It Depends on What the Definition of "Tax" Is

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As you probably have heard, President Obama appeared on a number of news outlets on Sunday. Like you, I expected a series of softball questions to help the President to bring up his poll numbers. Surprises of surprises, George Stephanopoulos actually challenged the President on his assertion that a “mandate” to pay for something is not a tax. To reinforce his point that a mandate is a tax, Stephanopoulos appealed to an unimpeachable source—a dictionary:

Stephanopoulos: I don’t think I’m making it up. Merriam Webster’s Dictionary: Tax—“a charge, usually of money, imposed by authority on persons or property for public purposes.”

Obama: George, the fact that you looked up Merriam’s Dictionary, the definition of tax increase, indicates to me that you’re stretching a little bit right now. Otherwise, you wouldn’t have gone to the dictionary to check on the definition. I mean what…

Stephanopoulos: Well, no, but…

Obama: …what you’re saying is…

Stephanopoulos: I wanted to check for myself. But your critics say it is a tax increase.

Obama: My critics say everything is a tax increase. My critics say that I’m taking over every sector of the economy. You know that. Look, we can have a legitimate debate about whether or not we’re going to have an individual mandate or not, but…

Stephanopoulos: But you reject that it’s a tax increase?

Obama: I absolutely reject that notion.

Can you believe this? Stephanopoulos goes to the dictionary for a definitive definition, and the President scolds him for it. What were you told as a child when you wanted to know what a word meant? My parents would tell me, “Look it up in the dictionary.” The President spoke to public school children across the nation. He presented himself as an example of success. Will children now say, “Hey, the President doesn’t need to use a dictionary, so why should I? In fact, an appeal to a dictionary is ‘stretching it,’ attempting to make a case by an appeal to authority.”

There’s more. Stephanopoulos could have bolstered his argument that a mandate is a tax by going to the bill sponsored by Congressman Max Baucus, a Democrat from Montana. On page 29, George could have found the following under the heading “Excise Tax”: “The consequence for not maintaining insurance would be an excise tax…. The excise tax would apply for any period for which the individual is not covered by a health insurance plan with the minimum required benefit but would be prorated for partial years of noncompliance. The excise tax would be assessed through the tax code and applied as an additional amount of Federal tax owed.” The president’s own supporters contend that a mandate is a tax.

In order to claim that a mandate is not a tax, at least as it relates to healthcare, the President said in the interview, “right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase.” The analogy is false. Let’s look at automobile and homeowners’ insurance. Mortgage companies require homeowners’ insurance. If your mortgaged home burns down, the finance company wants to be sure that it will get its money back, so it requires you to carry insurance for their benefit. If you own your home free and clear, there is no requirement to carry property insurance. You own the property free and clear, so the risk is all yours.

Automobile insurance operates in a similar way. Once a car is paid off, there is no requirement to carry collision insurance, which covers theft, fire, vandalism, and weather damage, because it’s your car. In fact, once a car’s resale price drops below a certain point, many people drop their collision insurance since the cost of the insurance can be more than what the car is worth.

Liability insurance is a different matter. It’s required to protect other drivers and other people’s property. If you are at fault in an accident, and you damage someone else’s property and also hurt a person physically, you are liable. This is why states, not the Federal Government, require automobile insurance. There is no requirement for people to purchase insurance if they swim, rock climb, use a chain saw, skate board, work on a roof during a storm (as I did yesterday), or engage in any other type of dangerous activity since the damage they may do is only to themselves. Companies that service risk-related behavior may require a participant to sign a waiver that states the company is not liable for injury.