IRS Deficiencies and Health Care

David Ricardo observed that taxation "frequently operates very differently from the intention of the legislature by its indirect effects." As reflected in the news headlines, Americans are now bearing the brunt of the indirect effects of misguided IRS personnel participating in an ill-advised health-care scheme.

At the House Ways and Means Committee hearing on 17 May 2013, deposed Acting Internal Revenue Commissioner Steve Miller was grilled by committee members regarding the IRS's use of political orientation in processing group applications for tax-exempt status, as detailed in a Treasury Inspector General's Report. In questioning Mr. Miller, Congressman Jim McDermott (D-WA) elicited testimony to the effect that under the Affordable Care Act, the IRS does not access individuals' personal healthcare information, but only notes the fact of insurance coverage or noncoverage during any given time period. "[W]ere you covered and over what period is what we would be getting" is what Miller told the congressman. McDermott then declared that there is "not a fascist takeover of the healthcare system."

This former IRS attorney is not reassured.

Even before the Obamacare complications, the American taxation system has been such that the IRS needs to know some very personal information regarding individual Americans, including address, employer, income, and identity of family members. Such information is largely immaterial to the administration and enforcement of a customs duty paid at the port of entry, an excise tax paid at the distillery or factory shipping dock, or a sales tax paid at the merchant's cash register. Where the individual taxpayer is audited, the IRS agent becomes privy to even more intimate personal information such as bank account and credit card particulars, and can often deduce, through the identity of the claimed deductions, the taxpayer's political, social, and religious orientation.

Now, under Obamacare, the IRS necessarily has access to far more about each individual taxpayer and dependent than "were you covered and over what period." When an insurance carrier or health care provider is audited, the IRS auditor would have access to lists of individual patients and individual particulars. In auditing the finances of the healthcare or insurance provider, individual payments to or from subscribers and patients would be tracked, and matched up with what amounts to individual medical information. That the IRS has already made overly-intrusive demands of information from certain groups, including lists of donors, is no longer deniable. In light of some undismissable accusations that the IRS has compromised, for political purposes, personal information in its hands, patients and health insurance subscribers cannot now trust that their personal information will not be similarly compromised by the IRS.

Under Obamacare, the IRS, acting on behalf of the Secretary of the Treasury, may play some sort of role in determining the eligibility of individuals for some health plans, including adjudicating individual's appeals of such decisions. This would surely require information far beyond "were they covered and what period."

It must be remembered that the IRS's data stewardship practices have been abysmally poor of late. Congress has become quite exercised over the IRS's susceptibility to issuing refunds on bogus tax returns. The IRS's deficient data stewardship practices have facilitated tax return identity theft fraud upon the public fisc, to the tune of billions of dollars. And identity theft is also lucrative in the healthcare realm, whether in obtaining the identifying information of patients to commit tax fraud, or in directly obtaining healthcare, an ever-increasingly costly commodity in its own right.

Nor is this author the only ex-IRS attorney who sees visions of chaos and incompetence in the IRS's role as an individual healthcare coverage monitor and arbiter. Former IRS attorney Michele Bachmann, now representing Minnesota in the House of Representatives, finds it reasonable if not imperative "to ask if any healthcare decisions have been based on political affiliation and what assurances we have that this type of intimidation will never happen again."

Over sixty years ago, another former Internal Revenue lawyer swam against the tide to warn of the natural abusive and oppressive tendencies of the tax collection bureaucracy. Supreme Court Justice Robert H. Jackson, who had served a stint as the General Counsel to the Bureau of Internal Revenue before advancing to a distinguished career on the bench, wrote the dissenting opinion in the case of Lykes v. United States, 343 U.S. 118: "The Treasury may feel that it is good public policy to discourage taxpayers from contesting its unjustified demands for taxes and thus justify penalizing resistance. It is hard to imagine any instance in which the Treasury could have a stronger self-interest in its regulation."

Taxation is a necessary evil, and its unpopular nature demands an element of coercion, lest the social order collapse. This, however, warrants strict controls upon the tax collection personnel and their behavior. Political and social discord has resulted from the excesses of taxation throughout history, including ancient Egypt, France, the American Revolution, and the British Raj in India, to name but a few. Americans must not underestimate the gravity of the IRS's politically-directed abuses now coming to light, and the perils they pose to American liberty, particularly in the face of the IRS's continued opacity, evasiveness, and denial of its biases in evaluating conservative political groups (and pro-Israel Jewish groups as well). Under Obamacare, the IRS will clearly have access to far more personal information than "were you covered and over what period," and the opportunities to misuse and abuse that information will be legion.

The IRS's insinuation into the healthcare delivery system is certainly not encouraging in the least to this former IRS attorney. More disconcerting still is the whitewash of the seriousness of the situation by members of Congress such as Mr. McDermott.

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