The Internal Revenue Service scandal would be bad enough if the IRS just handled issues like collecting income taxes and granting nonprofit status. But the immensely powerful federal agency is about to become even more powerful with the arrival of national health care, and that makes the still-unfolding scandal even more troubling.

"When I hold town meetings, a great deal of distrust comes through about the size and increasing power of government," says Republican Sen. Charles Grassley of Iowa. "The IRS targeting crystallizes that distrust in a very big way because of the IRS' reach into taxpayer information. What's happened heightens fears about how the IRS will handle taxpayer information and wield its power when it enforces Obamacare starting next year."

The IRS is critical to Obamacare. The structure created by the Affordable Care Act requires the government to know about both the health care coverage (or lack of it) and the financial resources of every American. The IRS, which already knows the latter, was the only agency with the reach to do the job.

A look at the text of the health care law reveals that much of it consists of amending the Internal Revenue Code to give the IRS more power. When Obamacare goes fully into effect in January, every American will have to prove to the IRS that he or she has "qualifying" health coverage, meaning coverage with a list of features approved by Health and Human Services Secretary Kathleen Sebelius. That will be done by submitting a document to the IRS, something like a W-2, to confirm coverage.

The IRS will also decide who is, and who is not, eligible for Obamacare's subsidies. The law authorizes the IRS to share confidential taxpayer information with the Department of Health and Human Services for the purpose of determining those subsidies. And since subsidies don't just apply to a relatively small number of the nation's poorest citizens -- under the law, they can go to a family of four with a household income of nearly $90,000 -- they will affect a huge segment of the population.

In addition, the IRS will keep track of even the smallest changes in Americans' financial condition. Did you get a raise recently? You'll need to notify the IRS; it might affect your subsidy status. Have your hours been reduced at work? Notify the IRS. Change jobs? Same.

Last August, IRS official Nina Olson testified before Congress on the changes Obamacare will bring to Americans' dealings with the nation's tax collector. "Do you believe that most Americans are going to update the IRS or state exchanges when they change jobs, get married, move states, whatever?" Michigan Republican Rep. Tim Walberg asked Olson.

"I think it's going to be a very great learning curve," Olson answered. If Americans don't keep the IRS up to date on their financial status, they might incur penalties, which the IRS will collect by withholding income tax refunds. "I think it will be a surprise to taxpayers if they don't update their information," Olson said.

And now the IRS has been exposed abusing its authority for apparently partisan purposes. At the height of the Tea Party movement, IRS officials applied special scrutiny to organizations with "Tea Party" or words like "patriot" in their names when those groups applied for tax-exempt status.

At his brief news conference Monday, President Obama sought to assure Americans that he will correct the situation. "If, in fact, IRS personnel engaged in the kind of practices that had been reported on and were intentionally targeting conservative groups, then that's outrageous and there's no place for it," Obama said before heading to New York City for a series of fundraisers.

In the next few weeks, the details of the IRS' apparent misconduct will be spelled out in a series of hastily arranged congressional hearings. Most of the discussion will focus on political nonprofits and the selective treatment they received from the IRS. For millions of Americans, the hearings will do what Charles Grassley noticed at those town meetings in Iowa: reduce their faith that the federal government will treat them fairly.

And that will mean even more anxieties about the coming of Obamacare. "Now every American understands there are elements of the IRS that go off on their own," former House Speaker Newt Gingrich told MSNBC Monday morning. "Why would you trust the bureaucracy with your health if you can't trust the bureaucracy with your politics?"

Byron York, The Washington Examiner's chief political correspondent, can be contacted at byork@washingtonexaminer.com.