Professor Joseph Bankman talked to Slate about the difference between taxes and fees in the proposed health care bills. Slate's Christopher Beam writes:
Last week, President Obama found himself caught up in Washington's favorite word game. The rules: Find as many ways as you can to describe your taxlike policy without using the word tax.
The policy in question? The requirement in both the House and Senate health care bills that everyone buy health insurance. Anyone who doesn't buy it has to pay a fine—$750 per person if your income is up to three times the poverty level or $950 if you make more than that.
.All this hemming and hawing occurs for a reason: It does, in fact, matter whether we call the fine a fee or a tax, especially when it comes to health care. First and most obvious is the politics. During the campaign, Obama promised not to raise taxes on the middle class, which he has since defined as any household making less than $250,000 a year. If his opponents can successfully paint the individual mandate as a tax hike that falls squarely on the middle class, they can then bust out their other favorite three-letter word. Played right, this strategy could make Obama look like the second coming of George H.W. Bush.
The definition also matters because taxes and fees have different legal meanings. Many states, for example, have special requirements for a tax hike: Some require a supermajority of legislators to vote for it or for multiple readings of the bill. In California, it requires voter approval. The distinction could also matter on the federal level. On Friday, Sen. Ensign pointed out that if the fee is indeed a tax, wouldn't someone who refused to pay it be considered a tax evader and therefore subject to an even larger fine? A representative from the Joint Committee on Taxation said that yes, the penalty for failing to pay the fee could be as high as $25,000 and up to a year in jail. The likelihood of every scofflaw paying that penalty is extremely low, says tax law professor Joseph Bankman of Stanford University: "There's no reason you'd have to stick with existing penalty structures." But it shows how a tax vs. a fee is a distinction with a difference.