Archive for the ‘Political Philosophy’ Category

Time for Me to Defend My Work on Tax Havens

Posted by Daniel J. Mitchell

A few days ago, I explained why I’m a big fan of tax competition. Simply stated, we need to subject governments to competitive pressure to at least partially offset the tendency of politicians to over-tax and over-spend.

Tax havens play an important role in this liberalizing process, largely because they do not put themselves under any obligation to enforce the bad tax laws of other jurisdictions. They also use privacy laws to protect their sovereign control of what gets taxed inside their borders (this is what separates a “tax haven” from a more conventional low-tax jurisdiction). This means they are fiscal safe zones, particularly for people who want to protect their assets from the pervasive double taxation that exists in so many nations.

Not everybody agrees with my analysis (gee, what a surprise). To cite one example, the petty bureaucrats at the OECD got so agitated at me in 2009 (when I was offering advice to representatives of so-called tax havens while standing in a public lobby of a public hotel) that they threatened to have me thrown in a Mexican jail.

Now I have a new critic, though hopefully someone who would never consider thuggish tactics to suppress dissent. Ann Hollingshead writes for the Task Force on Financial Integrity and Economic Development, which (notwithstanding the name of the organization) seems to favor bigger government.

Anyhow, she wrote an article specifically criticizing my work on tax havens. So I figured it was time for a fisking, which means a point-by-point rebuttal. Here’s how she begins, and I’ll follow up her points with my responses.

Officially Dan Mitchell is a Senior Fellow at the Cato Institute, a conservative public policy research organization, and a researcher on tax reform. Unofficially, he has (perhaps ironically?) called himself the “world’s self-appointed defender of so-called tax havens.”

No irony on my part. As I have openly stated, tax havens are a key part of tax competition, which is a necessary (though sadly not sufficient) process to restrain the greed of the political class.

Oddly enough, Mitchell and I agree on many of the facts about these havens. We both have observed, for example, that there are buildings in Delaware and the Cayman Islands that house thousands of corporations. Mitchell concludes there is nothing wrong with either; I conclude there is something wrong with both. Mitchell also agrees that the United States“could be considered the world’s largest tax haven.” On that topic, he’s even cited my paper on non-resident deposits in secrecy jurisdictions. In his comment, he does not take issue with my methodology or my results, but rather concludes that my finding that the United States is the largest holder of non-resident deposits “makes the case for pro-market policies.” I, on the other hand, have argued that these findings support across the board reform, rather than that limited to traditional offshore financial centers.

Fair enough. We both recognize that the United States is a big tax haven. But we have different conclusions. I think it is unfortunate that only non-resident foreigners can benefit from these policies, while Ann wants to crack down on small low-tax jurisdictions such as Monaco, Bermuda, Liechtenstein, and the Cayman Islands, as well as big nations such as the United States. Sadly, Ann’s side has somewhat prevailed, and many of the havens have agreed to become deputy tax collectors for nations with bad tax law.

So how is it that two (relatively intelligent?) people can draw such different conclusions? I would argue our differences lie not in our facts, or perhaps even our economics, but in our underlying philosophical and theoretical differences.

I guess I should be happy that she holds out the possibility that I’m “relatively intelligent.”

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A Cautionary Tale

Posted by Andrew J. Coulson

Somewhat belatedly, I’ve come upon this essay in which a “libertarian economist retracts a swipe at the left—after discovering that our political leanings leave us more biased than we think.” It presents a problem for anyone trying to communicate ideas that lack popular support: we are all “my-side biased,” tending to block out arguments and evidence that we know (or even suspect) will threaten any of our cherished convictions. How to overcome humanity’s natural ideological defense mechanisms?

Plato’s Socrates tried to do it by taking his interlocutors by surprise. First, get them to acknowledge all the key facts of a particular matter in isolation, in a way that does not present an obvious ideological threat, and only then tie them logically together so that the interlocutor cannot help but realize that his original presumption must be wrong. Hard to do.

An even tougher challenge is trying to minimize our own my-side bias so that we are not so thick-headed when one of our own convictions is contradicted by reality. Reading articles like the above from time to time no doubt helps.

The Laffer Curve Shows that Tax Increases Are a Very Bad Idea – even if They Generate More Tax Revenue

Posted by Daniel J. Mitchell

The Laffer Curve is a graphical representation of the relationship between tax rates, tax revenue, and taxable income. It is frequently cited by people who want to explain the common-sense notion that punitive tax rates may not generate much additional revenue if people respond in ways that result in less taxable income.

