Should Taxpayers be required to Pay More Taxes to the IRS Because of its Mistake in Calculating Health Care Premiums?
Competency in Government and Moral Hazard
Have you filed your income taxes for 2014 using an incorrect tax statement, known as 1095-A, that shows the value for local health care premiums related to the Affordable Care Act (Obamacare)? Some of you may have owed more taxes had you received the correct statement because you under-estimated your 2014 income thereby receiving a larger heath care premium from the government than you were entitled to. Those premiums could have been used to reduce the costs of insurance under the program by having the tax credit amount paid directly to the insurance company to offset the monthly payments or you could have claimed the credit against your taxes when you filed for the year. If you are one of the estimated 800,000 who received incorrect tax statements and one of the 50,000 of those whom, it is estimated, owe more money, don’t worry the IRS announced last week that it won’t collect those additional taxes. Almost six weeks into tax filing season, it is estimated that approximately 52% of people who enrolled in insurance through state or federal exchanges are finding they must pay back a portion of their tax credits.
Instead of taking action to correct a mistake, which, after all, we preach in ethics is the right way to correct for a wrong, the administration is covering up its mistake to avoid the political fallout of yet another level of incompetence in the administration of the Health Care Act. Imagine if you went into a bank to deposit a check, received cash back, and the teller gave you $100 too much. Would the bank say to you upon discovery it is OK to keep that amount since it made the mistake? I don’t think so. Then why should the government be held to a lesser standard of ethics? The answer is because we have a dysfunctional, incompetent government at all levels.
To make matters worse from an ethical perspective, the relief only applies to those who already filed their returns using the erroneous forms. Corrected documents will be sent out this month. The IRS suggests you wait to receive those forms if you haven’t as yet filed. Good luck with that from the perspective of those who estimate they owe more taxes because they (perhaps knowingly) under-estimated their income. I can see the rush now to file before the forms are received. Moreover, how in the world will the IRS even know whether a particular taxpayer received the corrected form before they filed. Are you telling me the agency keeps track of the dates when these forms are sent and matches them against when a taxpayer files the return? That would be giving the IRS too much credit for competency.
If you have already filed your return and were owed a refund because you over-estimated your income, then you can file an amended 1040 form for 2014 to get the additional money back from the IRS. Sure, place the burden on the taxpayer to go back to one’s tax preparer, pay them some more money, and get a larger refund, the amount of which may be equal to or less than the cost of paying that tax preparer.
Now the Obama administration says it will allow people to sign up for insurance plans on HealthCare.gov through April. The extension of the enrollment period past the February 15 deadline is aimed at giving some consumers a chance to minimize tax penalties for going without coverage in 2015, officials said. It is also likely to boost sign-up numbers for the law’s second year.
More politics are played with the result being a level of “moral hazard” that boggles the mind. If there is no penalty for late enrollment, then why should anyone enroll on time? There are no consequences for not doing so. If those who already have filed their taxes and owe more money to the IRS because of the underestimation of their income receive a pass, then why should those who waited to pay their taxes and were equally over-subsidized be made to pay the proper amount? How is that fair? Why should they be penalized for waiting when the government makes a mistake?
We live in a country where competent government is an oxymoron. We see it in the Health Care Act, the operations of the Veterans Administration, the IRS, and other state and federal agencies. Congress is awash in incompetency and can’t get its act together on so many important issues facing the nation, not the least of which is a strong immigration policy especially in light of the growing threat of radical Islamist terrorism hitting the homeland. The root cause is a culture of incompetence that has built up over time as we have morphed from a ‘can do’ attitude to an ‘it’s easier to kick the can down the road’ approach to decision-making.
The sad part of it is those of us who play by the rules often suffer the consequences of those who skirt the rules or are left off the hook by the government to cover up its mistake.
Blog posted by Dr. Steven Mintz, aka Ethics Sage, on March 3, 2015. Professor Mintz is on the faculty of the Orfalea College of Business at Cal Poly San Luis Obispo. He also blogs at: www.workplaceethicsadvice.com.