The Tax Police and the Health-Care Mandate

Americans of modest means may soon get a lesson in the power of the IRS.

Is there an IRS agent in your future?

Shortly before Barack Obama signed the health-care bill, Republicans on the House Ways and Means Committee created a stir with a report suggesting our new law will lead the Internal Revenue Service to hire as many as 16,500 new agents. The Republicans came up with the figure by extrapolating from the IRS budget, the amount spent on employees, and the $10 billion in new funding that the Congressional Budget Office says the IRS will need to meet its new responsibilities under this legislation.

It’s made for some heated debate. In an entertaining segment on the Fox News Channel last week, host Bill O’Reilly tried to get Rep. Anthony Weiner (D., N.Y.) to admit that the IRS would have to enforce the penalty tax for people who refused both to get the mandated coverage and to pay the penalty. Mr. Weiner accused Mr. O’Reilly of “making stuff up.” The next day, IRS Commissioner Douglas Shulman seemed to settle the question in Mr. Weiner’s favor when he testified to Congress that IRS agents are not going to be auditing taxpayers to verify that they’ve obtained acceptable health insurance.

Or did he?

The individual mandate remains one of the murkiest bits of this legislation. During the 2008 primaries, Mr. Obama criticized rival Hillary Clinton for favoring such a mandate. He later changed his mind, for one big reason: There’s no way to afford expensive provisions such as forcing insurance companies to cover people with, say, pre-existing conditions unless millions of healthy people who won’t need insurance are forced to pay into the system. With the mandate, the government gets more healthy people into the risk pool—and with the penalty it gets their money whether they buy coverage or not.

In testimony before a House Ways and Means subcommittee last Thursday, the IRS commissioner deflected questions about the agency’s precise role vis-à-vis health care. Mr. Shulman reassured citizens that this bill does not “fundamentally alter” their relationship with the IRS, and said the IRS would not be snooping into their health records. About the penalties associated with the mandate, he was less clear.

Partly that’s because the law is unclear. The original House bill opened the door for criminal sanctions against Americans who didn’t buy health insurance and pay the penalty. The Senate bill did the same until Sen. John Ensign (R., Nev.) successfully pushed to amend the bill. Even so, the final language begs the question that Mr. Shulman and Mr. Weiner avoided: Who’s going to enforce the mandate, and how?

It’s more than a theoretical proposition. Approximately one in six drivers goes without auto insurance, according to the Insurance Research Council, even though most states require it. As for health coverage, the U.S. Census says that Massachusetts’ has the nation’s lowest rate of uninsured at 5.4%, thanks in part to its own individual mandate. Even so, costs have exploded and fines for not carrying coverage are increasing.

Almost by definition, those hit by the mandate will be either young people starting out, or those working for smaller businesses that do not provide employees with health coverage. Back in November, a report by the Congressional Budget Office and Joint Committee on Taxation estimated that nearly half (46%) of the mandate penalties will be paid by Americans under 300% of the poverty line.

Read More at WSJ