Unfortunately, some people misinterpret the insights of the Laffer Curve. Politicians, for instance, tend to either pretend it doesn’t exist, or they embrace it with excessive zeal and assume all tax cuts “pay for themselves.”

Another problem is that people assume that tax rates should be set at the revenue-maximizing level. I explained back in 2010 that this was wrong. Policy makers should strive to set tax rates at the growth-maximizing level. But since a growth-generating tax is about as common as a unicorn, what this really means is that tax rates should be set to produce enough revenue to finance the growth-maximizing level of government – as illustrated by the Rahn Curve.

That’s the theory of the Laffer Curve. What about the evidence? Where are the revenue-maximizing and growth-maximizing points on the Laffer Curve?

Well, ask five economists and you’ll get nine answers. In part, this is because the answers vary depending on the type of tax, the country, and the time frame. In other words, there is more than one Laffer Curve.

With those caveats in mind, we have some very interesting research produced by two economists, one from the Federal Reserve and the other from the University of Chicago. They have authored a new study that attempts to measure the revenue-maximizing point on the Laffer Curve for the United States and several European nations. Here’s an excerpt from their research.

Figure 6 shows the comparison for the US and EU-14. …Interestingly, the capital tax Laffer curve is affected only very little across countries when human capital is introduced. By contrast, the introduction of human capital has important effects for the labor income tax Laffer curve. Several countries are pushed on the slippery slope sides of their labor tax Laffer curves. …human capital turns labor into a stock variable rather than a flow variable as in the baseline model. Higher labor taxes induce households to work less and to acquire less human capital which in turn leads to lower labor income. Consequently, the labor tax base shrinks much more quickly when labor taxes are raised.

There’s a bit of jargon in this passage, so here are the charts from Figure 6. They look complex, but here are the basic facts to make them easy to understand.

The top chart shows the Laffer Curve for labor taxation, and the bottom chart shows the Laffer Curve for capital taxation. And both charts show different curves for the United States and an average of 14 European nations. Last but not least, the charts show how the Laffer Curves change is you add some real-world assumptions about the role of human capital.

Some people will look at these charts and conclude that there should be higher tax rates. After all, neither the U.S. or E.U. nations are at the revenue-maximizing  point (though the paper explains that some European nations actually are on the downward-sloping portion of the curve for capital taxes).

But let’s think about what higher tax rates imply, and we’ll focus on the United States. According to the first chart, labor taxes could be approximately doubled before getting to the downward-sloping portion of the curve. But notice that this means that tax revenues only increase by about 10 percent.

This implies that taxable income would be significantly smaller, presumably because of lower output, but also perhaps due to some combination of tax avoidance and tax evasion.

The key factoid (assuming my late-at-night, back-of-the-envelope calculations are right) is that this study implies that the government would reduce private-sector taxable income by about $20 for every $1 of new tax revenue.

Does that seem like good public policy? Ask yourself what sort of politicians are willing to destroy so much private sector output to get their greedy paws on a bit more revenue.

What about capital taxation? According to the second chart, the government could increase the tax rate from about 40 percent to 70 percent before getting to the revenue-maximizing point.

But that 75 percent increase in the tax rate wouldn’t generate much tax revenue, not even a 10 percent increase. So the question then becomes whether it’s good public policy to destroy a large amount of private output in exchange for a small increase in tax revenue.

Once again, the loss of taxable income to the private sector would dwarf the new revenue for the political class. And the question from above bears repeating. What should we think about politicians willing to make that trade?

And that’s the real lesson of the Laffer Curve. Yes, the politicians usually can collect more revenue, but the concomitant damage to the private sector is very large and people have lower living standards. So that leaves us with one final question. Do we think government spending has a sufficiently high rate-of-return to justify that kind of burden? This Rahn Curve video provides the answer.

Pretty Sure It’s Already Divisive

Posted by Neal McCluskey

When you’ve been fighting over the same thing for well-nigh 90 years, there’s a good chance some new policy won’t suddenly make it divisive. Nonetheless, that’s what an L.A. Times article, citing critics, suggests about a new law in Tennessee allowing in-class discussions critical of evolutionary theory and other scientific topics:

The measure will allow classroom debates over evolution, permitting discussions of creationism alongside evolutionary teachings about the origins of life. Critics say the law, disparagingly called “The Monkey Bill,” will plunge Tennessee back to the divisive days of the notorious Scopes “Monkey Trial’’ in Dayton, Tenn., in 1925.

