The View from the Right
by Gregory Conterio
Scandals are nothing new to Washington D.C. but the past few months have been remarkable in their number and proximity. I don’t know that I have ever seen or heard of a similar period when so many scandals have popped-up in such a short period, and all of a legitimate character, meaning they have not just been trumped-up by the opposing party. It’s been a veritable scandal-palooza, to the point where the public shows signs of being overwhelmed and desensitized. But the one issue that has grabbed the most consistent attention has been the IRS admittedly targeting conservative groups applying for 501(c)(3) or (4) exemption status. This has been accompanied by several instances where conservative individuals have also been targeted by the IRS for apparent harassment. Even Obama expressed anger over the revelation when it was made public, although it seems unlikely in the extreme that he didn’t know about it while it was going on. Certainly his administration’s explanation that is was “a couple of rogue agents in Cincinnati” has been quickly and completely debunked. Why make-up a lie to explain it if you honestly didn’t know about it until you heard it on the news?
Scrutiny of the IRS has spawned a variety of legislative proposals that occasionally trend highly here on Bill Track 50, like these resolutions from New Jersey and Illinois calling for thorough investigation. There have also been proposals to cut the IRS out of its proposed role of enforcer for Obamacare, as exemplified by HB1990. It’s a fair question: if you can’t trust the IRS to be fair and honest in carrying out their mandated purpose, how can they be trusted to administer everyone’s healthcare? Then there is HB2025, which calls for the termination of any IRS agent or employee found to have discriminated against any taxpayer on the basis of political affiliation or ideology. That such a step need even be discussed out-loud is jarring. Does this mean such discrimination was NOT a job-ending offense? How could it NOT be?
There certainly have been accusations of abusing the IRS in the past, particularly their ability to investigate and audit taxpayers. While audits are supposed to be random, or in response to certain “red-flags” on tax returns, like large and unusual deductions, there have often been claims of political targeting. Nixon is often reputed to have abused the IRS in this way, although there is strong evidence that it never actually happened. But while an IRS audit is nothing to treat lightly, past allegations could plausibly be waved-off or regarded almost as nuisances compared to current revelations.
The prospect of any administration abusing the IRS for political purposes should be alarming, but if the administration and its defenders are correct, and they were not directly responsible for singling-out and going after conservative individuals and organizations, the alternative is even more ominous. If the illegal targeting of conservatives is simply due to arm-twisting by the administration, that after all is easy to fix: identify those within the administration responsible, remove them, and see they are appropriately punished. If however this behavior came organically from within the IRS itself, it is a far more ominous, more difficult problem to solve. Such a prospect undermines the fundamental trust necessary for the government to function. How does one fix an institution whose culture has come to identify a very large cohort of the American People as “the enemy?” How do we fix an organization with the awesome power of the IRS, which now takes an active role in politics? Perhaps the best answer is to eliminate the organization itself. Has the time finally come that we are better-off without the IRS?
A Bit of History
As originally written, the Constitution did not permit direct taxation, except as apportioned by state. What this means is, the federal government could not directly tax income or property, but could only tax each state based on its population, with the state then charged with laying and collecting the necessary taxes required by the federal government. This system is entirely understandable when one considers that a leading cause for the war of independence was England’s apparent arbitrary taxation of the colonies, which had become excessive and onerous, and did not include representation. Essentially, England treated the colonies like a piggy-bank, and the colonists had enough of it. In writing the constitution, the founders wanted to prevent a similar circumstance from evolving here, thus the apportionment rule. This was upheld in the landmark case, Pollock vs. Farmers’ Loan and Trust, decided in 1895. The sixteenth Amendment, ratified in 1913 changed all that, giving Congress the power to directly lay taxes on income, no matter how derived, without apportionment. Thus was born the Bureau of Internal Revenue, which started calling itself the Internal Revenue Service on forms in 1918, formally changing its name in 1953.
Why Tax Income?
Why indeed. One would imagine the purpose of revenue generation and collection to be to pay for the mandated functions of the government. Building & maintaining infrastructure, defense, that sort of thing. We have strayed far from that purpose. Indeed one of the purposes of a progressive income tax, as cited by both Marx and Lenin is the redistribution of wealth. Both in fact considered a heavy progressive income tax to be a necessary condition in the dialectical theory of Communism. Progressive taxation is not by its nature a fundamentally socialistic or communistic idea, but employing it for the express purpose of wealth redistribution is, and that has become one of its key functions in America today. Consider the persistent, heavy rhetoric about the upper economic classes “paying their fair-share” of taxes, this despite the fact that the topmost 10% of income earners already pay in excess of 50% of all income taxes. It raises the legitimate question of how much really is fair? Consider that when offered alternative revenue sources which more than adequately replace income taxes, the political left always balks. Could it be that revenue generation is not the primary goal of tax policy, but rather the secondary purpose behind the ideological goal of “punishing” high-earners? If we are going to tax the people directly, is it not more “fair” to tax them on consumption rather than income?
It’s Time to Eliminate the IRS
There have been a number of different proposals made over the years to eliminate the IRS, most of which have been shown to easily replace the revenue generated under the income tax, and I think it is high time to seriously consider them. Even if current revenue levels are not precisely replaced, there is ample reason to dispose of a tax code that is fundamentally unfair, and an institution that has proved it cannot be trusted. A consumption tax would be far less unfair. It would put people much more in charge of how much tax they choose to pay, because they will be in control of their own spending. It will still be “progressive” because the wealthy spend more, and thus will be taxed much more than the poor. In fact it more effectively taxes the wealthy, because you will be collecting taxes on economic activity that is NOT presently taxed for high-wealth individuals with low income levels. We already have an infrastructure and mechanisms in place to effectively collect tax revenue, since all states and municipalities are already collecting some level of state and local consumption taxes, so no large, new bureaucracy need be erected. In fact, we could dismantle one, and much as even the political left may like the idea of progressive income taxes, the IRS is an institution nobody loves. It’s time to shut it down.
