The stories coming out about IRS abuses of nonprofit groups are appalling. We will likely find out that arrogant and biased officials are to blame, as well as members of Congress who pushed them to be especially aggressive on conservative groups.
Past IRS abuses have stemmed from foul play by both politicians and bureaucrats. As Gene Healy mentions, numerous presidents have used the IRS as a political weapon. As for the bureaucrats, investigations during the 1990s revealed how IRS enforcement had run amok, with abusive tactics being used against small businesses and other taxpayers.
Some of the hearings were hair-raising, and the abuses led Congress to pass the IRS Restructuring and Reform Act of 1998. Useful links to hearing documents are here and here including Senator Roth describing the agency as having an “awesome power.” Washington Post coverage is here, including a story about how even President Clinton was “outraged” by the revelations of IRS abuse.
In recent years, efforts to close the “tax gap” have included proposals to augment the power of the IRS and increase the intrusiveness and compliance burden of tax rules. Yet Congress keeps raising tax rates and making the code more complex, which increases incentives for taxpayers to avoid taxes while reducing their ability to comply. Regarding the latest scandal—note that getting tax-exempt status is so valuable because the tax rates are so darn high.
This article by Bill Beach frames the tax gap issue: Congress can reduce the gap by either giving the IRS more police power or by reforms to cut rates and simplify the code. Hopefully the latest IRS scandal convinces Congress that the agency already has too much power. Thus the way to give Americans more freedom from the tax police and to also boost the economy is to scrap the current tax code in favor of a low-rate consumption-based system.