You don’t have to be Charles Darwin—or God—to figure this one out: the law was passed because the topic is already divisive. Government-schooling defenders might not want to acknowledge that, and they have been able to keep it slightly hidden by having discussion of creationism de jure  forbidden in public schools, but hard evidence reveals that Americans are mightily torn.

Time after time, surveys expose the deep split. Most recently, a 2010 Gallup poll found that 40 percent of Americans believe that “God created humans in present form”; 38 percent accept that ”humans evolved, with God guiding”; and 16 percent believe that “humans evolved, but God had no part in the process.” Those numbers have stayed pretty consistent since 1982, the first year for which Gallup has data.

Clearly, whether you want to acknowledge it or not, Americans are already very divided on evolution, and have been for quite some time.

How has what peace we’ve had been kept? Generally, by avoiding evolution in the schools. As Berkman and Plutzer have found, about 60 percent of high school biology teachers either completely avoid or soft-pedal evolution so as not to stir up controversy.

Public schools haven’t been happily chugging along, teaching rigorous evolutionary theory and eschewing any alternative explanations for human origins. A large number have been either teaching evolutionary pap, or nothing.

One of the major arguments government schooling defenders employ against school choice is that choice would lead to a balkanized, divided America. To make that argument, they have to ignore the history of American education—it was largely government-free for about two centuries, and public schools were long grounded in homogeneous communities—and assume that if you force diverse people together they will give up their conflicting values and ultimately engage in a gigantic, society-wide group hug.

Our endless battling over evolution—not to mention incessant fighting over countless other matters—reveals that that just doesn’t happen. You cannot force conscience uniformity, and you can’t have peace or rigor without educational freedom. Tennessee is just helping to make that clear.

More on ‘Social Darwinism’

Posted by Alberto Mingardi

David Boaz has already explained how “social darwinism” is nothing more than a nasty smear. The term was made popular by Richard Hofstadter in his Social Darwinism in American Thought. Hofstadter aimed to bring to justice the business titans of the Gilded Age by targeting authors that he identified as the most relevant preacher of gospel of business, like Herbert Spencer and William Graham Sumner.

Hofstadter, in his own words, “hated capitalism” and wanted to unveil its ultimate sins, by showing the hidden side of its intellectual family tree. If the source of legitimacy of capitalism lay in the “survival of the fittest,” then capitalism itself was to be a close relative of racism, imperialism, and eugenics.

For the American historian, thus, Social Darwinism presented itself both under an individualist and a collectivist kind. The first preached free enterprise, the second aggression and militarism.

Hofstadter maintained that “a resurgence of social Darwinism, in either its individualist or imperialist uses, is always a possibility so long there is a strong element of predacity in society.”

Hofstadter was a gifted writer and, largely for that reason, Social Darwinism in American Thought was a hugely influential book — and as such a mine of catchwords for propagandists. Its inaccuracies have long been exposed. In defending himself from Robert Bannister’s criticisms, Hofstadter pointed out that “intellectual history . . . proceeds by more gross distinctions than you are aware of.” This is a rather elegant way of saying that intellectual history can be written with clear ideological goals in mind.

Of these “gross distinctions,” as Boaz already noted, Herbert Spencer is a quintessential victim. Spencer is considered a “Social Darwinist,” even though some of his most relevant writings predate Darwin, because he coined the sentence “survival of the fittest” as a way to convey the concept of “natural selection.” It was a happy coinage, for the sentence still survives, but people consider it a proof of his preference for a dog-eat-dog system of political economy.

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Rand Paul at Cato University

Posted by David Boaz

Sen. Rand Paul, recently hailed as “America’s most important anti-war politician,” will join the distinguished list of speakers at this year’s session of Cato University.

This year Cato University will be held for the first time in the magnificent new F. A. Hayek Auditorium at the Cato Institute in Washington. From July 29 to August 3, join fellow libertarians from around the country and the world to listen to lectures on economic, political, historical, and philosophical foundations of liberty. Speakers include Steve Landsburg, Rob McDonald, Tom Palmer, Roger Pilon, and even me — plus the special dinner address on Capitol Hill by Senator Paul.

Note that Cato University is not just for students — there will be participants from college age to retirement.

