Taxes and Benefits 101

I decided to wade into Chief Justice Roberts’ recent opinion on the Affordable Health Care Act (aka Obamacare or AHA) to get a better understanding of why he blindsided Conservative Republicans by finding that the so-called penalty for failure to purchase health insurance was, in fact, a tax.  I started wading, but when I saw that the opinion was 192 pages long I was up to my neck before I knew it.  So, like a barnyard chicken, I began to peck about in the opinion until I felt I had consumed enough to be satisfied.  What I concluded was that Roberts had ultimately landed on the side of the obvious, and had, to his credit, minimized the influences of politics and ideology. 

My curiosity over his decision had been peaked by my own tax career background, since from the law’s inception I had always considered the mandate penalty portion to be a tax.  It met the simple definition of a tax (a charge usually of money imposed by authority on persons or property for public purposes – per Merriam-Webster).  When incurred it was to be collected by the IRS (a fact now presented by Conservative opponents as a revelation – who did they think was going to collect it, the Daughters of the American Revolution?).  That it was called a penalty was appropriate in my opinion. The fact of the matter is that the Internal Revenue Code is filled with penalties, and all those penalties when retrieved become part of the general revenue.  The reason the term is used at all is because the tax can be avoided by simple compliance by the taxpayer. An obvious example is the requirement on the part of the Federal Government that everybody who owes an income tax must file an income tax return.  That mandate doesn’t impose a criminal violation if someone chooses not to do it; rather such failure only adds a penalty onto whatever tax (plus interest) that the taxpayer owes.  Like the AHA, no one has to pay the penalty if they comply with the mandate.  Simple…no surprises. 

So Republicans, who had planned to be able to use the Court striking of AHA as a major failure of the Obama Administration,  now have to fight the particulars of a law which, when exposed to the light of truth, has much more upside than down. They start by symbolically burning Chief Justice Roberts in effigy, then screaming (occasionally in tears) that Obama deceived the nation into accepting an atrocious tax - something along the lines of charging a mother with child abuse because she tricked her boy into eating cauliflower by telling him it was white broccoli. 

The next major step is to once again portray the AHA as a “job killer” making repeated reference to the burden placed on business (which under the law means businesses having 50 or more employees – those with less than 50 employees actually get tax-credit benefits under the law).  This burden on business argument gets to me as well.  It ultimately clouds the relationship between employer and employee and the understanding of what compensation is.

In this country, the use of health care insurance as a benefit of employment is an accident of history, as are some other benefits.  Despite the problems these arrangements have created, it has become the primary means of delivering these insurance services to the public. Probably the most serious opponents to health care reform are those who obtain their health care insurance, paid wholly or mostly, from their employer.  What has been lost is that the cost of health care insurance has become misconstrued as a fixed expense of the employer when it is actually a variable expense of labor, otherwise known as compensation.  Employers have always treated it as compensation, but because they don’t directly see it, employees generally don’t.  Even worse, employees often look at such a benefit as largesse from their employers, like it was a gift. 

If under AHA an employer finds that they have to contribute more (or at all) to employee health care insurance plans, they will factor that into their overall labor costs.  The actual payer of those costs always has and always will be the employee, as a portion of their compensation is being directed to purchase that particular service.  That is why this “job killer” argument is so hollow and so political.  Small businesses have always had control of their labor costs, if they are well run. What kills them is a lack of market. 

What employers primarily want is predictability, which includes labor costs.  What would maximize that predictability would be to get employers out of the health care business all together, but because neither political party has the foresight (or cohunes) to get that accomplished (at least for now), the next best thing is to step away from the hodgepodge inefficient system we had prior to AHA, provide consistency of health care insurance coverage to the entire nation and then begin to work seriously toward the next step – reducing per capita health care costs.