Peter Schiff
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Despite the celebrations among Democrats, yesterday a majority of Supreme Court justices ruled that the Constitution does not allow the government to force Americans to buy health insurance. However in providing the swing vote to uphold the Affordable Care Act (aka Obamacare) Chief Justice John Roberts broke with the four other justices who shared that view by declaring that the methods chosen to get individuals to buy insurance were not penalties but taxes. He declared that the government wasn't legislating behavior, but simply taxing it. In reaching this tortured decision he erred by declaring the penalties to be taxes and then compounded the mistake by classifying them as "indirect taxes" that are not imposed on individuals. Apparently Roberts feels that these two wrongs will make a right. But his mistake will cost this country dearly.

The Obama administration admits that because the law makes it illegal for insurance companies to discriminate based on pre-existing conditions it eliminates the incentive for healthy people to buy insurance. Any rational healthy person would simply forego expensive insurance until they were old enough or sick enough to actually need it. Since insurance companies need the money they make from healthy people to compensate for the money they lose from sick people, the plan would collapse if the government did not devise a mandate that would convince or compel all individuals to buy insurance.

In selling the plan to the public, President Obama repeatedly claimed that these burdens were penalties, not taxes. In addition to the stated intent of the lawmakers, the standard legal definitions that separate taxes from penalties make it clear that the new financial burdens are penalties, not taxes. A tax is an exaction to raise revenue. If its primary purpose is to compel behavior then it is considered a penalty. 

But Roberts argued that since the "tax" on not buying is lower than the actual cost of insurance, then the penalty will not force anyone to buy. He did not specify a level at which the "tax" would become determinative thereby becoming an unconstitutional penalty. However, since Congress can raise the tax anytime it wants, the mechanism is already in place for it to do exactly what the Supreme Court ruled it can't. Does Roberts expect to review the case every time Congress raises the penalty? The fact that Roberts feels that the penalty is ineffective is irrelevant. It is not the Court's job to judge the efficacy of legislation, just its constitutionality.

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Peter Schiff

An expert on money, economic theory, and international investing, Peter is a highly recommended broker by many leading financial newsletters and investment advisory services. He is also a contributing commentator for Newsweek International and served as an economic advisor to the 2008 Ron Paul presidential campaign.