Can the IRS handle Obamacare?
This week the IRS announced that it was finally able to begin accepting all individual income tax returns to process refunds — nearly two months after tax season officially began. Up until now, millions of Americans wanting to claim tax refunds have been stymied by the IRS’s inability to update its computer systems to reflect the new post-fiscal cliff tax law. The bad news for taxpayers is that things will only get worse as the IRS begins to implement most of the provisions of the Obamacare healthcare law.
According to a series of reports published by the non-partisan Government Accountability Office (GAO), there are no fewer than 47 ways that the IRS will implement Obamacare. The list is all too familiar to those who have been tracking Obamacare’s costs to taxpayers for years. Manufacturers of medical devices will face a gross receipts tax of 2.3 percent, which will be passed along to consumers as higher prices and higher insurance premiums. Since 2011, owners of pre-tax health savings accounts and workplace flex accounts have not been able to use these products to purchase non-prescription, over-the-counter medicines. The IRS also has some large responsibilities related to Obamacare, like enforcing the deeply unpopular individual mandate.
This tax season’s Keystone Kops buffoonery has made it abundantly clear that the IRS is in no position to take on even a small number of these 47 enforcement mechanisms. It’s borderline indefensible, for example, that this year the IRS wasn’t fully prepared to accept tax returns until March. Reports have surfaced for years that IRS computers are woefully behind the times. The IRS toggles back and forth between different types of e-file acceptance, delaying refunds. Anyone who has tried calling the IRS’s 800 number during tax season knows what long delays they can expect. Recently, the D.C. Circuit Court ruled that the IRS crossed the line in trying to regulate seasonal “unenrolled” preparers. The list of missteps goes on and on.
Yet, it’s this very same IRS that the Obamacare law envisions as the primary enforcer of the new healthcare regime. It will be the IRS’s job to determine whether you or your family purchased “qualifying” health insurance in the past year. It will be the IRS’s job to deliver an advanced and refundable tax credit to insurance companies on behalf of millions of Americans, and to reconcile all these numbers when those same Americans try filling out their confusing tax forms. If your faith precludes the purchase of health insurance, it will be up to the IRS to ratify that creed.
The burden of proof for all these investigations will, of course, fall on the taxpayer herself. Americans for Tax Reform produced a mocked-up version of what this tax form will look like. If it’s anything like its model in the Massachusetts tax instructions, this form is too short by several pages. The IRS simply doesn’t have the manpower, budget, or expertise to possibly handle all this.
Both the House Ways and Means Committee and Americans for Tax Reform have maintained a list of all the statutory tax increases in Obamacare, but the GAO list also includes items like how the IRS must share information about taxpayers with the Social Security Administration and the Department of Health and Human Services, how employers will have to give personal health identifying information over to the IRS, and how Obamacare codifies the “economic substance doctrine” (where the IRS gets to determine whether a deduction you claimed was legitimate, or merely an attempt to avoid payment of tax otherwise due).
Even the Treasury Department’s inspector general for tax administration admitted just this week in testimony to Congress that the IRS isn’t up to the job of enforcing Obamacare: “It is unprecedented in recent history, the amount of responsibility the IRS is being given in an area that most people don’t think of as an IRS function. … This is going to lead to problems.”
How does the GAO think the IRS is doing in carrying out these 47 Obamacare enforcement mechanisms? According to the report, “IRS is more likely to have units working at cross purposes, problems measuring performance, an incomplete picture of resource needs, and risks that are not mitigated. … Without additional guidance, IRS staff selecting mitigation strategies may not fully evaluate all alternatives or verify that resources are available for the strategy chosen.” In plain English, taxpayers should expect their annual tax season headache to become an Obamacare migraine until Congress gets the IRS out of the healthcare business.
Ryan Ellis is tax policy director at Americans for Tax Reform.