Reverse Fiscal Federalism

The Texas Legislature is back in session, providing its usual cookie jar of absurd economic proposals.  A real winner is House Bill 649, which would provide compensatory tax reductions to companies that become taxed under the Affordable Care Act because their employer-provided health insurance fails to cover employees’ emergency contraception.  Such a bill means Texas would be giving firms incentives to thwart federal law. It also opens up the possibility of much broader tax offsets.  I’m certain that our governor and legislature dislike the recent imposition of higher federal income tax rates on high-income families. Why not take the logic of this bill one step further and offer tax reductions (sales tax, since we have no income tax) to very high-income families?  Indeed, the reductio ad absurdum would construct all state tax policy to offset to the extent possible any incentives provided by federal tax policy.


Softball question--Texas may not like higher rates on high-income families, but they very few say that requiring a higher tax bill is immoral. However, many, many people in Texas probably believe that requiring an employer to pay for abortion (oh, sorry-"emergency contraception") against the dictates of their conscience IS immoral and thus the state has a duty to protect its citizens from an immoral action of the federal government.

Enter your name...

I think that IUDs are likely the bigger concern among people who are serious about it.

"Emergency contraception" is supposed to prevent ovulation and therefore conception in the first place, and only (probably: it's not actually been fully proven) prevent implantation if that fails. The known, primary mechanism of IUDs is to prevent a viable, fertilized "baby" from implanting in the uterus.

So the intent of "emergency contraception" could theoretically be acceptable, but the intent of an IUD is always wrong, if you believe that morally significant human life begins at conception. (Intention is necessary for something to be sinful.)


Many "guest" articles such as this one contain much more political snark and much less objective economics than I have come to expect from Levitt and Dubner. How about a more thoughtful discussion of the incentives and possible consequences of this law instead of complaining about proposed policy? Let readers come to their own informed conclusions.




And the reductio ad absurdum of taxes in general is that the government should just set the tax rate at 100% and dole it out to each according to their need. That doesn't mean any sane person would endorse the idea.

I don't really see a problem with this. If the federal government can use an end-run to get what it wants by, say, withholding highway funding from states that don't do what it wants, why shouldn't the states be allowed to do an end-run around what the federal government wants by reducing, say, corporate or gas taxes?


To be honest, I like the idea of states having a way to say 'screw you' to dumb federal laws they don't like. I don't believe this bill is a good idea, but it is distributing money back from businesses that will pay to businesses that don't. Texas is worse of as whole for this, but I can't say they aren't accomplishing their objective.

I feel Daniel's comparison to the higher income tax is fundamentally flawed as well. The Texas bill attempts to remove the incentive for a behavior the government wants to encourage (paying for contraceptives. Giving tax breaks that would reverse the federal increase in tax brackets could only be done by raising state taxes, making it rather pointless


I like the idea in principle, and in practice as implemented by Colorado & Washington, and those states that have legalized gay marriage. Unfortunately, since this is Texas we're talking about, they are far more likely to say "screw you" to the few halfway intelligent federal laws, and attempt to replace them with their own dumb state laws.


I’m intrigued by Bill 649. It’s unclear to me that “[s]uch a bill means Texas would be giving firms incentives to thwart federal law.”

1. Ideally, the penalty for not providing insurance to employees that meet minimum standards would be sufficient to subsidize employees for their loss of “group purchasing discount” when shopping in the new insurance exchanges. That is, if the penalty is set at the right level, the feds should be indifferent to whether employers provide insurance on their own or simply provide employees (and the feds) cash to finance the acquisition of insurance in the exchanges.

The net effect of the Texas law would be to transfer wealth from whoever pays taxes in Texas to firms that decline to provide health insurance to employees. Historically, Texas has not had a very progressive tax system, relying heavily on sales taxes.

2. Moreover, some Texas employers might continue to provide good health coverage to employees, albeit coverage excluding birth control. The state of Texas would pay the penalty these employers would incur, and the Feds would soak up penalty dollars while Texas employees would continue to receive pretty good coverage. Net effect: Texas just pays more federal taxes, and employees have to pay out-of-pocket for birth control.

As a non-Texan, it doesn’t offend me that Texas would volunteer to pay more federal taxes.


James Wynn

" It’s unclear to me that “[s]uch a bill means Texas would be giving firms incentives to thwart federal law.”

It's not a penalty so they are not offering discounts to "thwart federal law". The SCOTUS has determined that it is a TAX. So the Texas legislature is proposing encouraging behavior that the Federal government is seeking to discourage through a Sin Tax.


Interestingly this would in practicality only apply to private companies since a qualified business is one that
"refuses to make available as part of
the health benefit plan coverage for emergency contraception as
required by Section 1001(a)(5) of the federal Patient Protection
and Affordable Care Act (42 U.S.C. Section 300gg-13), based solely
on the religious convictions of the owners of the business".

Sort of difficult to claim by a public corporation.

Enter your name...

If abortion were the only religious issue here, then Texas would have required them to provide health insurance coverage that meets all the requirements except abortion-related coverage, which they don't seem to do, as far as I can tell. Saying "I believe emergency contraception is morally wrong" seems to result in "so I don't have to offer health insurance that covers kids with ear infections, or women with breast cancer, or men with heart attacks".


Sorry Jack but your take on emergency contraception equaling abortion is wrong. Birth control pills and the morning after pill do not induce abortion. They work via a completely different mechanism. If the neoconservatives started claiming the sky is the color red, you and other conservatives would start arguing that it truly is the color red and only liberals think it is the color blue.

Caleb B

So you like changing the tax code to incentivize the public, but only if you agree with the incentive (like more solar panels and hybrid cars).

Boy, if only Texas did everything you wanted them to do, it would be utopia!


According to testimony of government lawyers before the US Supreme Court, if you fail to provide compliant health insurance and then pay the fines, you are *not* in violation of federal law, it is merely an extra tax. States give incentives to do and not do things all the time. If Texas wants to give an incentive to *not* provide "emergency contraception" in health insurance, it has plenty of precedents in the incentives provided in state tax codes currently.


Texas knows better than Washington what is best for Texas. What you're describing isn't reverse anything. It's federalism. States as laboratories for policies and ideologies. Texas proves that freer markets, lower taxes, a reasonable and predictable regulatory regime, tort reform to prevent jackpot justice, limited government, and saying no to quite a bit of "free" money from DC creates a climate conducive to job creation and robust economic growth.


Although pointing out these things is admirable surely you know that even in TX it has no chance of passing.

The TX legislature loves to whine but they abhor giving up tax revenues despite the gripes of unfunded mandates.