Why the Cash-Strapped IRS Isn’t Ready for Obamacare
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The Fiscal Times
March 3, 2014

The cash-strapped Internal Revenue Service –hugely crucial to Obamacare’s implementation—may not be prepared for its new responsibilities under the health care law.

The tax agency—which already claims to be overburdened and understaffed –says it needs more money in order to sufficiently continue providing services to taxpayers while enforcing the 46 new provisions required under Obamacare.

Related: Is the Embattled IRS the Next Obamacare Nightmare?

Last week, during a congressional appropriations subcommittee hearing, the IRS’s top official warned lawmakers that steep budget cuts are already taking a toll on the agency. IRS Commissioner John Koskinen testified that without additional funding the agency will struggle to assist taxpayers ahead of the tax filing deadline –especially while adding what agency officials call the “the largest expansion of IRS responsibilities in recent history” through Obamacare.

“I am deeply concerned about the ability of the IRS to continue to fulfill its mission if the agency lacks adequate funding. Our current level of funding is clearly less than what the agency needs, especially to provide the level of taxpayer services the public has a right to expect,” Koskinen said.

Beginning this year, the IRS will play a major role in carrying out Obamacare, including enforcing penalties on Americans who do not have health insurance after the March 31 deadline. In addition, the agency is charged with verifying whether people who were approved for subsidies actually qualify and then helping to distribute those billions of subsidy dollars to people who purchased coverage on the state and federal exchanges.

The agency’s budget was cut for the fourth year in a row in the $1.1 trillion omnibus spending bill approved by Congress and signed by President Obama. The agency was allocated $11.2 billion –down from $12 billion for the 2013 fiscal year--a significant decline from the IRS’s request Koskinen said the agency needs in order to collect tax revenue, prevent fraud and implement Obamacare.

However, skeptical lawmakers pointed out that the IRS, which frequently says it is underfunded, doled out employee bonuses while the agency was the center of a scandal for allegedly targeting certain tax exempt groups.

“What I find unacceptable is that in this $11.3 billion appropriation that the IRS received this year, that you can't find the money to answer more than half the phone calls and yet you can find the money to pay $63 million in bonuses," Rep. Ander Crenshaw (R-Fla.), the chairman of the subcommittee, said. "It seems to be that might be a slap in the face to the taxpayers."

The IRS also spent $60 million over 3 years on employee conferences, and an additional $2.2 million on training videos in 2012.

Related:  Confused IRS Tax Rules Threaten Obamacare Rollout

Koskinen stressed that the agency is already experiencing challenges to assist taxpayers, including long call and wait times at the hundreds of tax centers scattered around the country.

Without additional funding, he said the IRS is likely to miss 18 million taxpayer calls and billions of dollars in revenues through audits and enforcement actions—especially the new revenue needed for Obamacare’s implementation.

Obamacare advocates worry that if the public hears that the IRS isn't prepared to enforce new provisions like the individual mandate, some may risk opting out of coverage if they believe the threat of receiving a penalty is not serious. That could be problematic for the White House, which is counting on young and healthy people to sign up for coverage in order to offset the cost of care for older, sicker individuals.

“I now think there is little hope we are going to get enough younger healthy people to sign up, and that means that this law is in grave danger of financial collapse,” Robert Laszewski, president of Health Policy and Strategy Associates, told The Washington Post.

The concern over the IRS is nothing new. Last March, J. Russell George, the Treasury Inspector General for Tax Administration, warned in March that the IRS was already overwhelmed by the new responsibilities.

At the time, George predicted the agency would experience a massive surge in demand for assistance, especially with regard to confusion over the new law’s mandates, at already busy call and walk-in tax help centers.  

“Unless the IRS receives additional resources in order to implement the ACA (Affordable Care Act), they truly -- it's a zero-sum game,” George told a House Appropriations subcommittee. “They're going to have to make very difficult choices in terms of customer service, in terms of enforcement, in order to take on this huge responsibility that they have been presented with," George said. 

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Washington Correspondent Brianna Ehley, based in D.C., covers Congress, government agencies and spending issues, health care, and tax and economic policy for The Fiscal Times.