A Few Lessons from the IRS Scandal

May 16th, 2013 at 8:25 am

Just back from a rousing debate on CNBC on the IRS scandal (a tough way to start the day but always a pleasure to mix it up with the the Squawk team and the smart and balanced Tony Fratto).  Key points, as I see them:

–While the pugilistic Joe Kernen was disappointed to hear it, I stand second to no one in condemnation of the IRS’s alleged targeting the applications of particular groups.  The President’s obvious anger on this point in his statement yesterday was completely appropriate.

–But woe betide us if we stop there.  IE, if we make this scandal only about rogue actors in the agency and whether it reached the administration, we will miss the glaring impossibility of what we’re asking the IRS to do in these cases, which is to implement completely incoherent tax law.

On this point, all you need to know is that organizations with this status (501(c)(4)’s) that spend 50.1% of their time on political activities vs. “educational” ones are in violation of the law; those that spend 49.9% are not.  We’re asking the IRS to use a razor blade to slice a completely fuzzy line.

In that sense, the agency was and remains wholly justified in carefully scrutinizing these applicants.  But they must do so without a fat thumb on the ideological scale, and that’s where they appear to have gone badly wrong.

–Note the question I posed to the panel: can anyone here justify tax exempt status for any of these political organizations?  How does that tax break, which includes suppression of donor’s names, make America a better place?  Not only did no one have an answer, but Michelle Caruso-Cabrera agreed with me, and that’s rare!

Update: The NYT ed page very effectively elaborates points I made above.

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6 comments in reply to "A Few Lessons from the IRS Scandal"

  1. Pablo says:

    Reform tax code. Simplify. Reduce IRS.


  2. save_the_rustbelt says:

    The IR Code has been incoherent for a long long time. Mistakes are inevitable.

    This is not about mistakes, this is about intentional malfeasance.

    Firing an Acting Director who was leaving anyone is sort of a pathetic gesture.

    PS: Where did Obama get this nonsense about the IRS being an “independent agency?” The IRS is an agency operated by Treasury in the direct chain of command of the President.


    • urban legend says:

      You may think it’s “about” malfeasance, but neither you nor the President knows yet whether it was or not. If there was not an intentional targeting of groups because of their political philosophy, that would be wrong. If not, i.e., if the selection of organizations as based on indicators that might suggest the organization is primarily political and does not qualify for the exemption, then they were doing their jobs properly and everyone else is just trying to cover his or her ass.

      I’m betting a full and impartial investigation will show that the choices had nothing whatsoever to do with political philosophy, and a lot of people of both political parties will end up with egg on their faces. If they have integrity, they will apologize to those agents. Will they? Fat chance.


  3. Perplexed says:

    Mission accomplished! This should strike enough fear & terror throughout the IRS to get them to understand that their resources are not to be used to increase revenue from the politically and economically powerful (and media connected) elites. The justice department now understands that they are not to prosecute criminal banks and bankers, the SEC and bank regulators now understand that they are not to mess with the 1%, and whistle-blowers now understand the persecution (not to mention the prosecution) that awaits them if they dare to speak out.

    Where’s the call for an audit and investigation of all of these to groups to verify that their resources are not used in excess of 50% for political purposes (shouldn’t be too difficult as that’s where close to 100% of the resources are used)? Not a word of support for those in the IRS that were trying to prevent abuse of the system in an efficient manner by going after the obvious low-hanging fruit first. Had they been supported and then encouraged to dig deeper into the less obvious abuses, maybe we could have reigned some of this in. Where’s the call to audit all of these groups on a non-partisan basis to see if the IRS employees weren’t right on target and these applications weren’t ultimately granted by application of political pressure instead of the actual use of the resources for political purposes.

    Where’s the call for an investigation of how this “ambiguity” got written into this legislation to provide a way for the 1% to fund their political messaging with taxpayer money?

    What TV channel were Ornstein and Mann (authors of “Its Even Worse Than it Looks,”), and Larry Lessig (author of “Republic Lost”) on? I guess they probably don’ have much to add from the media perspective do they?


  4. urban legend says:

    If the IRS agents in Cincinnati, that hotbed of liberal Democrats, targeted groups with names that made them sound like they MIGHT be predominantly political and therefore not qualified for tax exemption, and not because of the political views of the organization, then they most decidedly did NOT do anything wrong. It’s unfortunate that so many DC Democrats, apparently unwilling to tough it out against the right-wing and VSP juggernaut, have caved and effectively thrown the agents under the bus before all the facts are in.

    That means you, too, Jared, as well as the President. You come close to acknowledging this, which is inconsistent with the unqualified condemnation. You have to establish that the agents did this because of the organizations political leanings. Without that being established clearly, the rush to judgment is deeply irresponsible. The typical response to that verity no doubt will be that the agents “should have known it would look bad” if a high proportion of the subject organizations also appeared that they might be conservative in viewpoint. It is not the job of IRS agents to consider the political optics of following the law.


  5. purple says:

    The IRS has a page illustrating typical 501c4’s. Tea Party groups are not remotely close. They perform no public service whatsoever and are explicitly political. You can throw moveon.org in there too.

    A 501c4 is a volunteer fire department – something which performs a social good.

    This is all bad because we need much tougher tax enforcement in this country. We do not need the IRS defanged.


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