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home : opinions : opinions April 30, 2016

11/3/2013 6:40:00 AM
Commentary: IRS tax-credit scandal a bad omen for Obamacare
Byron York
Byron York
By Byron York

Under Obamacare, the Internal Revenue Service will determine who is eligible for health insurance subsidies, and it will deliver those subsidies, in the form of tax credits, to millions of individual Americans. It's a huge job, and a critical one, involving hundreds of billions of taxpayer dollars. So it should go without saying that the subsidies go only to people who actually qualify for them. But a new scandal within the IRS casts serious doubt on whether that will happen.

The scandal involves a program known as the Earned Income Tax Credit. It is an anti-poverty program in which the government gives low-income workers a tax refund larger than their tax liability. For example, a family with a $1,000 income tax liability might qualify for a credit four times that large, and receive an Earned Income Tax Credit payment of $4,000. Another family with no income tax liability at all might qualify for the same lump-sum payment. Call it a subsidy, a refund, a transfer payment -- in any case, the family receives a check from the feds.

The government sends out between $60 billion and $70 billion a year in Earned Income Tax Credit payments. Now, a new IRS inspector general's report shows that a huge amount of that -- anywhere between 21 and 30 percent, depending on the year -- has been given out improperly to recipients who do not qualify for the payment. The inspector general estimates that somewhere between $110 billion and $132 billion -- billion, not million -- has been given away in improper Earned Income Tax Credit payments in the last decade.

It's long been known that the IRS throws taxpayer dollars away through tax credits. President Obama, who has sought to expand the Earned Income Tax Credit program, in 2009 signed an executive order entitled "Reducing Improper Payments and Eliminating Waste in Federal Programs" that required the IRS to come up with annual "improper payment reduction targets." That was four years ago. It still hasn't been done.

Don't look for it to be done anytime soon. IRS officials told the inspector general that the program was too complicated to administer correctly, and even if it were less complicated, they would not want rigorous enforcement measures to discourage legitimately qualified people from applying for the credit. In the words of the inspector general's report: "The IRS cited the complexity of the Earned Income Tax Credit program as well as the need to balance the reduction in improper payments while still encouraging individuals to use the credit as the two main reasons why reduction targets have not been established."

Given that, inspector general Russell George concluded, "The IRS is unlikely to achieve any significant reduction in Earned Income Tax Credit improper payments." So, look for billions more to be wasted in improper payments this year. And next year. And so on.

This is the very same IRS that will administer Obamacare's subsidies and penalties. Does anyone doubt that in coming years the IRS will use the same excuses -- complexity, a desire not to discourage qualified recipients -- to explain its lack of enforcement, or perhaps refusal to enforce, Obamacare's requirements?

The process has already begun. Back in July, the Obama administration announced it will not require state-run Obamacare exchanges to verify whether individuals who receive subsidies for health coverage are actually qualified for those subsidies. The administration will rely instead on an honor system in which it accepts an applicant's word that he or she is eligible -- a decision many analysts call an invitation to fraud.

In September, the Republican-controlled House passed a bill to require verification for all subsidies. This month, a much weakened version of that proposal became part of the settlement of the government shutdown. But the bottom line is, don't expect the federal government to do much checking on who is receiving subsidies.

And even a stringent verification requirement will not work if the IRS decides not to enforce it for fear of discouraging people who legitimately qualify for Obamacare subsidies. Since that has been the case with IRS non-enforcement of the president's executive order covering improper Earned Income Tax Credit payments, is there any reason to believe the IRS would not use the same rationale for Obamacare?

Right now the public debate over Obamacare is consumed by news of the exchange website's failures. It's a serious situation that could have a long-lasting effect on the system. But at some point the administration will fix its technical problems. And then the news can move on to the next stage of Obamacare dysfunction -- like a new scandal with the IRS and subsidy payments.

(Byron York is chief political correspondent for The Washington Examiner.)

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Reader Comments

Posted: Friday, November 8, 2013
Article comment by: Billinda Bantam

Do you hear what you're saying? You hope those poor small business owners never get back on their feet and have to pay taxes again? Really?????

Here, boy...rather than nipping at conscientious objectors...why don't you sink your teeth into this nice, juicy cut-and-paste from a decidedly right-wing scandal site:


The Hidden Obamacare Taxes That Will Crush The Middle Class
By Money Morning Staff Reports

Get ready to be blindsided by a barrage of new taxes. $1 trillion worth...

They'll be coming courtesy of the Affordable Care Act, otherwise known as Obamacare.

And they won't just be affecting those who make over $250,000. The bulk of these taxes will be passed on directly to the middle class.

That's because while a majority of these "stealth taxes" were designed to be taxes on businesses, they're actually transferred directly to ordinary citizens.

(da da da dah, and then this:)

What the Experts Say: How to avoid getting your financial neck broken by Obamacare...

One expert, Dr. Betsy McCaughey, a constitutional scholar with a Ph.D. from Columbia University, recently wrote a best-seller showing Americans how they can not only survive Obamacare, but prosper through it.

McCaughey claims to be one of the only people in the country - including members of Congress - who has actually read the entire 2,572 page law.

Her book, titled Beating Obamacare: Your Handbook for Surviving The New Health Care Law, breaks the huge bill down into 168 pages of actionable advice.

The book, written in an easy going, easy to read style, shows some startling facts about Obamacare not seen in the mainstream press.

For example, she points to a little known passage in the bill that shows how you could get slapped with a $2,000 fine for not having health insurance - even if you do actually have it.

She also goes into detail explaining how a third of all U.S. employers could stop offering health insurance to their workers.

