“The Real IRS Scandal”: Lawmakers Who Pushed The Agency To Rely On Bone-Headed Tactics By Refusing To Fund It To Do Its Job
David Simon, of “The Wire” fame, once responded to the idea of “doing more with less” by saying, “That’s the bullshit of bean counters who care only about the bottom line. You do less with less.” For the Internal Revenue Service, the line should perhaps be updated to “you do less with less, and also cause a scandal.”
The IRS, of course, was recently caught singling out conservative groups seeking tax-exempt status for extra scrutiny. IRS employees in a Cincinnati office used search terms such as “tea party” and “patriot” to find organizations they deemed worthy of more attention in their request to be exempted from paying federal taxes. (The irony of tea party groups complaining about not getting effectively subsidized by the government in a timely enough fashion will be left for another time.)
The “scandal” has already caused the acting commissioner of the IRS to lose his job and prompted a hearing on Capitol Hill Friday during which lawmakers expressed their outrage that the tax agency could act in such a manner. But Congress deserves its own share of blame for the debacle.
Now, the IRS employees who were searching for “tea party” surely should have known better. But the fact of the matter is that the agency has been dealing with a deluge of applications for tax-exempt status at a time when its budget is shrinking. The size of the IRS workforce has dropped 9 percent from its 2010 level, and the agency has seen its budget cut in each of the last two fiscal years. This fiscal year, the amount the IRS spends per capita (meaning per citizen) will be 20 percent lower than it was in 2002, according to an analysis by tax expert David Cay Johnston.
Meanwhile, as Reuters reported, “The IRS has seen the number of groups applying for 501(c)4 status double in the wake of a January 2010 Supreme Court decision that loosened campaign-finance rules.” The Obama administration has requested budget increases for the IRS, but Republicans in Congress refuse to approve them. So it’s perhaps not surprising that already overworked employees at the agency looked for a few shortcuts.
And things are likely not going to get any better this summer when the IRS shuts down entirely for five days due to budget cuts under the so-called “sequester.” These cuts don’t just inconvenience people who need tax assistance; they cost the Treasury money. The IRS estimates that every dollar spent on enforcement brings in $4 to $5 in additional revenue, so cutting the IRS budget is akin to the government cutting off its nose to spite its face.
My colleague Robert Schlesinger noted today that the real scandal surrounding the attack at the U.S. diplomatic outpost in Benghazi, Libya, is not who edited which talking point when, but that the State Department was denied funds to beef up consular security. Much the same can be said for the IRS. The scandal is not about the agency’s shortcuts, but the lawmakers who pushed it towards relying on bone-headed tactics by refusing to give it the money it needs to do its job.
By: Pat Garofalo, U. S. News and World Report, May 17, 2013
“Tea Party Is An Election Category”: The IRS, Non-Profits, And The Challenge Of Electoral Exceptionalism
What the IRS scandal really shows us is that it’s getting harder and harder to draw a line between electioneering and political speech.
As the report of the IRS Inspector General shows, the agency’s scrutiny of conservative groups applying for non-profit status was, more than anything, a clumsy response to a task the IRS is ill-equipped to carry out – monitoring an accidental corner of campaign finance law, a corner that was relatively quiet until about 2010.
That corner is the 501(c)(4) tax-exempt organization, belonging to what are sometimes called “social welfare” groups, which enjoy the triple privilege of tax exemption (though not for their donors), freedom to engage in some limited election activity, and, unlike other political committees (PACs, SuperPACs, parties, etc.), freedom from any requirement to disclose information about donors or spending. The use of (c)(4)s as campaign vehicles didn’t originate with the Citizens United decision in 2010 (Citizens United, the organization that brought the case, was already a (c)(4)), but the decision seems to have created a sense that the rules had changed, and even small groups – especially, apparently, local Tea Party organizations — rushed to create (c)(4)s.
501(c)(4)s are not prohibited from engaging in political speech of most kinds. They are free to be “biased” without jeopardizing their tax exemption. They can advocate for or against legislation, they can lobby the government or criticize it. They don’t have to make any effort to be “non-partisan” – for example, they can support a proposal that is only supported by members of one party, or directly advise only members of one party. And they can engage in some activity directly intended to influence the outcome of an election, as long as that doesn’t constitute the organization’s primary purpose.
There’s some confusion about the definition of “primary purpose,” discussed in great depth elsewhere, but what the IRS was trying to do was to identify organizations that seemed more likely to be heavily involved in electoral activity. Since the organizations were new, there was no way to look at their actual activities to see whether they were mostly electoral. So the agency had to rely on clues in the applications, like names and telltale phrases. If organizations had words like “Democrat” or “Republican” in their titles, for example, it would be reasonable to look more closely at their election activities, or possible future activities, than an organization that called, for example, “Save the Turtles.” I’m told that organizations with the names of political parties do receive extra scrutiny, even if in some cases, like “Students for a Democratic Society,” the word might mean something unrelated to the name of the party. That’s what the closer scrutiny would find out.
