Tax report rehashes debate over cost effectiveness of healthcare reform law

A warning that federal tax officials will need more congressional funding to administer the Democrats’ health reform law has rekindled the partisan debate over its cost effectiveness.

Senior Republicans have said for months that the new responsibilities required of the Internal Revenue Service (IRS) under the legislation would saddle the agency with billions of dollars in additional costs — expenses not accounted for in the bill.

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A Wednesday report from the National Taxpayer Advocate (NTA), an independent watchdog within the IRS, backed those claims, finding that the agency currently lacks the resources to take on the new duties.

"I have no doubt the IRS is capable of administering social programs, including healthcare," Nina Olson, head of the NTA, said in a statement. “But Congress must provide sufficient funding.”

Republicans quickly offered up a message to Democrats that boiled down to this: We told you so.

“Before ObamaCare passed, [Minority Leader John Boehner] and others warned that it would require an army of new IRS agents,” Boehner (R-Ohio) spokesman Michael Steel said in an email. “Democrats denied it. Now we know the truth.”

Sen. Charles Grassley (Iowa), senior Republican on the Finance Committee, has also been leery of the new funding required for the IRS to administer the health reform law. A Grassley spokeswoman said Friday that the senator “has pressed the IRS and the Democratic majority for a response at every opportunity.”

“He received zero substantive answers,” the spokeswoman said in an email. "Now the administration and the Democratic majority are obligated to respond to the [NTA] report in a substantive way."

Democrats are defending their reform bill against the attacks. A House Democratic leadership aide said Friday that the additional IRS funding is "no secret," and that party leaders will address the issue “in the normal course of the appropriations process.”

A Democratic staffer for the House Ways and Means Committee, which oversees the IRS, reiterated that message Friday.

"Congress stands ready," the staffer said, "to ensure that IRS has the resources it needs to make sure this is done properly."

Under the new law, the IRS will be required to verify incomes for households applying for premium assistance credits on insurance exchanges; determine whether businesses are eligible for small-business tax credits; ensure that individuals are complying with the mandatory coverage requirement; and collect penalties from those who aren’t.

That doesn’t mean that the agency has to determine what is acceptable coverage, IRS Commissioner Douglas Shulman told House lawmakers in March. Rather, that will be a responsibility of the Health and Human Services Department (HHS), which will then send a form to the IRS, similar to a bank sending a 1099 indicating a taxpayer’s interest payments.

“There have been some misconceptions out there,” Shulman said of the GOP criticisms.

Still, Shulman also was clear that the agency “will need resources to implement the tax provisions of this legislation.”

IRS spokesman Robert Marvin said Friday that the agency hasn’t yet determined how much extra funding it will need.

“While the IRS has already started work on the healthcare provisions, many of the key components are several years away from implementation,” Marvin said in an email. “It's premature to discuss funding issues.”

The office of Sen. Max Baucus (D-Mont.), chairman of the Finance Committee, echoed that, saying Friday that funding and staffing levels won’t be decided until the IRS comes up with an implementation strategy.

“Until those factors are determined,” a Finance aide said in an email, “it’s premature to specify what the IRS will need, and certainly premature to infer the IRS won’t be able to handle it.”

Similarly, the NTA hasn’t estimated the additional costs to the IRS.

“The point [of the report] was just to raise the issue generally,” Kenneth Drexler, senior advisor at NTA, said. “This is more just a laundry list.”

More details will likely accompany the NTA’s next report to Congress, due at the end of 2011, Drexler said.