Tag: IRS

Conspiracy Not Required

The recent revelation that the IRS targeted conservative political groups is now moving into the second stage of a DC scandal: the first is finding out what happened; the second is finding out how high up it goes. Although it is important to find out how many, if any, high-level officials are culpable, high-level participation is not necessary for libertarians to have a small “I told you so” moment.

But we should not try to oversell it. Some libertarians have an odd tendency to believe that government is more effective at doing bad things than at doing good things. At the extremes, this manifests as the “libertarian conspiracy theorist”—someone who oddly believes that, while government can’t effectively run health care, schools, or welfare programs, it can successfully orchestrate and cover-up massive conspiracies. But we don’t need high-level conspiracies to point out that abuses of power, even by low-level officials, can be expected. Moreover, as government grows larger it becomes both less accountable and more important to our lives, thus giving government officials both more leverage and more freedom to misbehave.  

In his novel Child 44, a fascinating detective story that takes place in Stalin’s Russia, Tom Rob Smith tells of an encounter between a party-member doctor and the novel’s protagonist, a Muscovite police officer who was once a loyal party member but is slowly losing his faith. The officer is out sick and the doctor visits to see if he is really sick or just trying to avoid work. Shirking work is a grave offense, and the doctor’s judgment could destroy the officer and his wife. A bad report and they will go to the Gulag. A good report and they get to stay in their relatively comfortable apartment in Moscow. Knowing his power, the doctor makes unwanted advances towards the officer’s beautiful wife, telling her that “Ten minutes is hardly a high price to pay for the life of your husband.”

It is a chilling episode, and while I am certainly not comparing the U.S. government to Soviet Russia, there are some lessons to be learned. As much as we might like a sensational story implicating top-level officials, the most common form of government misconduct does not usually involve devious scheming by politicians. Instead, it is often both less insidious and more invidious—the cumulative effects of misconduct by less-accountable, low-level officials who enjoy immense power over small areas of our lives.  

My father, an attorney, once told me he first started having vaguely libertarian thoughts after he began dealing with banking regulators. The regulators were relatively low on the chain of command, yet they held an incredible amount of power over their areas of concern, more than enough to make my father’s job very difficult. And they did. Similar stories happen all over the country, and sometimes they make it to the Supreme Court.

But most don’t usually make it to any court, much less the Supremes. The United States government is the most powerful organization the world has ever seen, and lower-level officials wield a small fraction of that power, which is still more than enough to make most people sit down and shut up.

I’m not saying that most government officials illegitimately use their power. I believe that the vast majority of government officials do not. I am saying, however, that many abuses occur and more can be expected if the government continues to grow larger and more powerful. It is simply too large an organization for anyone to control.

IRS Budget Soars

The revelations of IRS officials targeting conservative and libertarian groups suggest that now is a good time for lawmakers to review a broad range of the agency’s activities. Since the agency’s last overhaul in the IRS Restructuring and Reform Act of 1998, its budget has exploded from $33 billion to a proposed $106 billion in 2013. 

Using data from the OMB budget database, I split total IRS outlays into two broad activities: administration and handouts. Administration includes tax return processing, investigations, enforcement, and other bureaucratic functions. Handouts mainly includes spending on “refundable” tax credits such as the EITC. 

The chart shows that the IRS has become a huge social welfare agency in recent decades. Handouts have soared from $4.4 billion in 1990 to an estimated $91.1 billion in 2013 (red line). Handouts are down a bit in recent years because some of the refundable credits from “stimulus” legislation have expired. IRS administration costs have grown from $7.7 billion in 1990 to an estimated $15.3 billion in 2013 (blue line). 

 

How should we reform the IRS budget? First, we should terminate the handout programs. That would save taxpayers more than $90 billion annually and cut the IRS budget by 86 percent. 

