Tuesday, May 8, 2012

Obamacare and Identity Fraud

This morning the Treasury’s Inspector General for Tax Administration testified before two Ways and Means subcommittees about the prevalence of identity theft and fraud within the tax system.  Although the IRS identified 1.1 million incidents of identity theft affecting the tax system in 2011 alone, the Inspector General’s testimony found that even this level of fraud was merely the tip of the iceberg:

However, the IRS does not know how many identity thieves are filing fraudulent tax returns or the amount of revenue being lost….Our analysis found that, although the IRS detects and prevents a large number of fraudulent refunds based on false income documents, there is much fraud that it does not detect.  We identified approximately 1.5 million additional undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion.  If not addressed, we estimate the IRS could issue approximately $26 billion in fraudulent tax refunds resulting from identity theft over the next five years.

These findings have troubling implications for the President’s unpopular 2700-page health care law, on several levels:

  1. Rather than increasing efforts to combat identity fraud in the existing tax system, much of the IRS’ time over the next few years will instead be spent on creating and implementing a brand new entitlement – health insurance subsidies administered through the tax code.
  2. The massive amounts spent on Obamacare’s insurance subsidies – $632 billion between now and 2022, according to the Congressional Budget Office’s most recent baseline – will only provide further incentives for identity thieves to engage in tax fraud, so they can receive insurance subsidies to which they are not entitled.
  3. Obamacare will only require applicants for insurance subsidies to verify citizenship, NOT identity; the verification process will check that John Doe is a citizen, but will not confirm that the applicant is in fact John Doe.  Today’s inspector general report highlights that identity fraud is rampant within the current tax system.  Therefore, it is not unreasonable to conclude that non-citizens will commit identity theft – as millions already do by filing bogus tax returns every year – to obtain subsidized insurance.  This scenario would violate the President’s promise made before a joint session of Congress in 2009, that individuals illegally present would not be able to obtain insurance under his plan.

The American people have already questioned why, at a time of trillion-dollar deficits, Democrats want to spend $2.6 trillion creating massive new entitlement programs.  Today’s inspector general report raises the further question of whether and why such spending will be diverted for fraudulent purposes by identity thieves preying on unsuspecting American families and taxpayers alike.