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Tax Or Penalty? Individual Mandate Haunts Romney

Updated 4:15 p.m. on July 4

The Massachusetts health care law, Mitt Romney’s signature achievement as governor, is adding more pressure to the expected GOP presidential nominee’s campaign. 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 the call the mandate a tax or a penalty.

In an interview broadcast today, Romney announced that he considers the mandate a tax.

“The majority of the court said it’s a tax and therefore it is a tax. They have spoken. There’s no way around that,” Romney told CBS reporter Jan Crawford. “You can try and say you wish they had decided a different way but they didn’t. They concluded it was a tax.”

That marked a turnaround for the campaign. Romney’s longtime adviser, Eric Fehrnstrom, dropped a bombshell Monday when he said the governor does not believe the individual mandate is a tax.

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

The point is important 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.

And that stance appears to have confounded other Republicans. “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, after the Fehrnstrom interview.

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.

This story is part of a reporting partnership that includes WBUR, NPR and Kaiser Health News.