The largest IRS handout is the refundable part of the EITC, which is expected to cost $55 billion in 2013. Many policymakers favor the EITC as a “conservative” handout program because it encourages people to work. But the EITC itself creates a discouragement to increased work over the income range that it is phased-out. It also adds to tax-code complexity and has an error and fraud rate of more than 20 percent.

The EITC is an example of how big government begets more big government. We certainly wouldn’t need the EITC incentive to work if we slashed all the taxes and welfare programs that currently encourage people not to work. 

It’s a similar situation with other IRS handout programs, such as the $1 billion “Therapeutic Discovery” grant program. These grants are supposed to “produce new and cost-saving therapies, support jobs and increase U.S. competitiveness.” But it would be better to accomplish those goals by repealing the excise tax on medical devices and slashing the high 40 percent U.S. corporate income tax. 

As for the $15 billion in spending on IRS administration, we could dramatically cut that cost with major tax reforms. In particular, a consumption-based flat tax would hugely simplify the code and greatly reduce paperwork costs of the IRS and taxpayers alike. 

Looking ahead, the IRS budget is expected to balloon in coming years as the agency plays a key role in implementing ObamaCare. Unless the health care legislation is repealed, IRS outlays are expected to soar from $106 billion this year to $263 billion by 2023.

Jon Stewart on the IRS Targeting the Tea Party

Last night, the Daily Show’s Jon Stewart said of reports the IRS singled out tea-party groups for extra scrutiny, “This seems like a genuine scandal.” Then he turned on the funny: “In their defense, there is a good reason why people using the IRS to crack down on political enemies would not want Americans educated about the Constitution.” Best line: “Wait a minute. I didn’t realize apologies were sufficient in IRS-related issues.” Video below. (Beware: some racy language.)

The Daily Show with Jon Stewart Mon - Thurs 11p / 10c
Barack Trek: Into Darkness
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Daily Show Full Episodes Indecision Political Humor The Daily Show on Facebook

In the very next segment, Stewart portrays HHS’s release of (wildly divergent) hospital chargemaster prices as an example of government doing things right, gives kudos to HHS, and laments that government doesn’t do more of that sort of thing. There’s only one problem. Outrageously high and divergent hospital prices are due to government policies that encourage patients to pay for more items through health insurance and that thereby destroy the cash market and any hope of competitive and transparent prices. So that episode is also an example of government failure. 

The show’s Moment of Zen was this priceless clip of former IRS commissioner Douglas Shulman denying that his agency was on a tea-party witch hunt:

The Daily Show with Jon Stewart Mon - Thurs 11p / 10c
Moment of Zen - The Nonpartisan IRS
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Daily Show Full Episodes Indecision Political Humor The Daily Show on Facebook

Is This the Libertarian Moment?

In 2008 Nick Gillespie and Matt Welch hailed a “libertarian moment,” encompassing everything from the Internet to the collapse of “legacy” industries and legacy entitlement programs. I’ve used the same term here, when NPR talked about Ron Paul and when polls showed rising support for smaller government, gay marriage, and drug legalization.

But suddenly, today, everyone seems to see a libertarian moment. Driving in to work, I got so tired of the smug self-satisfaction on public radio’s pledge drive, I switched to the vigorously right-wing Chris Plante Show just in time to hear Plante say, “This is a great day for libertarianism” in regard to the abuse-of-power stories dominating the mainstream media.

And then, mirabile dictu, I got to the office, opened the Washington Post, and found today’s column by Michael Gerson. Now, as he says in today’s column, Gerson is “conspicuously not a libertarian.” Indeed, he is the most vociferously anti-libertarian columnist in contemporary punditry. And yet his column today is titled (in the print paper):

Making libertarians of us all

Man, you’ve got to abuse power something awful to make Michael Gerson start thinking libertarian. So thanks, IRS and Justice Department!

And now that the Obama administration’s abuse of power has got our attentioncan we broaden our focus to take in health care mandates, recess appointments, campus speech regulations, the anti-constitutional Independent Payment Advisory Board, similar extra-legislative bodies in Dodd-Frank, the expropriation of Chrysler creditors, and illegal wars? 