Check out Cato University here and in this two-minute video:

 

This Month’s Cato Unbound: The Past, Present, and Future of Classical Liberalism

Posted by Jason Kuznicki

Ideologies grow and develop over time. Those that don’t die out. Where is classical liberalism headed next?

At Cato Unbound this month, Matt Zwolinski and John Tomasi argue that we who favor limited government and strong private property rights can — and should — make our case in terms of social justice: Among its many other excellent traits, liberty is good for the least well-off, and this is a reason to insist upon it.

Does their so-called Bleeding Heart Libertarianism lead to a certain — shall we say — welfare-state squishiness? Not to philosopher Roderick Long. In his response essay, Long emphasizes that Murray Rothbard — Mr. Libertarian himself — argued in a similar vein. A power elite controls the government, Rothbard argued, and they use it to enrich and entrench themselves. Outsiders do poorly by contrast, and this to Rothbard was a reason for rejecting government altogether.

David Friedman dissents, however: On his reading, 19th century and earlier classical liberals weren’t really arguing about the lot of the least well-off as such. Instead, they were arguing about the largest group in their own societies, which also just happened to be unskilled laborers. Adam Smith, then, is more the ancestor of Jeremy Bentham than of John Rawls. And anyway, Rawls’ account of social justice is flawed in several important respects.

Alexander McCobin suggests that ideologies, and notably ours, are mostly tied together by a set of principles; the justifications for these principles can vary, and there is often room for disagreement about specific policy outcomes. Taking any small group of them as essential and rejecting all others as somehow impure would mean, in practice, that we enact fewer libertarian policies of any type at all. On the intellectual side, it might also mean giving up a lot of very productive dialogue: It’s actually a good thing when the contractarianism of a John Locke meets the anti-contractarianism of a Lysander Spooner — resulting, say, in the public reason liberalism of a Gerald Gaus, or the presumption of liberty as championed by Randy Barnett.

There’s clearly a lot here to discuss, which our participants will continue to do through the rest of the month, so be sure to stop by often and/or subscribe to Cato Unbound.

Richard Wagner on Remembering Bill Niskanen

Posted by Mark A. Calabria

Perhaps it is fitting, at least to me, that George Mason University Economics Professor Richard Wagner has written a useful overview and remembrance of Cato’s William Niskanen for the journal Public Choice.  Fitting in that I was first exposed to Niskanen’s work, long before I came to Cato, in Wagner’s graduate public choice class.  Niskanen’s classic book Bureaucracy and Representative Government is, as Wagner notes, “a major contribution in the earliest days of public choice.”  It was certainly one of the bigger influences on my own economic thinking.

The survey (free and on-line) begins with Niskanen’s time at Chicago before moving to a discussion of the connection and significance of Liberty and economic science.  As someone who partly came to libertarianism via the study of economics, I found this section relevant to my own experiences, as I am sure many other economists will also be able to relate to.

Wagner’s essay also helps remind us that Bill was not just a great champion of Liberty, which he was, but also a significant contributor to the development of public choice economics.

Socialism and Social Darwinism

Posted by David Boaz

The arbiters of appropriate expression in America get very exercised when conservatives call Barack Obama a “socialist.” They treat the claim in the same way as calling Obama a Muslim, Kenyan, or “the anti-Christ.”

But headlines this week report that President Obama accused the Republicans of “social Darwinism,” and I don’t see anyone exercised about that. A New York Times editorial endorses the attack.

Is “social Darwinist” within some bound of propriety that “socialist” violates? I don’t think so. After all, plenty of people call themselves socialists — not President Obama, to be sure, but estimable figures such as Tony Blair and Sen. Bernie Sanders. Members of the British Labour Party have been known to sing the socialist anthem “The Red Flag” on the floor of Parliament.

But no one calls himself a social Darwinist. Not now, not ever. Not Herbert Spencer. The term is always used to label one’s opponents. In that sense it’s clearly a more abusive term than “socialist,” a term that millions of people have proudly claimed.

The Encyclopedia Britannica says that social Darwinism is

the theory that persons, groups, and races are subject to the same laws of natural selection as Charles Darwin had perceived in plants and animals in nature. According to the theory, which was popular in the late 19th and early 20th centuries, the weak were diminished and their cultures delimited, while the strong grew in power and in cultural influence over the weak….The poor were the “unfit” and should not be aided; in the struggle for existence, wealth was a sign of success. At the societal level, social Darwinism was used as a philosophical rationalization for imperialist, colonialist, and racist policies, sustaining belief in Anglo-Saxon or Aryan cultural and biological superiority.