The View From the Left
by Derek Smith
The IRS scandal has riled up a lot of people, and not just those sympathetic to the targeted groups—most liberals are pretty uncomfortable with the idea of unfairly hindering political opposition, too. Calls for investigations, firings, and resounding denunciations of gross mismanagement have come from media commentators and politicians on both sides of the aisle.
In addition to Congressional hearings, the scandal has stirred up some new legislation. At the federal level, House Republicans penned the largely symbolic and unnecessary bill HB 2025, which makes slight amendments to already-existing laws requiring the termination of an IRS employee who discriminates on the basis of political orientation. Many state-level Republicans have introduced resolutions calling for investigations into the IRS, such as Illinois’ HR0408 and New Jersey’s AR171; essentially, they are loudly demanding what they already know they are going to get, so no one can fail to notice their displeasure.
Although commentators in the media have been disagreeing about whether this is one of the biggest scandals in American history or a mistake but not a scandal of great import, almost everyone seems to agree that what the IRS did was pretty bad. I’m going to go out on a limb and posit what many liberals are too politically correct to suggest: the IRS targeting was somewhat clumsily-handled, at worst, but not inherently wrong.
Although the “Be On the Look Out” (BOLO) list in question was limited to terms used by conservative-leaning groups, they were not the only applications subjected to heightened scrutiny and delayed. One analysis of a list of groups flagged as potentially political, yet ultimately granted, by the Cincinnati office between May 2010 and May 2012 shows that nearly a third of the groups flagged were non-conservative, including some obviously progressive-sounding names like Delawareans for Social and Economic Justice, Homeless But Not Powerless, and Progressive USA. Some commentators have decried Democratic lawmakers at the Ways and Means Committee hearing on the scandal for failing to bring any witnesses from targeted liberal groups. However, an NPR reported managed to find couple such groups in a recent story, in which they described detailed requests for information and long delays—one took nearly three years for approval—similar to those experienced by Tea Party groups. An additional liberal group that was flagged, Progress Texas, released a copy of the fairly onerous questionnaire it received, with less than a month to respond. Granted, this is a limited selection as there is no information on the groups not granted non-profit status, but it does show that applications were not singled out based on a specific political orientation.
An often ignored facet of this story is that viewed in the temporal context of the start of this scandal, in May 2010, a BOLO list of Tea Party-related terms is a fairly reasonable action to a changing landscape of political organizations. Given the recency of the Citizens United decision, it made sense that there would be a large increase in the number of applications for 501(c)(4) tax-exempt status from primarily political organizations—in fact it doubled. It would also be reasonable to predict that some number of these would come from groups that intended to exploit the purpose of the tax-exempt and non-disclosing status and engage in improper forms of electioneering. Workers at the IRS had a legitimate job function of screening applications for overly politically active groups to prevent abuse of this tax designation. At that time, the Tea Party movement was barely over a year old, and although they had certainly garnered enough media attention, it’s hard to blame someone for not having a very clear understanding of what was/is a fairly incoherent movement. They did not need a memo reminding them that words like “conservative” or “progressive” indicated a higher likelihood of political activity, but the label “9/12” is fairly new and not very facially informative. In order to adequately screen for primarily political organizations, workers would need to be aware of newer terms describing political movements.
At least one conservative commentator has argued that Citizens United is not a real justification, due to the fact that the vast majority of spending in the 2012 election by 501(c) groups came from just ten particularly powerful groups, and most of those flagged by the IRS were much smaller “mom-and-pop” 501(c)s that don’t spend enough to make them of significant interest in the scrutiny of dark money in politics. For one, this fails to consider that it might be difficult to identify which applicants truly are “mom-and-pop” groups without requesting more information from them. Also, reference to the disproportionate influence of a few powerful groups provides a degree support for a closer examination of conservative groups. Of the top ten 501(c) spenders, nine are conservative, with the sole liberal group, the League of Conservation Voters, ranking eighth; Crossroads GPS, the top conservative spender, spent over twice as much as top four liberal groups combined. And in total, bringing in groups of all sizes, conservative groups accounted for 84% of all 501(c) 2012 election spending.
Another often overlooked finding in the TIGTA audit of the IRS is the fact that the screening process actually worked fairly well other than the lengthy delays (probably mostly attributable to budget cuts shrinking the IRS workforce). Out of all applications flagged as “potential political cases,” 69% were found to contain indicators of “significant amounts of campaign intervention.” That seems like a decent success rate for a pre-screening progress—and that doesn’t mean that the remaining 31% were improperly denied 501(c) status, just received more scrutiny. This success rate becomes even more significant when you look just at groups flagged due to Tea Party identifiers— of the ninety-six Tea Party applications “improperly” flagged, seventy-eight were found to contain indicators of significant amounts of campaign intervention, or 81%. So targeting Tea Party groups yielded a lower rate of false positives than the screening process as a whole.
Of course everybody, liberal or conservative, should be upset about a government using bureaucratic intimidation to silence dissent, and a situation that smacks of political impropriety should be carefully examined. Yet when that examination turns up no evidence of political motivation, malice, and hardly even incompetence, it’s time to move on. By carefully screening 501(c) applications, the IRS is playing a role in keeping dark money out of elections; I think a longer process for some is an acceptable trade-off.
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