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Tax Or Penalty? Individual Mandate Haunts Romney

The Massachusetts health care law, Mitt Romney’s signature achievement as governor, is presenting yet another conundrum for the expected GOP presidential nominee. Romney’s support for the requirement that all residents have health insurance, known as the individual mandate, is at the heart of his predicament. The issue is whether to call the mandate a tax or a penalty.

Romney’s longtime adviser, Eric Fehrnstrom, dropped a bombshell Monday when he said the governor does not believe the individual mandate is a tax. (Update 7/4: Romney says he believes the individual mandate is a tax, not a penalty.)

“The governor has consistently described the mandate in Massachusetts as a penalty,” Fehrnstrom told MSNBC’s Chuck Todd.

This is an important distinction for Romney, because if he calls the fine for failure to have health insurance a tax, then he cannot continue to maintain that he never raised taxes in Massachusetts. So Fehrnstrom stuck to the penalty claim as Todd asked him to clarify.

“The governor does not believe the mandate is a tax, that’s what you’re saying,” Todd asked.

“The governor believes that what we put in place in Massachusetts was a penalty,” said Fehrnstrom, “and he disagrees with the court’s ruling that the mandate was a tax.”
So he agrees with the president,” said Todd as he and Fehrnstrom went back and forth.

“This is very surprising, I would say even shocking, that he would do this to allies who wanted to make Obamacare a huge issue against Obama,” said Repubican Strategist Todd Domke.

Domke said Republicans were poised to make the federal Affordable Care Act (ACA) the signature issue of the campaign. But Romney, by siding with Obama, is undermining Republican arguements that the ACA will be a major tax increase. Domke said Romney and his advisers seem willing to undercut Republican leaders rather than face the charge that Romney was again reversing direction.

“In this case, they decided, better to go along with Obama and say that the mandate is not a tax, rather than to revive the old charge that he is a flip-flopper,” Domke said.

For the public, there are confusing messages now from Republicans about whether the individual mandate imposes a penalty or a tax.

“Well, our position is the same as Mitt Romney’s position, it’s a tax, that’s the only way the Supreme Court came up with the decision that it did in order to make it constitutional,” Republican National Committee chairman Reince Priebus told CNN’s Brooke Baldwin Tuesday morning.

“But it sounds like camp Romney says it’s a penalty,” said Baldwin, “so I’m just asking you, RNC, tax or penalty, which is it?” “It’s a tax,” answered Priebus.

Romney’s record on the individual mandate in Massachusetts is also confusing. His original health care bill said that any Massachusetts resident who did not either have health insurance or post a $10,000 bond as proof they could afford care could lose the personal exemption on their tax returns. In other words, Romney would have imposed a penalty through the state tax form.

Few people in Massachusetts were asking if the fine for not having health insurance was a tax or a penalty before the Supreme Court ruling last week.

“The distinction hasn’t mattered at all, it hasn’t entered the political debate or made any difference in terms of policy,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation. The issue of tax versus penalty just never came up, said Harvard School of Public Health professor John McDonough, because both “Democrats and Republicans agreed that an individual coverage requirement was a smart thing to do. It didn’t become controversial because no one was throwing rocks at each other.”

But there’s still the question: is the individual mandate a penalty or a tax in Massachusetts?

“Well it’s a penalty, but frankly I don’t care what you call it, it’s a solution,” said Gov. Deval Patrick. “It affects a very small number of people who are freeloaders on the system where we pick up their costs.”

For Romney, right now, whether the individual mandate is a tax or a penalty does matter and may, as some Republican leaders suggest, determine his chance to beat Obama on health care.

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