July 26, 2014

KIMBERLEY STRASSEL: The ObamaCare/IRS Nexus: The supposedly independent agency harassed the administration’s political opponents and saved its health-care law.

One of the big questions out of the IRS targeting scandal is this: How can an agency that engaged in such political misconduct be trusted to implement ObamaCare? This week’s Halbig v. Burwell ruling reminded us of the answer. It can’t.

The D.C. Circuit Court of Appeals ruled in Halbig that the administration had illegally provided ObamaCare subsidies in 36 insurance exchanges run by the federal government. Yet it wasn’t the “administration” as a whole that issued the lawless subsidy gift. It was the administration acting through its new, favorite enforcer: the IRS.

And it was entirely political. Democrats needed those subsidies. The party had assumed that dangling subsidies before the states would induce them to set up exchanges. When dozens instead refused, the White House was faced with the prospect that citizens in 36 states—two-thirds of the country—would be exposed to the full cost of ObamaCare’s overpriced insurance. The backlash would have been horrific, potentially forcing Democrats to reopen the law, or even costing President Obama re-election.

The White House viewed it as imperative, therefore, that IRS bureaucrats ignore the law’s text and come up with a politically helpful rule. The evidence shows that career officials at the IRS did indeed do as Treasury Department and Health and Human Services Department officials told them. This, despite the fact that the IRS is supposed to be insulated from political meddling.

We know this thanks to a largely overlooked joint investigation and February report by the House Oversight and Ways and Means committees into the history of the IRS subsidy rule. We know that in the late summer of 2010, after ObamaCare was signed into law, the IRS assembled a working group—made up of career IRS and Treasury employees—to develop regulations around ObamaCare subsidies. And we know that this working group initially decided to follow the text of the law. An early draft of its rule about subsidies explained that they were for “Exchanges established by the State.”

Yet in March 2011, Emily McMahon, the acting assistant secretary for tax policy at the Treasury Department (a political hire), saw a news article that noted a growing legal focus on the meaning of that text. She forwarded it to the working group, which in turn decided to elevate the issue—according to Congress’s report—to “senior IRS and Treasury officials.” The office of the IRS chief counsel—one of two positions appointed by the president—drafted a memo telling the group that it should read the text to mean that everyone, in every exchange, got subsidies. At some point between March 10 and March 15, 2011, the reference to “Exchanges established by the State” disappeared from the draft rule.

Emails viewed by congressional investigators nonetheless showed that Treasury and the IRS remained worried they were breaking the law. An email exchange between Treasury employees in the spring of 2011 expressed concern that they had no statutory authority to deem a federally run exchange the equivalent of a state-run exchange.

Yet rather than engage in a basic legal analysis—a core duty of an agency charged with tax laws—the IRS instead set about obtaining cover for its predetermined political goal.

Tyrannizing you with your money.

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