Our Obsession With Penalty

The only things deterred are tax and good will

“Chairman Pickle” Illustration by Jessie Cacciola

“A tax is a levy collected for general government services. A fee is levy collected to provide a service that benefits the group of people from which the money is collected. A penalty is a levy collected with the express aim of deterring some kind of undesirable behavior.” — William Rinehart

y mother is an accountant. She likes to count money. Her father was an accountant. He liked to count money, too. Those who like to count money are generally able to find ways not to lose it. I was never one for counting until the Department of Health scared away my dinner; until a nation would rather send children to war with a virus than do everything it can to protect them; until a cop, during a peaceful protest against police brutality, during a pandemic, removed a young man’s mask in order to pepper spray him more efficiently.

This nation has a perverse relationship with penalties because it has a perverse relationship with taxes, and with freedom. The land is not free, and I don’t just mean in the sense of freedom. There is a cost, and it is paid with the freedom of those we’re able to penalize. If everyone were “good”, taxes would need to be higher. Or we’d be forced to reconcile our budgets so that we weren’t indebted to police unions. But since no one really wants to pay taxes, someone else must pick up the bill. Many of us.

If penalties were successful, revenue from them would not be what it is. Penalties should not be the thing that makes up for a gap in operating costs, but when we fail to come up with funds by other means, they do. For taxes to remain lower than what we need them to be, to cover the whole budget, some of us must be bad. If penalties were true deterrents, agencies would count them as extra income for the cost of dealing with the offense, but instead, they are line items built into the budgets of our city, state, and federal government. It is anticipated revenue. And how do we ensure enforcement? We spend a disproportionate amount of tax on police force, rather than prevention: education, access to public health, and public safety. So it is successful not in deterring undesirable behavior but in making the money others wish not to pay, and in the worst of cases, creating cheap (or free) labor to maintain the margins we desire.

This came under close inspection under the Affordable Care Act in 2012, when the Supreme Court had to decide whether or not the individual penalty for not signing up for healthcare was in fact a penalty or a tax. As Derek Thompson writes for The Atlantic in “The Tiny Distinction That Saved Obamacare,” Justice Ruth Bader Ginsberg stated that this charge was clearly a penalty. “A tax is to raise revenue,” she said at the hearing. “Tax is a revenue-raising device, and the purpose of this exaction is to get people into the health care risk pool before they need medical care. And so it will be successful if it doesn’t raise any revenue, if it gets people to buy the insurance. This penalty is designed to affect conduct.”

But Chief Justice John Roberts argued that because it raises money for the IRS, and because it’s calculated based on taxable income, it’s a tax. The ruling stood. Tax economists, like Scott Drenkard, disagreed: “Justice Roberts went against over a century of tax jurisprudence by declaring the individual mandate to be a tax,” he told William Rinehart for his post on The Difference Between a Tax, a Fee, and a Penalty. “It’s not. It’s a penalty.”

This debate is long and old. In 1988, the U.S. House Committee on Ways and Means had a hearing before the Subcommittee on Oversight to review the civil penalty provisions of the IRS. As many witnesses testified on March 31st, and again on July 28th, for the ten to fifteen years prior, the nation saw a spike in penalties from an incomprehensible 150-rule Tax Code, with very little improvement in compliance since it was introduced. This failure, noted IRS commissioner Lawrence B. Gibbs, was not on the public but on the agency’s failure to adequately educate the public on the new rules. Speaking before Chairman J. J. Pickle (D-Texas), Gibbs stated: “We are beginning to be as concerned about people’s ability to comply with our tax laws as we have been about their willingness to comply. Taxpayers’ attitudes are extremely important in a voluntary compliance system.”

Review of the Civil Penalty Provisions Contained in the Internal Revenue Code, Hearings Before the Subcommittee on Oversight of the Committee on Ways and Means, House of Representatives, One Hundredth Congress, Second Session, March 31; and July 28, 1988. Scanning courtesy of Google Books.

Kenneth W. Gideon expressed concern that the Code was far too complex, that penalties were “only tenable as an abstraction.” he said. “Given the complexity and novelty of much of the Code, it is predictable that there will be much inadvertent and good faith noncompliance during the next few years.”