IRS Lied to Congress about Targeting Tea Party

On Friday, the IRS admitted that when “social welfare” groups with the terms “tea party” or “patriot” in their names applied for 501(c)(4)/tax-exempt status, IRS agents targeted them for extra (and extra-legal) scrutiny to ensure they were not engaged in politicking. The Washington Post reports, “about 75 groups were selected for extra inquiry — including, in some cases, improper requests for the names of donors.” IRS agents did not apply similar scrutiny to groups with “progressive” in their names.

Over the weekend, more details emerged. It now appears the IRS lied to Congress about this practice for more than a year. It also appears the IRS is still targeting tea-party groups today, in part because IRS bureaucrats believe groups that “educat[e] on the Constitution and Bill of Rights” deserve greater scrutiny.

Here’s a rundown. 

Senior IRS officials have known about these abuses for nearly two years. The Associated Press reports: “Senior Internal Revenue Service officials knew agents were targeting tea party groups as early as 2011…on June 29, 2011, Lois G. Lerner, who heads the IRS division that oversees tax-exempt organizations, learned at a meeting that groups were being targeted, according to the watchdog’s report. At the meeting, she was told that groups with ‘Tea Party,’ ‘Patriot’ or ‘9/12 Project’ in their names were being flagged for additional and often burdensome scrutiny…Lerner instructed agents to change the criteria for flagging groups ‘immediately’…”. IRS agents also gave extra scrutiny to groups that “criticize how the country is being run.”

The IRS tried to get away with it again. The Washington Post reports:

the agency revised its criteria a week later.

But six months later, the IRS applied a new political test to groups that applied for tax-exempt status as “social welfare” groups, the document says. On Jan. 15, 2012 the agency decided to target “political action type organizations involved in limiting/expanding Government, educating on the Constitution and Bill of Rights, social economic reform movement”…

The agency did not appear to adopt a more neutral test for social welfare groups…until May 17, 2012…

Of course, these revised criteria are not politically neutral either. Tea-party groups are still far more likely to receive extra scrutiny than progressive groups. Lots of right-leaning political groups describe their mission as working to limit government or educate people about the Constitution. Far fewer left-leaning groups emphasize educating people about the Constitution or openly declare their mission is to expand government. And note: the U.S. government treated groups as suspect if they educate the public about the Constitution and Bill of Rights. Let that one sink in.

The IRS lied to Congress for more than a year. The Associated Press reports: “At a congressional hearing March 22, 2012, [then-IRS commissioner Douglas] Shulman was adamant in his denials. ‘There’s absolutely no targeting.’” Senior IRS staff knew that claim was false nine months before Shulman made it. Yet they let Shulman’s false statement to Congress go uncorrected, amid a congressional investigation into whether the IRS was targeting tea-party groups, for another 14 months. According to the Washington Post, “The IRS made no mention of targeting conservative groups in five separate responses to congressional inquiries between Nov. 18, 2011, and June 15, 2012, according to the [inspector general’s] timeline.” Even if we view the facts in the light most favorable to the IRS and assume Shulman did not know he was uttering a falsehood – which, by the way, would mean he is a very poor manager – the IRS’s failure to correct that falsehood pretty much makes it a lie. I don’t mean that in the phony way PolitiFact uses the term. I mean a real lie.

The IRS did not come forward of its own accord. The Associated Press: “The Treasury Department’s inspector general for tax administration is expected to release the results of a nearly yearlong investigation in the coming week.” House Oversight Committee chairman Darrell Issa (R-CA) put it, “Before the IG’s report comes to the public or to Congress as required by law, it’s leaked by the IRS to try to spin the output. This mea culpa’s not an honest one.”

IRS officials maintain the targeting of tea-party groups was the work of low-level employees and not politically motivated. Yet the agency has shown a willingness to deceive Congress and the public about its own misconduct. Congress should conduct a thorough investigation.