Not a pleasant idea. And a pretty nasty thing to accuse someone of. It’s always used as a smear of conservatives and libertarians — by the historian Richard Hofstadter, by the fabulist Robert Reich, and now even by the president of the United States. (Damon Root noted that the real eugenicists were not the laissez-faire advocates that Hofstadter accused but the “Progressive reformers” that he admired.)

As Dan Mitchell pointed out, Paul Ryan’s budget proposes to make the federal government substantially larger than it was under Bill Clinton. Does that make Clinton a social Darwinist?

Those who deploy the charge are, first, falsely implying that Republicans support radically smaller government, which neither Ryan’s budget nor any other Republican plan actually proposes. And second, they are accusing both Republicans and actual supporters of free markets of believing in “the survival of the fittest” and, as Wikipedia puts it, “the ideas of eugenics, scientific racism, imperialism, fascism, Nazism and struggle between national or racial groups.”  “Social Darwinism” is nothing more than a nasty smear.

The president should be embarrassed, and those who call for civility in public discourse should admonish him.

Revolt of the Irish Tax Slaves

Posted by Daniel J. Mitchell

I wrote last year about a backlash from long-suffering Greek taxpayers. These people – the ones pulling the wagon rather than riding in the wagon – are being raped and pillaged by a political class that is trying to protect the greedy interest groups that benefit from Greece’s bloated public sector.

We now have another group of taxpayers who are fighting back against greedy government. My ancestors in Ireland have decided that enough is enough and there is widespread civil disobedience against a new property tax.

Here are the key details from an AP report.

Ireland is facing a revolt over its new property tax. The government said less than half of the country’s 1.6 million households paid the charge by Saturday’s deadline to avoid penalties. And about 5,000 marched in protest against the annual conference of Prime Minister Enda Kenny’s Fine Gael party. Emotions ran raw as police backed by officers on horseback stopped demonstrators from entering the Dublin Convention Centre. …One man mistakenly identified as the government minister responsible for collecting the tax had to be rescued by police from an angry scrum. Kenny said his government had no choice, but to impose the new charge as part of the nation’s efforts to emerge from an international bailout. …The charge this year is a flat-fee €100 ($130) per dwelling, but is expected to rise dramatically next year once Ireland starts to vary the charge based on a property’s estimated value. Anti-tax campaigners have urged the public to ignore the tax demand, arguing that the government doesn’t have the power to collect it.

What makes this new tax so outrageous is that Irish taxpayers already have been victimized with higher income tax rates and a more onerous value-added tax. Yet they weren’t the ones to cause the nation’s fiscal crisis. Ireland is in trouble for two reasons, and both deal with the spending side of the fiscal equation.

1. The burden of government spending exploded last decade, more than doubling in less than 10 years. This wiped out all the gains from fiscal restraint in the 1980s and 1990s.

2. Irish politicians decided to give a bailout not only to depositors of the nation’s failed banks, but also to bondholders. This is a grotesque transfer of wealth from ordinary people to those with higher incomes.

It’s worth nothing that academic studies find that tax evasion is driven largely by high tax rates. This makes sense since there is more incentive to hide money when the government is being very greedy. But there is also evidence that tax evasion rises when people perceive that government is wasting money and being corrupt.

The serfs are fighting back

Heck, no wonder the Irish people are up in arms. They’re being asked to cough up more money to finance a bailout that was both corrupt and wasteful.

Let’s close by looking at American attitudes about tax evasion. Here’s part of a column from Forbes, which expresses surprise that Americans view tax evasion more favorably than behaviors such as shoplifting and littering.

A new survey suggests Americans consider cheating on their taxes more socially acceptable than shoplifting, drunk driving or even throwing trash out the window of a moving car. …only 66% of  the participants said they “completely agree” that “everyone who cheats on their taxes should be held accountable”  and only 72% completely agreed that “it’s every American’s civic duty to pay their fair share of taxes”–suggesting, as the Shelton study does, that perhaps disapproval of tax evasion is not as strong as, say, disapproval of stealing from private businesses.

I’m not sure, though, why anybody would be shocked by these results. We have a government in Washington that is pervasively corrupt, funneling money to scams like Solyndra.

These same people want higher tax rates, which will further encourage people to protect their income.

