June 15, 2013
Orrin Hatch: Think the IRS Is Bad Now? Just Wait.
The mismanaged tax agency will have a central role in administering ObamaCare.
The Internal Revenue Service has never been an agency much loved by the American people. With the IRS's targeting of conservative groups, its already bad reputation has now sunk to a new low.
But the scandal raises a critical question: If the IRS can't manage an increase of 1,700 applications for tax-exempt status that the agency said spurred its targeting of conservative groups, how will the IRS handle its massive new role in implementing ObamaCare?
Under the Affordable Care Act, premium subsidies—tax credits in ObamaCare designed to defray the cost of purchasing health insurance—will go to some seven million tax filers and flow to households earning as much as $94,000 a year. The credits are both advanceable and refundable, meaning the IRS will pay them first and verify the claims for them later, what some call "pay and chase."
Refundable tax credits are essentially a form of spending through the tax code, something the IRS has struggled to administer for years with other programs. That's why it's not far-fetched to say that these premium credits will go to a lot of people inappropriately, and that we can expect to see a lot of erroneous and fraudulent payments.
Look at the Earned Income Tax Credit. Whether you like this refundable credit or not, the Treasury Department's inspector general for tax administration reported in April that improper payments account for 21% to 25% of total EITC payments in 2012. Take the percentage of improper EITC payments and apply it to the approximate $1 trillion we'll spend on ObamaCare premium credits in the decade beginning 2014. The math shows that we could see between $210 billion and $250 billion distributed to those who shouldn't get it—because the IRS has no system in place to verify reported household income.
Put all the potential fraud and improper payments with these credits on top of the already soaring budget for the premium subsidies and we're headed for a disaster.
I've asked Secretary of the Treasury Jack Lew and Secretary of Health and Human Services Kathleen Sebelius to explain the massive jump in costs for premium subsidies. The projected figure for subsidy expenditures has gone from nearly $16 billion in the president's 2012 budget up to nearly $22 billion in his 2014 budget. Why is the administration expecting these costs to soar? Is it because they are seeing employers dropping coverage, leaving more employees to get ObamaCare insurance through an exchange subsidized with these tax credits? Is it because they expect insurance premiums to soar, driving up the percentage-figure the government must cover with subsidies? Maybe both.
Despite repeated congressional attempts to get answers about the basis for cost estimates on these premium credits, the administration has been far from helpful or forthcoming. This is not acceptable, since Congress is charged with overseeing the executive branch.
As for the president's claim that his is the "most transparent" administration in history? Well, you try figuring out how the "Affordable Care Act" office at the IRS works: Who reports to whom, when, what they discuss and how the law will be implemented? Both Treasury's inspector general and the Government Accountability Office have tried to find out, and even they don't really know the reporting structure of this IRS department.
What we do know is that the person who headed the IRS division responsible for the targeting of conservative groups—Sarah Hall Ingram—now heads the division responsible for implementing the new health-care law. We also know that for some time she did both jobs. This is not comforting.
Now, there are some who say Congress should give the IRS more money so that it can better handle the implementation of ObamaCare. But how can we responsibly appropriate more money to an organization that is already wasting vast sums of taxpayers dollars on conferences, including at least one that featured its employees dressed up like Star Trek characters, as a recently uncovered video shows. More ominous still is the July 2012 report by the Treasury Department's inspector general for tax administration, which said the IRS needs "to make improvements to stop billions of dollars in fraudulent or improper tax refunds resulting from identify theft and erroneous claims for tax credits."
The bottom line here is that the IRS can barely manage what it already has to do (and that's a generous characterization given its unlawful targeting of conservative groups). The prospect of the IRS taking a central role in the administration of ObamaCare can only be described as scary.
Sen. Hatch, a Republican from Utah, is the ranking minority member of the Senate Finance Committee.
A version of this article appeared June 15, 2013, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: Think the IRS Is Bad Now? Just Wait..
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