When President Obama’s Patient Protection and Affordable Care
Act (PPACA, aka “Obamacare”) goes fully into effect in 2014, the
American people will only then begin to see the implications of its
thorough government takeover of health care, in all its glory. But
what they are not expecting is the massively expanded role of the
Internal Revenue Service (“IRS”) in our lives, as the IRS is the
chief agency responsible for enforcing the Act.
That is explained in a new paper by Dan Pilla, just published by
the Heartland Institute, “Implementing the Patient Protection and
Affordable Care Act.” Pilla is a tax litigation consultant and a
national leader in taxpayer rights defense, authoring 11 books on
IRS defense strategies. His new paper explains “how the IRS can be
expected to play an ever-growing role in your life and in the
day-to-day affairs of every business in the nation as the tentacles
of the PPACA wrap themselves around the most important and personal
elements of your life.”
Pilla estimates that it will take a minimum of 5,000 and perhaps
as many as 16,000 additional IRS employees to carry out the
“massive expansion of the power and reach of the Internal Revenue
Service” under the PPACA.
Perhaps the most important and complex new IRS responsibility is
to enforce the act’s individual and employer mandates requiring
individuals and employers to buy the health insurance not that they
want, but that the federal government says they must have. This
will effectively be a new burdensome payroll tax on the middle
class and working people, and on job creators, as politics will
force every politically correct benefit to be included in the
required insurance, causing its cost to soar. That health insurance
will likely cost $20,000 per year per family to start, rising
rapidly after that. President Obama’s 2008 campaign promise not to
raise taxes on singles making less than $200,000 a year, and
couples making less than $250,000, has been thrown aside and
forgotten, with the Supreme Court ruling that the individual
mandate is constitutional precisely because it is a tax.
Individuals who fail to comply and buy the health insurance
chosen for them by Kathleen Sebelius will be subjected to a penalty
of $695 per person per year, up to a maximum of $2,085 per family,
or 2.5% of household income, whichever is greater. Pilla explains
that “The gross applicable penalty is pro-rated to apply on a
monthly basis ‘for any month during which any failure’ to have
adequate coverage exists.”
The PPACA precludes the IRS from using its levy power or filing
tax liens to collect these penalties on individuals. But Pilla
notes the IRS can offset the penalties against any federal income
tax refund owed to you. The IRS can also seize any state or local
tax refund you are due as well. And if you send any payment to the
IRS that is not specifically designated in writing as applying to a
specific IRS debt, the IRS can apply it to your health insurance
penalty, and you will not be able to get it back.
The employer mandate is a new vicious tax on job creation that
is already causing employers to cut back on hiring. Employers can
either pay $20,000 a year or so for the family coverage Kathleen
Sebelius chooses for them, required by the PPACA not only for their
workers but for all of their dependents as well, or they can start
paying the tax penalties. That includes for those with 50 or more
full-time employees a penalty of $2,000 per year per full time
worker (minus 30 employees), if they offer no insurance. But even
if the employer does provide employee health insurance, the
employer is assessed a penalty of $3,000 per employee if the worker
nevertheless qualifies to purchase his or her own health insurance
on a state health insurance exchange and does so.
Under these incentives, even employers who have provided
employee health insurance for years are likely to drop the
coverage. The bottom line is that $2,000 per worker is a lot less
than insurance costing $20,000 per family, with possible further
penalties of $3,000 per worker. That is why top economists are
predicting that tens of millions will lose their employer-provided
coverage as a result.
Former CBO Director Douglas Holtz-Eakin calculates that this
will probably be the case at least for all workers earning less
than $60,000 per year, because employers will figure those workers
are eligible for substantial subsidies for health insurance that
they’ll then go buy on the state Exchanges. That is why he is
estimating that 43 million workers will lose their
employer-provided health insurance under the PPACA. So much for
President Obama’s promise that if you like your health insurance
you can keep it.
But you can also expect employers with just a little more than
50 employees to start layoffs to get below the 50 employee
threshold. Also expect many employers to reduce their work force
and hire more independent contract employees not eligible for any
benefits, paid under a 1099 rather than a W-2.
IRS Charity
Once your employer dumps you
on the Exchange, where you will have to find and pay for your own
health insurance to comply with the individual mandate, you will be
eligible for Obamacare tax credits to help you pay that $20,000 a
year in insurance costs. But to do that you will have to prove you
qualify under the new definition of “household income” enforced by
the IRS, which is not the same as your taxable income on your
return. As Pilla explains, household income includes the income of
all other members of the “household” that live with you, which
means anyone who qualifies as a dependent under IRS Code section
151. That can include the income of a mother-in-law or
grandchild.
Pilla explains that the “exchange, not the IRS, determines who
is eligible for the credit and the amount of the credit. Thus,
under the PPACA, citizens have to apply for coverage and in doing
so, report to their respective exchanges their family size and
household income. They will have to provide copies of their tax
returns and whatever other additional information the exchange
requires.”
In addition, “The IRS must verify household income and family
size. But these things change on an ongoing basis.” Consequently,
you are “required to report to the exchange any changes during the
year as they happen.” If the IRS later determines that your tax
credit was too large, you will have to pay the excess back. Or the
IRS will go after you to collect it. Pilla warns that “citizens
will likely end up talking with [IRS] computers about their health
insurance issues to an even greater extent than we currently talk
with IRS computers about tax problems.”
IRS Data
To enforce all of
these obligations, the IRS will need mountains of new data. The IRS
must determine whether the health insurance you have satisfies all
of the requirements of the individual mandate. Therefore, Pilla
explains, “the IRS must proactively engage in collecting data from
private insurance companies — something never before done.” The
IRS will need at a minimum:
• The costs and benefits under your policy;
• Who’s covered under the plan and the periods of coverage;
• The household income reported to the insurance company;
• Whether you were offered insurance by your employer.
If you were offered insurance by your employer, then the IRS
will need to know:
• How many employees the company has;
• The costs and benefits of the employer-offered policy;
• Who’s covered under that plan;
• The period of coverage.
Pilla rightly asks, “Where does the citizen go when there is a
discrepancy in the information reported to the IRS by the insurance
company? What will be the level of run-around one is forced to deal
with and where will the appeals process lie?”
Then the IRS must administer the employer mandate penalties. For
this the IRS will need to know:
• The number of employees and their dependents;
• The number of full-time employees and their dependents;
• The nature, scope and cost of the insurance offered to the
employees;
• The periods of time that insurance is in effect; and
• Whether one or more employee qualified for coverage through an
exchange.
Pilla observes that tax code section 6103 provides that a
person’s tax return and return information must be kept
confidential by the IRS. But Pilla concludes, “Given the sheer
scope of the information needed to enforce and administer the act,
I believe I can say with confidence your privacy is a thing of the
past.”