“Tea Party” in 2009 and 2010 was unquestionably an election category – there were “Tea Party” candidates and there was a “Tea Party Caucus” in Congress. It was not unreasonable for the IRS to use that phrase as an indicator that an organization using that phrase might be more inclined to engage in elections. There are comparable phrases on the left – for example, the term “Netroots” might suggest election involvement, as there were groups that identified and endorsed “Netroots” Democratic candidates in 2006 and later. Perhaps there were simply fewer organizations applying for (c)(4) status with that word, or they came in before the 2010 flood, or perhaps the IRS did screen on that word – we don’t know.
While there’s a perfectly plausible case for the IRS to use flag-words that indicate an election-focused movement, the actual questions asked of the groups do raise some concerns. If accurate, they did seem to go beyond evidence that these organizations were primarily engaged in elections, such as questions about lobbying and the role of family members.
But the reason these questions are complicated for the IRS, or for any agency assigned to police these complicated distinctions, is this: The line between robust political speech and influencing elections has become frightfully difficult to draw. Finding the right line around what is an “election” is really the fundamental problem in campaign finance. Almost everyone accepts the premise of “electoral exceptionalism” – elections are structured and require some particular rules, different from the rules that apply generally to political speech. The rule in most states that keeps campaigners 75 or 100 feet from the voting booths is the most obvious uncontroversial restriction on political speech, and there is broad acceptance of the idea that direct contributions to candidates and campaigns should be limited to prevent corruption and dependence. But what happens after that? What about outside spending that looks just like campaign spending? We used to think there was a clear distinction between “issue ads” that were expressing a view on an issue and “electioneering communications” that were the equivalent of campaign contributions. That distinction is actually what the Citizens United case was about — the provision of the 2002 Bipartisan Campaign Reform Act that defined broadcast communications that mentioned a candidate within 30 days before a primary or 60 days before a general election as electioneering, which had to be financed with regulated funds.
That was an improvised line then, and it’s gotten even blurrier since. Part of the problem is partisanship – it used to be, for example, that there were environmentalists in both parties, supporters of social spending in both parties. A political ad about the environment was just that. But what’s an ad or brochure attacking “Obamacare” during the election year? Every Republican opposes it, and they’ve given it the name of the president. The Tea Party was based on issues, yes, but above all else, it was based on unflagging, total opposition to Obama and congressional Democrats.
To figure out where election advocacy begins and regular political speech ends in these cases was certainly more than mid-level IRS bureaucrats in Cincinnati could handle. But it’s not an easy challenge for anyone. All the noise about IRS “targeting” and about free speech and corporate speech is a distraction from a real challenge of money in elections: finding an agreement on the line around an “election,” and establishing some clear rules for what happens within that line in order to ensure that elections are fair and open and don’t lead to corruption.
By: Mark Schmitt, The National Memo, May 16, 2013
“The IRS And The Real Scandal”: Enabling America’s Financial Elite To Further Entrench Their Wealth And Power
“This systematic abuse cannot be fixed with just one resignation, or two,” said David Camp, the Republican chairman of the House tax-writing committee, at an oversight hearing Friday morning dealing with the IRS. “This is not a personnel problem. This is a problem of the IRS being too large, too intrusive, too abusive.”
David Camp has it wrong. There has been a “systematic” abuse of power, but it’s not what Camp has in mind. The real scandal is that:
The IRS has interpreted our tax laws to allow big corporations and wealthy individuals to make unlimited secret campaign donations through sham political fronts called “social welfare organizations,” like Karl Rove’s “Crossroads,” the U.S. Chamber of Commerce, and “Priorites USA.”
This campaign money has been used to bribe Congress to keep in place tax loopholes like the “carried interest” rule that allows the managers of hedge funds and private equity funds to treat their income as capital gains, subject only to low capital gains taxes rather than ordinary income taxes, and other loopholes that allow CEOs to get special tax treatment on giant compensation packages that now average $10 million a year.
Despite a growing number of billionaires and multi-millionaires using every tax dodge imaginable – laundering their money through phantom corporations and tax havens — the IRS’s budget has been cut by 17 percent since 2002, adjusted for inflation. To manage the $594.5 million in additional cuts required by the sequester, the agency will furlough each of its more than 89,000 employees for at least five days this year.
Finally, all of this, coming at a time when the Supreme Court has deemed corporations “people” under the First Amendment and when income and wealth are more concentrated at the top than they’ve been in over a hundred years, has enabled America’s financial elite to further entrench their wealth and power and thereby take over much of American democracy.