Even if it is true that low-level IRS bureaucrats were acting on their own, Congress’ investigation should examine the role Obama administration officials played in encouraging those bureaucrats to single out the tea party. As New York Times columnist Ross Douthat explains:

Where might an enterprising, public-spirited I.R.S. agent get the idea that a Tea Party group deserved more scrutiny from the government than the typical band of activists seeking tax-exempt status? Oh, I don’t know: why, maybe from all the prominent voices who spent the first two years of the Obama era worrying that the Tea Party wasn’t just a typically messy expression of citizen activism, but something much darker — an expression of crypto-fascist, crypto-racist rage, part Timothy McVeigh and part Bull Connor, potentially carrying a wave of terrorist violence in its wings.

It would be very bad if senior Obama administration officials ordered the IRS to intimidate the president’s political opponents. It would scarcely be better if administration officials denounced their opponents until IRS bureaucrats took the hint.

People should lose their jobs over this.

Great Moments in Government: The IRS Apologizes for Bias while Simultaneously Denying Bias

I’m happy to bash the IRS, but I usually try to explain that our anger should be focused on the politicians who created the corrupt, 74,000-page tax code.

But sometimes the IRS deserves some negative attention. The tax collection bureaucracy has thieving employees, incompetent employees, thuggish employees, seemlingly brainless employees, and victimizing employees.

The senior folks at the IRS also deserve scorn for bone-headed decisions such as squandering millions of dollars on a P.R. campaign and a scheme to regulate and control private tax preparers.

Now it seems we have another reason to condemn the tax-collection bureaucracy. As Michael Cannon has noted, the IRS is engaging in Nixon-type political harassment.

Here’s some of what the Associated Press just reported.

The Internal Revenue Service inappropriately flagged conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status, a top IRS official said Friday. Organizations were singled out because they included the words “tea party” or “patriot” in their applications for tax-exempt status, said Lois Lerner, who heads the IRS division that oversees tax-exempt groups.

IRS Chief, Who Defended Illegal ‘ObamaCare’ Taxes, also Denied Targeting of Tea-Party Groups

In 2011, members of Congress began criticizing a proposed IRS rule implementing ObamaCare’s health insurance tax credits. They claimed that the proposed rule violated the clear language of the Patient Protection and Affordable Care Act, as well as congressional intent, by issuing those tax credits in states that declined to establish a health insurance “exchange.” In effect, they claimed the proposed rule would result in the federal government taxing, borrowing, and spending hundreds of billions of dollars without congressional authorization. 

At the time, then–IRS commissioner Douglas Shulman leapt to his agency’s defense. He wrote that various provisions of the statute “support” the rule. He wrote that the “relevant” legislative history doesn’t show that Congress didn’t want the IRS to tax, borrow, and spend those hundreds of billions of dollars. He wrote that the proposed rule is “consistent with the language, purpose, and structure” of the law. The only thing he didn’t do was cite a provision of the law authorizing the rule, or even creating any ambiguity about the rule’s illegality.

The IRS finalized that illegal rule in May 2012. You can read all about it in my article with Jonathan Adler, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA.”

It is worth noting that Shulman also leapt to the IRS’s defense against another charge that the agency was abusing its power. In 2012, conservative groups complained that the IRS was targeting them for audits. Shulman issued a forceful and categorical denial:

IRS Commissioner Douglas Shulman told Congress in March 2012 that the IRS was not targeting groups based on their political views.

“There’s absolutely no targeting. This is the kind of back and forth that happens to people” who apply for tax-exempt status, Shulman told a House Ways and Means subcommittee.

Shulman was wrong. Today, the IRS admitted it has been targeting conservative groups for audits

Perhaps some Friday afternoon hence we will be treated to an IRS admission that their tax-credit rule violates the Administrative Procedures Act and the PPACA, as two lawsuits now allege. I won’t hold my breath.