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.
Corbis
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.
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