If we really want to promote better tax compliance, whether in the U.S., Ireland, or anywhere in the world, there are two simple answers. First, enact a simple and fair flat tax to keep rates low. Second, shrink government to its proper size, which will automatically reduce waste and limit opportunities for corruption.

But none of this is in the interests of the political class, so don’t hold your breath waiting for these reforms.

Conservatives Shift on Gay Marriage

Posted by David Boaz

On the front page of the Washington Post a four-column headline reads

Britain’s Conservatives push for gay marriage

This change in Conservative direction was foreshadowed in a widely reported speech at the Cato Institute in February 2010 by Nick Herbert, then the Conservatives’ shadow environment secretary and now Minister of State for Policing and Criminal Justice in David Cameron’s government. Watch the video of Herbert’s speech, with sharp responses from Andrew Sullivan and Maggie Gallagher:

The Post reports

Americans watching the latest push for social change in Britain might feel as if they had stepped into an alternate political universe: Here, the Conservatives are leading the charge for same-sex marriage.

Gay couples in Britain won the right to civil partnerships in 2004, which granted them nearly the same legal status as married heterosexual couples while avoiding the controversial use of the word “marriage.” But Prime Minister David Cameron and his Conservative-led coalition have launched a historic drive to grant gay men and lesbians the option of also entering into civil marriages, touching off a surprisingly fierce uproar in largely progressive Britain and fueling a rebellion on the right as the party comes under heavy fire from traditional allies in the British clergy.

Yet challenging tradition appears to be exactly Cameron’s point. The proposal, put forward this month despite the lack of a strong clamor for marriage within Britain’s gay community, is nevertheless emerging as the cornerstone of a bid by the 45-year-old prime minister and other young leaders on the right here to redefine what it means to be a modern Conservative.

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Are Individual Mandate Critics Showing ‘Bad Faith’?

Posted by Michael D. Tanner

Paul Krugman is the latest to suggest that advocates of personal Social Security accounts are guilty of hypocrisy in criticizing the constitutionality of Obamacare’s individual insurance mandate.  After all, they contend, are not personal account supporters arguing in favor of a federal government mandate that individuals purchase a specific commercial  product (i.e., stocks, bonds, mutual funds, or whatever)?

No doubt, there is a superficial similarity.  But the analogy significantly misses what personal account proponents are calling for. If there was no current Social Security program and the government were simply to mandate that individuals purchase some form of commercial retirement savings product, that would indeed be analogous to the health insurance mandate, and would be unconstitutional for the same reasons. However, Americans are currently paying a Social Security payroll tax. What personal account advocates propose is simply a tax credit against that tax if individuals contribute to a personal account. That the credit would be equal to the size of the contribution is structurally irrelevant.

The government uses credits to incentivize behavior all the time. For example, it offers a tax credit for the purchase of the Chevy Volt. That may be bad policy, but it is generally agreed to be constitutionally permissible. It is, however, very different from a mandate that every American buy a Volt. Similarly, Congress would have been on much stronger constitutional ground if it had imposed a tax on all Americans to fund uncompensated care, and then offered a credit to anyone who obtained insurance. The same individuals would end up paying the penalty/tax as under Obamacare, but the structure would have been less offensive to the Constitution. The federal government clearly has the power to tax, and it can offer tax credits and deductions. Congress chose not to do it that way for political reasons—they didn’t want to be accused of raising taxes. But political expediency does not justify an unprecedented expansion of federal power.

And, while on the subject of Social Security, it should be noted that several individual mandate defenders—including Justice Ginsburg—have likened it to Social Security, saying that if the government can make us participate in Social Security, why can’t it make us buy health insurance? But in the case of Helvering v. Davis, the Supreme Court ruled that Social Security was constitutional precisely because it was not insurance and did not require citizens to buy a product. Rather, the Court held that the Social Security tax was simply a tax, authorized by the Constitution’s taxing power. Social Security benefits are simply a government spending program, authorized under the General Welfare clause, and unrelated to the tax itself. As the Court pointed out, “The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.”  One may disagree with the Court’s expansive interpretation of the General Welfare clause in this case, but it clearly distinguishes Social Security (and Medicare or even a single-payer health care system) from the individual mandate constitutionally.

Some might say that these distinctions are just quibbles or nit-picking. But how government does things matters. Constitutional limits are there for a reason. We are, after all, a government of laws, not of men.