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Intoducing America’s New Type of Taxation

Photo courtesy of Tax Credits/Flickr

The Supreme Court has decided that the fee in The Affordable Care Act for those who choose not to buy health insurance is a tax. If it is a tax, it is certainly a new type of tax on account that it doesn’t follow the workings of any of the four types of tax laid out in the constitution. Although President Obama is undoubtedly celebrating the Supreme Court’s decision, it runs contrary to what he sold the American people (see video if you doubt me).

In Article 1 section 8, the constitution of the United States lists three types of tax namely “Duties, Imposts and Excises.” By definition, it’s difficult to see the individual mandate as a duty or impost (taxes on trade goods) or as an excise tax (sales tax) . . . unless of course you expand the common definition of an excise to include taxes on items that aren’t sold. These taxes are called indirect taxes, because they are not levied on individuals, but are based on engaging in certain types of activities (usually trade).

Simple enough, but the constitution also adds a rule to the way these taxes can be used, saying that the three tax types “shall be uniform throughout the United States.” Traditionally, this uniformity is brought about by the census, but there is nothing uniform about the way the individual mandate tax is used. In fact, the individual mandate goes out of it’s way to make sure many won’t have to pay it. So far, individuals can avoid the mandate if they are a religious objectors, a member of a “Health care sharing ministry,” an illegal alien, in jail, poor, are a member of an Indian tribe, or are suffering a “hardship.” Because of these exclusions, any type of population based uniformity will be thrown out of whack because many states contain larger amounts of these groups than others.

That leaves us with the last type of tax available in the constitution. Namely the new tax made possible by the 16th amendment: the income tax. In 1913, an entirely new amendment had to be drawn up in order to levy taxes directly on an individual in a non-uniform way. It’s clear that the individual mandate tax is not an income tax, because although the fine you pay is based on income your income does not trigger the fine.

In the end, the American people are left with a new type of tax that is not an income tax and is also not levied by an individual’s choice (like the indirect taxes). This new type of tax should be required to go through the same constitutional hoops that the income tax went through . . . otherwise a single supreme court ruling will be responsible for drastically increasing the governments ability to use taxation. So, if you find that people are upset with the Affordable Care Act ruling, this is one of the big reasons why.


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