If it walks like a duck . . . By Scott Sumner

People have been poring over the record of Supreme Court nominee Brett Kavanaugh. This caught my eye:

Kavanaugh, in a lengthy (65 page) dissent, suggested instead that Congress intended for the AIA to apply to the mandate, because the Affordable Care Act directs that the penalty (we’re using the “p” word here instead of the “t” word) be “assessed and collected in the same manner” as a tax. The similarities, he argued, meant that it should be treated like a tax—including its applicability under the AIA. The majority disagreed with the “dissent’s linguistic analysis,” noting that the language in the statute otherwise raised distinctions.

Similar logic was used by Chief Justice John Roberts, who cast the deciding vote on the constitutionality of the ACA.

Putting aside the legal questions involved, it’s interesting to consider three different policies from an economic perspective:

1. A fully enforced regulation requiring everyone to recycle trash, with a $100/year fine for violating that regulation.

2. A $100/year tax on those who don’t use the recycle bins for their trash.

3. A $100/year subsidy to those who do recycle their trash.

To an economist, these three policies are roughly identical in terms of effect on incentives. To non-economists, there are two distinctions:

Policy #3 sounds better than policy #2. In policy #3, it seems no one is hurt and some people are helped. In policy #2, it seems no one is helped and some people are hurt. Economists understand that money doesn’t grow on trees and that a subsidy to group X is identical in effect to a tax on people who don’t belong to group X. But not everyone looks at things that way. (The tax is generally more efficient than the subsidy, in terms of minimizing the deadweight loss from the overall tax system.)

There’s also a distinction between policies #1 and #2. Non-economists view the term “rule” or “regulation” as having stronger moral implications than “tax” or “fee”. I might gladly pay a $25 parking fee in a garage in downtown Boston but be upset to get a $25 parking fine on the street, for the exact same service. (Insert Steven Wright joke after picture)

Or to take another example, some people are uncomfortable with legalizing and taxing pot, but also don’t like the idea of putting pot users in jail. Perhaps a heavy fine would be better punishment than jail, in their view, but we should keep it illegal. To them, legalization plus tax implies moral approval in a way that laws and fines do not. They see legalization as society giving its stamp of approval to an activity.

These distinctions may go back to early in life, when our parents were a sort of “government”, prohibiting certain activities. With the possible exception of the economics faculty at Chicago and George Mason universities, I doubt many parents set “taxes” on certain types of bad behavior, and allow their children to choose the “optimal level of naughtiness”.

The bottom line is that there are many ways that the government can achieve a policy objective. If the courts say that the government is not allowed to ban or mandate a certain activity, they achieve the same result via a tax or a subsidy.