This is the real scandal and the real abuse, Congressman Camp. Your indignation over the IRS’s alleged “targeting” of conservative groups is a distraction from the main event.
By: Robert Reich, The Robert Reich Blog, May 17, 2013
“The Real IRS Problem”: The Post Citizens United Explosion Of Undisclosed Political Campaign Spending
Americans of all political stripes should be outraged at the recent revelation that the Tea Party was unfairly targeted by the IRS before last year’s election. The IRS should never base its decisions on political preferences or ideological code words, regardless of what bureaucratic challenges it may face. But the lesson that the right is drawing from the IRS’s misdeeds — the lesson that threatens to dominate the public conversation about the news — is wrong.
We’re seeing a knee-jerk reaction, particularly from the Tea Party and their allies in Congress, that is threatening to turn the IRS’s mistakes into an indictment of “big government” writ large. Some are already trying to tie the scandal to the Right’s favorite target, Obamacare, and to the Benghazi conspiracy theory.
The danger of this frame is that it will discourage the IRS from fully investigating all nonprofit groups spending money to influence elections. And it will distract from the core problem behind the IRS’s mess: the post-Citizens United explosion of undisclosed electoral spending.
Before the Supreme Court’s decision in Citizens United, only a limited number of nonprofit 501c(4) groups could spend money to influence elections — those who did not take contributions from corporations or unions. But Citizens United lifted restrictions on corporate spending in elections, setting the stage for individuals and companies to funnel unlimited money through all corporations, including c(4)s and super PACs in an effort to help elect the candidates of their choice. Spending by c(4)s has exploded since Citizens United, since the decision allowed any c(4) nonprofit corporation that didn’t spend the majority of its money on electoral work to run ads and campaign for and against candidates. And c(4)s, as long as they follow this rule, don’t have to disclose their donors under the laws currently in place.
The IRS, then, was forced to play a new and critical role in policing this onslaught of electoral spending. IRS officials clearly made poor choices in how to confront this sudden sea change and those mistakes should be investigated and properly addressed. But strong oversight of this new wave of spending remains critically important and clearlywithin the IRS’s purview.
If we let understandable concerns about bad decisions by the IRS lead to weakening of campaign finance oversight, our democracy will be the worse off for it. Instead, we should insist that the government strengthen its oversight of electoral spending — equally across the political spectrum. We should pass strong disclosure laws that cover all political spenders, including c(4)s. And we should redouble our efforts to overturn Citizens United by constitutional amendment and reel back the flood of corporate money that led the IRS to be in this business in the first place.
By: Michael B. Keegan, The Blog, The Huffington Post, May 15, 2013
“Hidden In The Footnotes”: IRS Cases Included Organizations Of All Political Views
USA Today had an item today on the IRS controversy, which seemed to reinforce much of what we already know: conservative groups seeking tax-exempt status faced unfair and unreasonable scrutiny. But deep in the article, in the 18th paragraph, USA Today added seven unexpected words: “Some liberal groups did get additional scrutiny.”
They did? Actually, yes.
The Internal Revenue Service, under pressure after admitting it targeted anti-tax Tea Party groups for scrutiny in recent years, also had its eye on at least three Democratic-leaning organizations seeking nonprofit status.
One of those groups, Emerge America, saw its tax-exempt status denied, forcing it to disclose its donors and pay some taxes. None of the Republican groups have said their applications were rejected.
Progress Texas, another of the organizations, faced the same lines of questioning as the Tea Party groups from the same IRS office that issued letters to the Republican-friendly applicants. A third group, Clean Elections Texas, which supports public funding of campaigns, also received IRS inquiries.
In fact, it’s worth emphasizing that the IRS, which has acknowledged making mistakes in this area and offered an awkward apology for agency missteps, noted yesterday that the “organizations of all political views” were affected by the scrutiny.
This certainly seems relevant to the larger controversy, doesn’t it? Up until now, the story has been pretty straightforward: conservative groups were subjected to unfair treatment when applying for tax-exempt 501(c)4 status. The IRS must remain politically neutral at all times and the right was fully justified in complaining that the agency fell far short of this standard.
But if several liberal groups were subjected to the same treatment, it reinforces a larger, less-partisan arc to the story: the IRS struggled to enforce ambiguous tax laws and was beset by bureaucratic bungling. The ratios certainly matter — if only a handful of left-leaning groups faced tough scrutiny, while right-wing leaning groups fared far worse, that would point to a more systemic problem — but we don’t yet know that for sure.
It would appear, then, that what’s needed is a detailed accounting. The inspector general’s report filled in many of the blanks, and I suspect we’ll get a more thorough examination with the FBI looking into the case and congressional hearings on the way.
By: Steve Benen, The Maddow Blog, May 15, 2013
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