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The Individual Mandate Tax Penalty

37 Pages Posted: 9 May 2012 Last revised: 2 Oct 2013

Jeffrey H. Kahn

Florida State University - College of Law

Date Written: May 8, 2012

Abstract

In 2010, President Obama signed legislation that significantly altered the healthcare and health insurance markets in the United States. An integral part of that reform is the individual mandate, a provision that requires individuals to purchase and maintain healthcare insurance. Failure to maintain such coverage subjects an individual to a tax penalty. The Supreme Court upheld the constitutionality of that provision under Congress’s taxing power.

Despite the Supreme Court upholding the individual mandate, fundamental questions remain. This Article addresses the question of whether the use of a tax penalty to encourage taxpayers to do something that the government desires is normatively a bad policy. Many commentators have contended that a tax penalty is economically equivalent to the current tax system’s use of deductions and credits to encourage behavior. This Article argues that despite some similarity, there are major differences between the two that should lead Congress to reconsider the desirability of using a tax penalty approach in the future. This Article also considers whether the use of the Internal Revenue Service to administer and enforce a penalty that has little to do with the correct baseline of income will have an adverse effect on general tax compliance.

This Article explores the individual mandate tax penalty in detail. It explains the mechanics of the tax penalty provision and points out several ambiguities in the provision that will likely require clarification. It also explores whether the extent of some of the problems in the healthcare system at which the mandate is aimed have been exaggerated. The Article concludes that Congress should reexamine the pros and cons and unintended consequences of using a tax penalty to induce behavior before going down a similar road.

Keywords: Mandate, Healthcare, Penalty

JEL Classification: H20, H24, H29, H51, I10, I18

Suggested Citation

Kahn, Jeffrey H., The Individual Mandate Tax Penalty (May 8, 2012). University of Michigan Journal of Law Reform, Vol. 47, 2013; FSU College of Law, Public Law Research Paper No. 612; FSU College of Law, Law, Business & Economics Paper No. 12-11. Available at SSRN: https://ssrn.com/abstract=2054924

Jeffrey H. Kahn (Contact Author)

Florida State University - College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
850.644.7474 (Phone)

HOME PAGE: http://www.law.fsu.edu/faculty/jkahn.html

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