Well, I was only going to post one tax piece this week, but I can't resist commenting on the oral argument yesterday in Hobby Lobby (transcript here), which was notable for some bad economics. The first was when Justice Sotomayor and Kagan argued that Hobby Lobby and Conestoga actually would benefit from not complying with the mandate, because they could just drop health insurance entirely and pay the $2,000/employee fine (ok— “tax”, if you’re Justice Roberts). The second was the apparent confusion of Justices Kennedy, Ginsburg, Sotomayor, and Kagan in counting the employees’ harm from the employers’ noncompliance separately from the government’s “compelling interest”. [Come to think of it, if the effect of noncompliance on the employees is to be considered, isn’t the employer’s dropping insurance altogether as a result of the mandate a more substantical burden than the government allowing it to drop just the morning after pill?]
1. The Helpful Mandate. Hobby Lobby doesn’t want to pay for morning after pill insurance. Its best option is to drop insurance coverage entirely, because offering noncomplying insurance incurs ruinous fines, but dropping insurance is okay if the company pays $2,000/employee to the IRS.Since Hobby Lobby is paying more than $2,000/employee for health insurance now, the company will actually be better off! So the mandate doesn’t impose a “substantial burden”— rather, it removes one.
2. Double Counting. Suppose the religious freedom statute requires a balancing test rather than just thresholds of substantial burdens and compelling interests (that is a separate issue in the case). Then we have to consider not just Hobby Lobby and the government, but third parties such as Hobby Lobby’s employees. They won’t get their free morning after pills. This will be an important addition to the balancing test, probably weighing just as much as Conestoga’s harm from having to pay for the pills.
There's more detail, including excerpts from the transcript, below: