IRS gets vast new powers under ObamaCare

Could the tax man soon be playing politics with your health insurance?

This is a rush transcript from "Journal Editorial Report," May 18, 2013. This copy may not be in its final form and may be updated.

PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the IRS under fire over its targeting of conservative groups. It's the very same agency ramping up for the ObamaCare rollout. Could the taxman soon be playing politics with your health insurance?

Plus, a leak investigation has the press corps in an uproar after reporters' phone records are seized. The administration says American lives were at risk, but is that reason enough?

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Inexcusable, and Americans have a right to be angry about it and I am angry about it. I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has into all of our lives.

(END VIDEO CLIP)

GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

That was President Obama this week reacting to just one of the controversies swirling around his administration, news that the Internal Revenue Service targeted conservative groups for special scrutiny in the 2012 election season. The latest scandal has revived past allegations of partisan behavior at the agency and reinforced many people's fears about government run amuck.

Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; Washington columnist, Kim Strassel, and senior editorial page writer, Collin Levy, who has been following this story for us.

So, Collin, what were these audits about? What were they looking for from these groups?

COLLIN LEVY, SENIOR EDITORIAL PAGE WRITER: Paul, they were looking for basically anything they could get from these groups. They wanted donor information. They wanted information about members. They wanted just about everything but the kitchen sink. And when you look at this, it really was expensive and sophisticated. Of the 170 groups that were targeted, the treasury report found that about 58 percent of those had no -- I mean no reason for that to be happening. They were completely unnecessary. And about a third of them had no political activity whatsoever. That should have been a red flag.

GIGOT: And the idea here was to challenge potentially their tax- exempt status or to deny it all together. A lot of these groups had applied for tax-exempt status and they found their request delayed for many, many months. Is that fair?

LEVY: Right. Right. That's very fair. That's a key point here because even under any benign understanding in which they were trying to look at these groups, nothing explains why these applications sat on the shelf sometimes for 13 months without any attention paid to them whatsoever. There is no question there was a slow tracking specifically of these Tea Party applications that was quite a different treatment than what was accorded to other nonprofit applications that were also being asked for other information.

GIGOT: Collin, what about the point you hear from some of the defenders of the IRS, that, well, this was just a backwater in Cincinnati, a few rogue employees.

(LAUGHTER)

We heard that from the acting commissioner before he was fired this week, Steven Miller. That's not true.

LEVY: Right. By the way, the people of Ohio must be delighted to know that Cincinnati is now some sort of political backwater all of a sudden.

(LAUGHTER)

By the way, this is a situation where they had specifically centralized all of the looking at this, these tax-exempt organizations, in Cincinnati. Then they turn around and say, oh, whoops. Actually, guess what? We weren't paying any attention over there. So that whole line is really sort of absurd.

Quite a side, by the way, from whatever coordination there was as this information was run up to the chain to Washington, which we now know it was as early as 2011.

GIGOT: And we also know there was some letters that had been sent from Democrats on Capitol Hill, including Max Baucus, the head of the Senate Finance Committee, Chuck Schumer, very powerful Democrat on the Finance Committee, essentially challenging the IRS to go after these tax- exempt groups. So there is a sense -- while we don't know to what extent the IRS -- at least we don't know now to what extent they were responding to those requests, we do know they were made and could have been a motive here for the IRS.

LEVY: For sure. No question about it. Guess what? They have newspapers and TV's in Cincinnati, too.

(LAUGHTER)

And the requests coming from Congress, from Democrats, the whole suggestion that these 501c groups were these new nefarious dark-money groups that really needed additional oversight because they were overturning the entire system of electoral politics, that message, no question, got through to the IRS employees, whether or not they were acting of their own creative impulses or not.

GIGOT: What about the argument, Collin, that these -- you hear this from some of the liberals and defenders of the IRS, that these groups deserve this kind of scrutiny because some of them were claiming to be social welfare groups and they were really engaging in partisan activity, so they needed this kind of scrutiny.

LEVY: Oh, guess what? This was all part of the attack that came in the aftermath of Citizens United. The Supreme Court came out and said, hey, you know what, people have more free speech than they thought they did. Democrats were upset about this. Nancy Pelosi was very clear over the past week saying, hey, Citizens United was the reason these groups exploded and they deserve more scrutiny --

(CROSSTALK)

GIGOT: But, Collin, did some groups skirt close to the edge and deserve this kind of scrutiny? That seems to be essence of the argument, that they deserved it.

LEVY: There is no indication that conservative groups were doing this more as a general matter than other groups were. There is no justification for the targeting of conservative groups.

GIGOT: Dan, put this it in broader context. How serious do you think-- and you go back like I do, to a lot of scandals.

DAN HENNINGER, COLUMNIST & DEPUTY EDITOR: Right.

GIGOT: How serious is this in the scandal scheme of things in.

HENNINGER: Well, I think it's going to get very serious. I mean, one of the defenses of this, or one of the arguments that's been made by the other side is this has always happened going back in presidencies, using the IRS, FDR did it, JFK, LBJ.

GIGOT: Nixon most famously.

HENNINGER: Nixon most famously. But wait a minute. They're not saying, in all of these presidencies, lower-level, rogue IRS employees were doing it. They're saying the presidency did it. And I think, in this case, what we're going to see here is the question is to what extent was the White House or the presidency involved one way or another?

There is one more point to make about this, Paul. This could get to the point where it will involve legal issues. In other words, people will have legal exposure to what they did.

GIGOT: Right.

HENNINGER: When the FBI investigates, government employees or even these IRS officials cannot lie to the FBI. That is a crime. So I think the truth is going to finally begin to leak out.

GIGOT: Kim, you wrote this week that, in fact, this scandal started at the top when -- you meant President Obama. What do you mean by that, because right now he is claiming to be as outraged as anybody else?

KIM STRASSEL, WASHINGTON COLUMNIST: Well, it's what Dan was alluding to and what Collin was alluding to. Yes, we know that there were Democrats were writing letters to the IRS. But this entire environment of casting aspersions on these groups began and was, in fact, fomented by the president. He was out there giving dozens of speeches, naming some of these groups by name, criticizing Citizens United, suggesting some of these groups might be operating illegally. Saying, we don't know where they're getting their money, maybe they're being controlled by a foreign corporation. If you work for the IRS, you work for any federal agency and you hear the president of the United States making allegations like that, there is certainly a reason you might sit up and pay attention, or do something about it. So he helped create this environment not only by doing that, but during the election, for instance, by going out and targeting the Romney donors by name --

GIGOT: Right.

STRASSEL: -- putting out the fact that -- calling some of them less than reputable. One of them ended up actually in -- after being named by an Obama website in this manner, ended up getting hit by three federal audits in four months.

GIGOT: Yes, OK. This is going to be -- moving ahead, we'll be covering this every week.

Still ahead, despite the scandal engulfing the agency, the IRS is undergoing a big expansion thanks to its new role as chief ObamaCare enforcer. What you need to know about the taxman and your health insurance, next.

(COMMERCIAL BREAK)

GIGOT: Well, even as the IRS scandal continues to unfold, that very same agency is undergoing a huge expansion. It's all thanks to the rollout of the Affordable Care Act and the tax man's vast new role in your health insurance choices.

Wall Street Journal editorial board member, Joe Rago, joins us with more.

So, Joe, what new powers is the IRS getting under the health care law?

JOE RAGO, EDITORIAL BOARD MEMBER: A whole bunch, Paul. This is the largest social program the IRS has ever been asked to implement and it goes all across the economy. They enforce the individual mandate to buy health insurance or else pay a tax penalty.

GIGOT: Right.

RAGO: A mandate on businesses to provide the right kind of health insurance. There's 47 major changes to tax law that the IRS will collect. And then they also have a much larger policy making role in terms of regulations, you know, what counts as a workweek, who counts as a full-time worker, seasonal worker, all kinds of things.

GIGOT: Those kinds of things. So how many new workers have they asked for?

RAGO: Well, they've asked for 1,900 full-time equivalents for 2014. The Affordable Care Act office is a big part of the IRS. That's about 700 people directly working on the law. And then a whole bunch of people brought in for this.

GIGOT: They're going to collect a lot of data from different parts of the government, aren't they? A big new database?

RAGO: Right. With the Health and Human Services Department, they're building something called the Federal Data Hub, which is when they audit your health care to find out --

(CROSSTALK)

GIGOT: just what we need, another federal data house.

(LAUGHTER)

RAGO: If you have the right kind of health care, they'll cross check that with Social Security, Department of Justice, Homeland Security, and so forth. It's really a huge information technology thing.

GIGOT: Just so I understand, right now, if I underpay my tax, the IRS will come back and say, you owe us X amount of dollars. If, for some reason, I now apply for federal health insurance and I make a little bit more than what I'm supposed to, the IRS will come in and be able to say, sorry, you don't qualify, or sorry, you pay a fine, or sorry, you have to pay X dollars? Is that it?

RAGO: Right. What they'll be looking at is do you have the right kind of health care. If you don't, you'll pay a penalty. They'll be calculating your subsidy if you qualify for one. And then everybody in the health care industry, the insurers, government health care programs and so forth are going to be reporting information into the data hub --

GIGOT: Wow.

RAGO: -- which the IRS will then cross check against your return to figure out if you're complying with the mandate.

GIGOT: Kim, what are the implications of this politically for the Affordable Care Act as it begins to roll out? Is this going to complicate its rollout?

STRASSEL: Oh, it's already complicating the rollout. You see Republicans making the case, which I think definitely has to be asked, about whether or not you can trust the IRS to be doing such an enormous part of this. You have them -- some of them saying this is another and additional reason for why the health care law should be repealed, because when you stop and think about --

GIGOT: Right.

STRASSEL: -- giving the IRS those immense powers, you simply -- it's somewhat inconceivable.

We also have the news now, too, that the woman who, in fact, was the commissioner of tax-exempt organizations at the IRS during the time the IRS was targeting conservative groups, she's been moved on to a new job. Guess what division she's running? She's running the ObamaCare office within the IRS.

GIGOT: That's a real confidence booster.

(LAUGHTER)

HENNINGER: Well, one other question you have to ask is, why the IRS is so deeply involved. And --

GIGOT: Well, somebody has to enforce it. If you're going to force people to buy health insurance or pay a fine, somebody has to enforce it.

HENNINGER: Well, enforce what? I mean, the thing about the IRS and the tax system is there are a lot of criminals who exploit it.

GIGOT: Right.

HENNINGER: There is tax credit fraud. There is Medicare fraud. And they know, it has been talked about, the systems will be set up to exploit ObamaCare criminally. So they're going to set up this dragnet basically that Joe was describing to try to catch those people, which they're not very good at. In the meantime, innocent people, employers who are trying to juggle all of these new rules are going to get caught in that dragnet.

GIGOT: Joe, is there anything here -- and we don't have a lot of time

-- that Congress can do about this? Could it really X out the IRS and give it to somebody else?

RAGO: We've seen a lot of funding battles in Congress over how much money -- are they going to get those 1900 employees and so forth.

GIGOT: Right.

RAGO: But, I mean, this is headed straight for October in the meantime. I don't think there is very much they can do to block this.

GIGOT: The rollout being in October. So the ultimate cure here is you got to repeal it.

RAGO: That's right. It's a political question.

GIGOT: All right.

When we come back, the American press corps goes on the attack, demanding answers about the Justice Department seizure of reporter's phone records, all part of an investigation into a national security leak that the administration says put American lives at risk. So is that justification enough for the subpoenas? Our own Dorothy Rabinowitz weighs in next.

(COMMERCIAL BREAK)

GIGOT: The White House dealing with another controversy this week, revelations that the Justice Department secretly obtained two months worth of phone records for 20 Associated Press journalists, all part of an investigation into the 2012 leak of classified information to the AP about a covert CIA operation in Yemen that disrupted an airline bomb plot.

Attorney General Eric Holder, who recused himself from the probe last year, defended his department Tuesday, calling the leak very, very serious.

(BEGIN VIDEO CLIP)

ERIC HOLDER, U.S. ATTORNEY GENERAL: I've been a prosecutor since 1976 and I have to say that this is among, if not the most serious, it is within the top two or three most serious leaks that I've ever seen. It put the American people at risk. That is not hyperbole. It put the American people at risk.

(END VIDEO CLIP)

GIGOT: "Wall Street Journal" editorial board member, Dorothy Rabinowitz, joins with us more.

Dorothy, is the media outrage over the subpoenas justified?

DOROTHY RABINOWITZ, EDITORIAL BOARD MEMBER: Well, justified -- I think you could look at it as posturing. There is a lot of posturing about this, but it's not nothing either. That's because we use the word "overbroad" as the only excuse for this. That's a very clinical term for what really happened. You know, there was built into the Justice Department guidelines ways of getting this by alerting them. They could go to court.

GIGOT: They didn't alert the AP in advance.

RABINOWITZ: That is exactly right.

GIGOT: It took weeks to alert them. Typically, in media cases like this, they negotiate with the media.

RABINOWITZ: That's right.

GIGOT: They didn't in this case.

RABINOWITZ: No. Not only that, but they did not allow for the company involved with the AP to go to court to narrow, to negotiate and narrow the scope of this investigation. So when you say "overbroad," what really happened? What really happened is that they went in there and cast a wide net so that the result is that reporters talking to anybody about anything -- this is --

(CROSSTALK)

GIGOT: Not just stories related to this, but on any stories or any other situation.

RABINOWITZ: That's right. This is a chilling effect. We don't want to use it, but in effect, this was a serious matter, and it could impinge on things. However, we all know nobody wants to endanger national security. I myself would like the death penalty for Julian Assange. You know, --

(LAUGHTER)

-- All that is the case.

GIGOT: He's the WikiLeaks --

RABINOWITZ: The WikiLeaks guy.

GIGOT: -- gentleman.

RABINOWITZ: But the fact is that this was not --

(CROSSTALK)

GIGOT: But if you're Eric Holder, Dorothy, and you're the Justice Department or his deputies and you're saying, we're tasked by the president in this case and by the law with investigating leaks, that damage national security, what do you do? Don't you have an obligation to enforce the law?

RABINOWITZ: Of course, you do. But you do it in the way that they have the safeguards to do.

GIGOT: Why did you think they did what they did --

(CROSSTALK)

RABINOWITZ: Well, that is the answer.

(CROSSTALK)

GIGOT: Was it to intimidate the press?

RABINOWITZ: One of things was that possibility. But there is another possibility, shear aggressive incompetence. Do not underestimate what's going on here. We have Eric Holder, who is a perfect reflection of the president who appointed him, that is underprepared, untrained, and trained only in ideological imperatives.

GIGOT: So blunderbuss government here?

RABINOWITZ: Absolutely.

GIGOT: Just sort of ineptitude? Look, this went up to -- Holder recused himself, but this did go up to the deputy attorney general.

RABINOWITZ: It did.

GIGOT: So they must have understood this was serious business that could have had media blow back, Dan?

HENNINGER: Sure. And, I mean, what is at the heart of this I think is what Eric Holder was trying to describe, one of the worst leaks, which means something that put American lives at risk. If you're going to put that in front of the American people and ask them to weigh the First Amendment right of the press against the government's right to try to protect the American people, I think the press is going to lose.

GIGOT: This was -- the story led to the fact that there was -- we had an undercover agent inside Al Qaeda --

HENNINGER: Yes.

GIGOT: -- and by blowing that cover, ultimately, or showing people that we had that, that's going to make it harder in the future, arguably, to be able to recruit people inside Al Qaeda because the people who are risking their lives with being an agent will say they can't keep their mouths shut in the United States and I'll be at risk.

RABINOWITZ: Well, the government was asking the associated press to make a judgment about whether it should publish this story or not. It decided to go ahead with publishing it. That is its First Amendment right. What's not covered by the First Amendment is news-gathering techniques. Those aren't protected. That has been litigated by the Supreme Court. So the press has to be careful, I think, about getting itself into a gray area where its ability to do its job gets peeled back because court decisions run against it or public opinion runs against it.

GIGOT: Dorothy, how damaging do you think this story is to the administration going forward, both in a legal sense and political?

RABINOWITZ: That is the question because it is part of the great picture we have incompetence and aggression with the IRS and everything else, and it's very hard to separate the AP story from the rest of it. In the aggregate, all of it is this possible blunderbuss by accident, but also possible blunderbuss by intention. I mean, hot house effect, in which this White House has operated, always ends up with we are the virtue with us no matter what happens. You are causing trouble. And it is the arrogance of power.

GIGOT: All right. OK, Dorothy. We've got to stop here, I'm afraid.

We have to take one more break. When we come back, "Hits and Misses"

of the week.

(COMMERCIAL BREAK)

GIGOT: Time now for our "Hits and Misses" of the week.

Collin, first to you.

LEVY: Well, this is a hit to the Third Circuit Court of Appeals which became the second federal court this week to say that Obama's recess appointments, non-recess-recess appointment to the National Labor Relations Board were unconstitutional. The court said that his appointment of Craig Becker also was invalid, which means that now some 1,200 decisions by the board are potentially up for grabs and could be overturned. So the board has been carrying on as though nothing is the matter. But it might be time to rethink that strategy.

GIGOT: All right.

Dorothy?

RABINOWITZ: Well, the effort to suppress free speech on campus took a step forward these recent days because the University of Montana received from the U.S. Justice Department a new directive expanding the meaning of harassment. First and foremost, if you ask a woman out for a date and she rejects it and you flirt, this constitutes harassment.

GIGOT: She doesn't like you.

RABINOWITZ: She doesn't like it. OK. Secondly, it doesn't have to be objective harassment, that is factual harassment, but if you feel harassed, that is harassment. This directive goes to all universities taking money.

GIGOT: I take that as a hit.

(LAUGHTER)

Joe?

RAGO: Paul, a miss this week --

(CROSSTALK)

(LAUGHTER)

RAGO: A miss this week for proof that nothing can escape politics. There is a new app for your Smartphone called "Buy Cut" that lets you scan items at the supermarket and see if they were made by Koch Industries so now liberals can buy the right kind of paper towels and avoid sending money to the Koch brothers that they might spend on politics or might donate to cancer research.

GIGOT: Koch brothers being the oil executives who are much loathed by the left because they support Libertarian politics.

RAGO: Exactly.

GIGOT: All right, Joe, thanks.

That's it for this week's show. Thanks to my panel and especially to all of you for watching. I'm Paul Gigot. And we hope to see you right here next week.

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