Gideon then outlined four possible justifications for imposing a penalty:

“1. Punishment — Under this approach, the penalty is a direct sanction for wrongdoing. It stigmatizes behavior as improper. It extracts a cost from the violator for the misdeed.

2. Deterrence/compliance — Under this approach, the objective is to prevent future noncompliance by the violator— and, perhaps is even more importantly, to dissuade others from becoming violators. Stated positively, we wish to encourage compliant behavior.

3. Cost recovery — Under this approach, the Government seeks to recover its increased costs arising from noncompliant behavior from the person causing the cost to be incurred.

4. Revenue raising — Penalties can be imposed to raise money”

With this, Gideon emphasized:

“Insistence that penalties raise revenue (i.e., that they be regularly imposed and collected) may often be incompatible with effective use of such penalties to enhance compliance. Indeed, to the extent a penalty provision is effective as a compliance tool, receipts from the provision should fall. […] It is difficult to perceive why a taxpayer willing to identify his disagreement to the Internal Revenue Service should be subjected to a severe sanction.”

This will sound very familiar to anyone who’s been dealt a ticket without a warning; a fine after new guidelines were slipped under a back door; for anyone trying to comply but somehow always failing to do so. Your penalty is fixed. The only thing that remains unpredictable is when the cost is due. You could also say the wealthy can afford to be bad. In France, there are no restaurant fines, but there are higher taxes. To be fair, there is plenty of corruption there — no nation is without it—but here in New York, you can buy an A. So are diners actually safer because of fines, or have we simply found a way to legalize bribes?

It is far easier to fine the vulnerable for minor infractions they’re unable to fight. Those who get to keep their money are falsely assumed to be sharing the wealth, but trickle down economics might as well be considered socialism by today’s standards. Did it ever really work voluntarily, or only by means of charity? We reward the rich in tax credits when they give money away, in essence applauding them for their drippings after evading a bill that would keep the vulnerable from needing their subsidization.


Yesterday in an open letter titled “Millionaires for Humanity,” a group of wealthy individuals asked for their taxes to be raised to cover the cost of COVID-19 recovery. As of this morning, eighty-three have signed. The letter was introduced by a formation of several groups who have made similar calls in the past, like Patriotic Millionaires — who in 2019, called for a CEO wage cap — along with Tax Justice UK, Bridging Ventures, Club of Rome, Human Act, and Oxfam International.

A leading proponent of the movement, John Driscoll — not of the strawberries, though they surely need a close look right now, but the CEO of the healthcare services company, CareCentrix — froze the salaries of his top twenty executives, including his own, to improve the wealth of his five hundred employees, thereby improving employee retention. He wrote an op-ed about it.

Abigail Disney, heir to Walt Disney, has come after Jeff Bezos, as well as Disney’s CEO, Bob Iger. Disproportionate pay, like Iger’s $65.6M pay packet in 2018—which is 1,424 times the median salary of a Disney employee — has “a corrosive effect on society,” she said. In the grimmest of outlooks, the incentive for a middle class is to have people who can, as Morris Pearl, chair of Patriotic Millionaires put it, “buy expensive ice creams and cell phones and shoes, and all the things that help people like me get rich.”

In “Millionaires for Humanity,” the call is dire this time. “Tax us. Tax us. Tax us,” they wrote. “We are not the ones caring for the sick in intensive care wards. We are not driving the ambulances that will bring the ill to hospitals. We are not restocking grocery store shelves or delivering food door to door. But we do have money, lots of it. Money that is desperately needed now and will continue to be needed in the years ahead, as our world recovers from this crisis.”

This isn’t something to think over.

It is critical that we acknowledge the true price of the land we live on, of the food we eat, of the labor for the food to be picked and delivered to us. With a continued false sense of what this costs, we will continue to count illusions and cut imaginary margins. The marginal who feel those cuts haven’t the money to fight it, and soon enough, when there’s no one left to pick, we’ll have to do the picking and delivering ourselves.

Jessie Cacciola is a food operator & writer in New York. She runs Grade Pending Press, a research & advocacy space for food providers & those who inspect them.

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