Opting Out of Hidden Taxes
The Senate shouldn’t let the IRS trample states on health care.

Senator Ron Johnson of Wisconsin


Phil Kerpen

In an affront to openness and representative government, the IRS is attempting to rewrite the president’s health-care law to overrule states that lawfully opted out of vast new taxpayer-funded subsidies to insurance companies. Fortunately, Senator Ron Johnson of Wisconsin has stepped forward with a resolution, S.J. Res. 48, that would overturn the IRS power grab. If enough of his Senate colleagues sign on, he can force a Senate floor vote, giving the American people an opportunity to see where every senator stands. It might be the only health-care vote in the Senate before the November elections.

Insurance exchanges are a central feature of the president’s health-care law. These exchanges are tightly regulated bureaucracies through which the law’s new subsidies and employer tax penalties flow. Throughout the entire tumultuous debate — both before and since the bill was enacted — proponents have responded to charges that the Patient Protection and Affordable Care Act (PPACA) represents a federal takeover of health care by stressing that its exchanges are state-based.

But now that states are exercising their lawful discretion to opt out of the exchanges and thus stop the subsidies and employer tax penalties within their jurisdictions, the Obama administration sees it differently. The IRS has attempted, in yet another underhanded maneuver, to rewrite the law so that subsidies and penalties can flow through federal exchanges — in effect, forcing states that opted out back in.

Wisconsin is one of the states affected, so it’s fitting that Senator Johnson is taking the lead in pushing back. Governor Scott Walker flatly rejected a state exchange, commenting that “when job creators and Wisconsin families are facing difficult times it doesn’t make sense to commit to a federal health care mandate that will result in hidden taxes for Wisconsin families, increased health care costs and insurance premiums, and more uncertainty in the private sector.”

He was right. The subsidies won’t work. Pouring more tax money into something has never made it cheaper. That’s how we got the student-debt bubble — not to mention the housing bubble that crashed the economy when it burst. Hundreds of billions of dollars of taxpayer-funded subsidies going to insurance companies will only drive premiums even higher in participating states.

The IRS should not be allowed to overrule Wisconsin and other states by regulatory dictate. PPACA itself is clear on this.

It does authorize HHS to create federal exchanges in states that choose not to participate. But it does not authorize “premium assistance credits,” the subsidies at the heart of the new health-care entitlement, to flow through these exchanges. This was supposed to be a way to coerce states into playing along — the Democrats who wrote the bill just couldn’t imagine a state leaving billions in federal subsidies on the table.

A rejected House version of the bill provided subsidies nationally, whether states opted out or not. But every version of the Senate bill, including the one that was enacted into law, made clear that subsidies flowed only in states that create state exchanges.

What the IRS is doing simply amounts to taxation without representation. Under PPACA, employers can be taxed thousands of dollars per subsidy-eligible employee — but only in participating states.  The new IRS rule would unilaterally rewrite the law that Congress enacted.

Fortunately, thanks to Senator Johnson’s leadership, the Senate can vote to overturn this outrageous IRS overreach. If 29 of his Senate colleagues sign on, his resolution will go to the Senate floor and will be protected from filibuster under the Congressional Review Act. Therefore, only 51 votes would be needed to pass it. The resolution would then presumably sail through the Republican-controlled House and overturn the IRS dictate — or at least force President Obama to use his veto pen and take personal responsibility for this latest power grab.

Even if the Senate does not pass the resolution, this vote will tell us which U.S. senators support the rule of law and our federalist system and which believe that IRS bureaucrats should be allowed to govern by dictate, steamroll the states, and even impose their own taxes. Citizens who have a senator up for election this year should watch closely and consider whether anyone who would hand over such power to the IRS deserves to stay in the Senate.

— Phil Kerpen is the president of American Commitment and the author of Democracy Denied.