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Inactivity Taxes: Predictions for the Future

The Supreme Court recently handed down its long-awaited, landmark decision on challenges to Obamacare, and it will likely determine the outcome of many subsequent cases. Perhaps as important as the decision’s effect on the health care system will be the broad new powers Congress has gained to writes laws intended to affect personal behavior.

One of the most controversial elements of the Affordable Care Act is the requirement for individuals to purchase health insurance or fork over a fine called a “shared responsibility payment”. Opponents of the law argued that the Constitution does not permit the Congress to compel economic activity—Congress can’t force you to buy anything. Supporters had argued that the Commerce Clause permits it, since inactivity greatly influences interstate commerce. Failing that, they argued, the “shared responsibility payment” is actually a tax.

Well, the Commerce Clause argument did fail. However, in a surprise to most court-watchers, Chief Justice John Roberts confounded opponents and proponents alike by calling the fine a tax. Roberts wrote in the opinion of the Court, “Our precedent demonstrates that Congress had the power to impose the exaction [the “shared responsibility payment”] in §5000A under the taxing power, and that §5000A need not be read to do more than impose a tax” (39). Moreover, he writes, “Upholding the individual mandate under the Taxing Clause thus does not recognize any new federal power. It determines that Congress has used an existing one.”

In this decision, the Court did not rule on the wisdom of a tax on inactivity, but instead of justifying the fine under the Commerce Clause, it calls it a tax to justify its constitutionality. “None of this is to say that the payment is not intended to affect individual conduct. Although the payment will raise considerable revenue, it is plainly designed to expand health insurance coverage. But taxes that seek to influence conduct are nothing new” (36). Taxes have traditionally been levied upon activity (such as earning an income) or consumption (such as on gas purchases for automobiles). If there has ever been a tax on economic inactivity, it is so rare that none comes to mind—other than the fact that tax rate increases often have the unintended consequence of causing economic inactivity by depressing the economy. The ruling opens the door for the introduction of new taxes upon various forms of inactivity to spur people to act in certain ways—the Obamacare ruling is a major decision and will be a precedent for such taxes in future cases.

Such a momentous precedent for inactivity taxes almost begs to be used as a tool of government power in the future. After all, the health insurance mandate alone will not solve America’s health issues. As the Administration has reminded us, obesity costs a lot—a new twist could “tax” people for not exercising. That would be a tax on both economic and physical inactivity. Perhaps the government could impose added “taxes” (in the form of higher premiums) on older citizens on Medicare if their Body Mass Index is displeasing to some bureaucrat.

The country faces so many problems that the examples could go on and on. Take the graying of America as an example. The Social Security system will become overburdened, and individuals can scarcely live on Social Security as it is. Thus, a future Congress might find it fitting to levy a special tax upon those who do not save a percentage of their annual income before retirement. Another cause of our demographic difficulties is that there are not enough babies being born to replace workers who are both retiring and dying—take a look at Europe’s negative population replacement rate. France and Russia incentivizes childbirth by providing tax breaks to couples who have children. Indeed, the United States provides tax breaks for adults with dependent children. The absurdity of the Obamacare ruling is that the government could, instead of using the tax code to support parents, could instead impose a tax on couples who do not have children.

Taxes upon the childless are probably not going to happen anytime soon. But, in general, inactivity taxes are not all that far-fetched. In an era of high government debt—tax credits increase the deficit while tax penalties reduce the deficit. Government has long used its coercive power to tax to regulate commerce. Congress has voted to withhold federal transportation dollars from states that didn’t require seat belt use and raise their drinking age to 21. Hundreds of incentives are contained in the tax code to promote certain behaviors, such as buying a home, giving to charity, running windmills on farms, and buying certain types of automobiles. And, of course, pursuant to its Commerce Clause powers, the Federal Government has fined behaviors it did not approve of, such as pollution and poorly made products. The Supreme Court has a long history of restraining Congress when it has used too heavy a hand when regulating commerce between the states. But now Robert’s hybrid has managed to marry taxes and fines, so that the government’s ability to regulate commerce is essentially limitless, because Congress can bypass the Commerce Clause by designating any regulation of any activity (or lack of activity) as a tax.

Don’t be surprised to see an increase in other inactivity taxes in the future. Granted, it does not necessarily follow that there will be an increase in such taxes, but it is likely, almost certain. Power always seeks more power, and a powerful government is no exception. Chief Justice Roberts has provided the government with a bludgeon to promulgate creative new taxes to impose on the thousands of current taxes imposed by federal, state and local governments.

Those that fear the “nanny state” have cause for concern. As C.S. Lewis wrote: “Of all tyrannies a tyranny sincerely exercised for the good of its victim may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated, but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience.”

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