In one chapter, she shows how ordinary Americans will get stuck paying for substance abuse coverage - even if they never touched a drink or drug in their life.

According to McCaughey's research, senior citizens will get hit the hardest.

Hip and knee replacements and cataract surgery will be especially hard to get from Medicare in the months ahead thanks to Obamacare, according to McCaughey.

She warns seniors to get those types of procedures done now before Obamacare goes into effect January 1.


Of course you can. They're right-wing money grubbers. But maybe you should read it for fresh ammunition.

Posted: Wednesday, November 6, 2013
Article comment by: M J

question to liberals...
why did the president lie?
do you support his lies?
why do you support his lies?

some insight would be helpful....
thank you

Posted: Wednesday, November 6, 2013
Article comment by: Bill Bassett

OK Nope, I get it. You and your small business take the high road on the EITC. I just hope that in some future letter you won't be complaining about how your small business is being taxed out of existence. You do know that you can go back and re-file earlier years if you change your mind.

Mr. Slater X 2. What do Snowden or China have to do with this discussion? Like I said, I'm confused.

Posted: Wednesday, November 6, 2013
Article comment by: Nope, Bill Bassett

Falling into the EITC range usually means you're not paying any income tax. The government wants to give you somebody else's taxes to make you feel better. Define handout. Since we were breaking even and, unlike poor old Arizona, had saved for a rainy day, didn't seem right to take somebody else's taxes. Sure wouldn't have made us feel better. What's so confusing about that?

Posted: Wednesday, November 6, 2013
Article comment by: Mary Jane

Hey Bill,

Here's a thought that might clear up some of the confusion.

Maybe, JUST MAYBE, Nope made the whole thing up!

Let's take an impromptu poll:

How many folks out there have received threatening or intimidating letters from the IRS demanding they take certain deductions or take some other action to lessen their tax bill?

It's enough to make Tea-Baggers repudiate their affiliation with a certain political cult!

The 8% are dwindling for a reason!

Posted: Wednesday, November 6, 2013
Article comment by: Slater slater

Can anyone say Snowden?

Posted: Wednesday, November 6, 2013
Article comment by: @ Brian

How typical of a Right wing 'self-made' Ponzi-Capitalist. "I will sell you a bridge owned by the public to benefit MEEEEEE"

How did your precious Tea-Party heretics do at the polls yesterday? Feeling a little unappreciated, even repudiated? Get used to it!

Posted: Wednesday, November 6, 2013
Article comment by: Bill Bassett

Hold it. This discussion is confusing so let me see if I understand. York says the IRS is paying out too much in earned income tax credits, 21 to 30% too much! to the point of being scandalous. Right? So I looked that up and found a FOX business news report that about 20% of those who qualify don't take the credit. Close to being a wash.

Then there's the guy I'll just call Nope. His small business may have qualified for EITC but he didn't want what he called a handout. So, he paid more tax than necessary under the law. Why? Just to make a point? To spite his face? Like I said, confusing.

And then there is Mr. Carlson who finally admits what we already know. The Tea Party made up all those aforementioned scandals. Thanks for verifying that for us. Now tell me more about that bridge, it sounds interesting.

Posted: Tuesday, November 5, 2013
Article comment by: Peter, Yavapai County

Folks like Mr. York who want to kill the ACA often talk about arcane details. He gets paid a lot of money and has excellent health insurance - good for him.

What folks who dislike Mr. Obama and the ACA always fail to do is offer a viable alternative. They want to return to the status quo which existed long before our Congress passed the ACA.

They don't want to acknowlege that middle class folks were being deneyed helath insurance because they had an existing medical condition and that rising premiums and redued coverage was making health care unaffordable.

If you are against something, fine. What's your suggestion for improving the worsening situation?

Posted: Tuesday, November 5, 2013
Article comment by: Brian Carlson

Everyone who does not like Obama is a racist. It has nothing to do with the IRS scandal, The AP Scandal, The NSA Scandal, or Obmacare. The Tea Party just made up all these scandals.
And if you believe all that, I have a bridge for sale in San Francisco.

Posted: Tuesday, November 5, 2013
Article comment by: Slater slater

When we default on the Chinese in 10yrs the
only issue will be to teach your grandkids to
speak the new language.

Posted: Monday, November 4, 2013
Article comment by: Bill Bassett

Mary Jane, I'll. respectfully ask you not to insult pitbulls like that again.

Posted: Monday, November 4, 2013
Article comment by: Slater slater

Here we go round in circles we op.

Posted: Monday, November 4, 2013
Article comment by: Nope, Mary Jane

I see busy-ness as usual.

During the recession, our small business income dropped into the EITC range. Every year, the IRS tried to get us to take it. Some of the notices were downright threatening. The government doesn't like poor people who don't want handouts. It's enough to make liberal democrats want to join the tea-baggers.

Posted: Monday, November 4, 2013
Article comment by: dale ruff

This author is a notorious right wing Republcan. His outrage at IRS overpayments, etc. is compromised by the fact that he did not complain when exactly the same waste went on while Bush was President, whom he supported.

"First, the commonly cited EITC error rate — 23 to 28 percent of EITC payments are said to represent overpayments — is likely to overstate the actual level of overpayments (although the overpayment level is clearly substantial). This is true for several reasons. First, as explained below, the 23 percent to 28 percent figure is based on IRS studies of tax data from 2001 and 2006"

In other words, the current administration inherited this level of waste, and to his credit, Obama has tried to find a solution. Those who pick on Obama for exactly the same things that Bush did (and whom they did not criticize) are discriminating against Obama. I wonder why.

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