Mounting scandals at the Internal Revenue Service are jeopardizing critical funding for the agency as it gears up to play a big role in President Barack Obama's healthcare law.
Obama sought a significant budget increase for the IRS for next year, when the agency will start doling out subsidies to help people buy health insurance on state-based exchanges. Congressional Republicans, however, see management problems at the IRS as an opportunity to limit the agency's funding just as it is trying to put in place the massive new law.
Republicans have been fighting the healthcare law ever since Democrats enacted it in 2010 without a single GOP vote. Unable to repeal the law, some Republicans hope to starve it by refusing to fund its implementation.
The IRS scandals are giving them a timely excuse.
"I think it's safe to say they're not going to get the kind of increase they're asking for," said Rep. Ander Crenshaw, a Florida Republican and chairman of the House appropriations subcommittee that funds the IRS.
"The question is, based on their bad behavior, are they going to end up with less money?" Crenshaw said.
The IRS' track record will get a lot worse when Obamacare starts this fall, Republican Sen. Orrin Hatch warns in an op-ed piece in the Wall Street Journal.
"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?" wrote the Utah senator, who is the ranking minority member of the Senate Finance Committee.
Last month, the IRS was rocked by revelations that agents had targeted tea party and other conservative groups for extra scrutiny when the groups applied for tax-exempt status during the 2010 and 2012 elections. A few weeks later, an inspector general's report disclosed that the agency had spent lavishly on employee conferences during the same time period.
From 2010 through 2012, the IRS spent nearly $50 million on employee conferences. In 2010, the agency used money that had been budgeted to hire enforcement agents to instead help pay for one conference that cost $4.1 million, according to the watchdog's report.
Three congressional committees and the Justice Department are investigating the targeting of conservative groups, and much of the top leadership at the IRS has been replaced.
Obama appointed a new acting IRS commissioner, Danny Werfel, a former White House budget official. Werfel is conducting an internal review of the agency and is expected to issue recommendations for changes by the end of June.
All this is happening as the agency works to implement the health law that includes some of the most sweeping changes to the tax code in a generation.
"The IRS needs to repair the plane while it's in flight right now," said Paul Cherecwich, chairman of the IRS Oversight Board, an independent board within the agency. "Should the current budget environment continue, the IRS will have to continue to have to do more with less while rebuilding taxpayer trust. It has no choice, and it won't be easy."
Like many federal agencies, the IRS has seen its budget and workforce shrink since 2010, when the agency was allotted $12.1 billion. This year, the IRS is expected to spend $11.2 billion. Obama's proposed budget for next year is $12.9 billion — a 14 percent increase over current spending.
About $440 million would go toward implementing the healthcare law. That would include hiring nearly 2,000 employees, according to an analysis of the president's budget proposal by the Government Accountability Office.
"We are working to get to the bottom of what happened at the IRS, hold the responsible parties accountable, make sure it cannot happen again, and restore public trust and confidence in the IRS and its ability to administer the tax code fairly and efficiently," said White House spokeswoman Amy Brundage.
"For years Republicans in Congress have made repeated attempts to stop and slow down the Affordable Care Act. This is just the latest attempt to put up roadblocks to implementing the law," Brundage said. "The health law is the law of the land, and we are working to implement it well, so millions of Americans will have access to affordable and quality insurance."
Starting next year, the IRS will administer subsidies to help millions of individuals buy health insurance. The subsidies, technically tax credits because they are administered through the tax code, will help low- and middle-income families buy health insurance through the state-based exchanges.
Under the new law, nearly everyone in the United States will be required to have health insurance starting in 2014, or face penalties. The IRS will collect those penalties.
About 6 million people are expected to get the insurance subsidies next year, and that number will grow to 20 million by 2017, according to estimates by the nonpartisan Congressional Budget Office.
The enrollment season to buy health insurance through the exchanges starts Oct. 1.
Hatch said under the Affordable Care Act, some 7 million tax-filers will receive tax credits, even to households earning as much as $94,000 annually.
The credits are refundable and advanceable, said Hatch, meaning they'll be paid first and verified later.
He pointed out that there have been several problems with the IRS' Earned Income Tax Credit, with the Treasury Department's inspector general reporting that almost one-fourth of EITC payments were made in error in 2012.
Hatch said that if the same percentage of error is used in the $1 trillion being spent on Obamacare, "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."
In addition, he said, the projected subsidy expenditures has gone from nearly $16 billion in President Barack Obama's 2012 budget up to nearly $22 billion in 2014.
"Why is the administration expecting these costs to soar? Hatch asked. "Is it because they are seeing employers dropping coverage, leaving more employees to get Obamacare insurance through an exchange subsidized with these tax credits? Is it because they expect insurance premiums to soar, driving up the percentage-figure the government must cover with subsidies? Maybe both."
Hatch said he also has questions about how the IRS' office handling Obamacare will work.
"Both Treasury's inspector general and the Government Accountability Office have tried to find out, and even they don't really know the reporting structure of this IRS department," said Hatch. He noted that Sarah Hall Ingram, who headed the office responsible for targeting conservative groups, is running the division that implements the healthcare law.
"We also know that for some time she did both jobs. This is not comforting," Hatch said.
Hatch also criticized a congressional proposal to give the IRS more money so it can better handle Obamacare.
"The bottom line here is that the IRS can barely manage what it already has to do," said Hatch. "The prospect of the IRS taking a central role in the administration of Obamacare can only be described as scary."
Democrats in Congress say they are growing tired of Republican attempts to repeal a law that has survived a review by the Supreme Court and whose main champion — Obama — won re-election last year.
"The American people will see over the next six months the lengths the Republicans will go to destroy the implementation of the Affordable Care Act," said Rep. Jim McDermott of Washington state, a senior Democrat on the House Ways and Means Committee. "I've expected it from the first day [the IRS] issue came up."
"I'm sad about it; it's awful," McDermott added. "But sometimes in a democracy people have to learn the hard way, and the American public is going to learn."
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