sept. 14 2014 7:10 PM Watch Michael Winslow Perform Every Part of “Whole Lotta Love” With Just His Voice
Future Tense
Sept. 12 2014 3:53 PM We Need to Pass Legislation on Artificial Intelligence Early and Often
  Health & Science
New Scientist
Sept. 14 2014 8:38 AM Scientific Misconduct Should Be a Crime It’s as bad as fraud or theft, only potentially more dangerous.
Sports Nut
Sept. 12 2014 4:36 PM “There’s No Tolerance for That” Pete Carroll and Jim Harbaugh say they don’t abide domestic abuse. So why do the Seahawks and 49ers have a combined six players accused of violence against women?