Topic: Tax and Budget Policy

Did Citizens United Critics Push the IRS to Misbehave?

By
John Samples

Last Friday, a spokeswoman for the Internal Revenue Service (IRS) admitted the agency had targeted various Tea Party and related groups during the 2010 election cycle. Later in the week, an Inspector General’s report will offer an initial look at the facts of this matter. At least two congressional committees also plan investigations. 

Many people recall that the Nixon administration used the IRS to harass political opponents. Surely the IG’s report and subsequent investigations will show whether the IRS has gotten back into the business of protecting an incumbent administration from its critics. 

It is not too soon, however, to recall the the campaign finance reform lobby has been calling for a crackdown on political groups since the Citizens United decision. One possibility would be that the IRS gave in pressure from the reform lobby and went after the Tea Party groups. 

Was there an intention to chill speech? The timing provokes doubts: the targeting began in the spring of 2010 just as the mid-term campaign season started and ended after the election when the harassment no longer has any rationale. The long delays of approving tax status certainly slowed down the wave coming toward Congress in 2010. 66 House members lost their seats in that election. Do any sitting members owe their offices to the IRS? 

Even now, leading reform groups are calling for renewed crackdown on these groups. We are also told by more sober reformers that this whole matter shows the need for more disclosure and greater clarity in the rules. But the major argument against such disclosure has been that government officials will use the information to punish political opponents. Given what we know about this case, does it make sense to give the IRS more information about, and more power over groups that oppose the administration? 

Some will note the irony here. Most of campaign finance law was enacted in 1974 just after the end of the Watergate scandal. The campaign finance reform lobby dates its life to that scandal which, as noted, included using the IRS for political ends. Now the reformers are defending the IRS and its apparent political harassment. Things do seem to have come full circle.

Topics: 
Government and Politics, Tax and Budget Policy

Tax and Expenditure Limits: The Challenge of Turning Mitchell’s Golden Rule from Theory into Reality

By
Daniel J. Mitchell

The main goal of fiscal policy should be to shrink the burden of government spending as a share of economic output. Fortunately, it shouldn’t be too difficult to achieve this modest goal. All that’s required is to make sure the private sector grows faster than the government.

But it’s very easy for me to bluster about “all that’s required” to satisfy this Golden Rule. It’s much harder to convince politicians to be frugal. Yes, it happened during the Reagan and Clinton years, and there also have been multi-year periods of spending discipline in nations such as Estonia, New Zealand and Canada.

But these examples of good fiscal policy are infrequent. And even when they do happen, the progress often is reversed when a new crop of politicians take power. Federal spending has jumped to about 23 percent of GDP under Bush and Obama, for instance, after falling to 18.2 percent of economic output at the end of the Clinton years.

This is why many advocates of limited government argue that some sort of external force is needed to somehow limit the tendency of politicians to over-tax and over-spend.

I’ve argued on many occasions that tax competition is an important mechanism for restraining the greed of the political class. But even in my most optimistic moments, I realize that it’s a necessary but not sufficient condition.

Another option is budget process reform. If you can somehow convince politicians to tie their own hands (in the same way that alcoholics can sometimes be convinced to throw out all their booze), then perhaps rules can be imposed that improve fiscal policy.

But what sort of rules? Europe has “Maastricht” requirements that theoretically limit deficits and debt, and 49 states have some sort of balanced budget requirement, but these policies have been very unsuccessful - perhaps because they mistakenly focus on the symptom of red ink rather than the underlying disease of government spending.

Are there any budget process reforms that do work? Well, I’ve written about Switzerland’s “debt brake,” which has generated some good results over the past 10 years because it actually imposes an annual spending cap.

Some American states also impose expenditure limits. Have they been successful?

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Topics: 
Government and Politics, Tax and Budget Policy

IRS Lied to Congress about Targeting Tea Party

By
Michael F. Cannon

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.

Topics: 
Government and Politics, Law and Civil Liberties, Tax and Budget Policy

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

By
Daniel J. Mitchell

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.

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Topics: 
Government and Politics, Tax and Budget Policy

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

By
Michael F. Cannon

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.

Topics: 
Government and Politics, Health Care, Law and Civil Liberties, Political Philosophy, Tax and Budget Policy

Shades of Nixon: ‘IRS Apologizes for Targeting Conservative Groups’

By
Michael F. Cannon

From the Associated Press:

WASHINGTON (AP) — The Internal Revenue Service is apologizing for inappropriately flagging conservative political groups for additional reviews during the 2012 election to see if they were violating their tax-exempt status.

Lois Lerner, who heads the IRS unit that oversees tax-exempt groups, said organizations that included the words “tea party” or “patriot” in their applications for tax-exempt status were singled out for additional reviews.

Lerner said the practice, initiated by low-level workers in Cincinnati, was wrong and she apologized while speaking at a conference in Washington.

Many conservative groups complained during the election that they were being harassed by the IRS. They said the agency asked them an inordinate number of questions to justify their tax-exempt status.

Certain tax-exempt charitable groups can conduct political activities but it cannot be their primary activity.

Let’s all recall what President Obama told Ohio State University graduates just days ago:

Unfortunately, you’ve grown up hearing voices that incessantly warn of government as nothing more than some separate, sinister entity that’s at the root of all our problems. Some of these same voices also do their best to gum up the works. They’ll warn that tyranny [is] always lurking just around the corner. You should reject these voices. Because what they suggest is that our brave, and creative, and unique experiment in self-rule is somehow just a sham with which we can’t be trusted.

We have never been a people who place all our faith in government to solve our problems. We shouldn’t want to. But we don’t think the government is the source of all our problems, either. Because we understand that this democracy is ours. And as citizens, we understand that it’s not about what America can do for us, it’s about what can be done by us, together, through the hard and frustrating but absolutely necessary work of self-government.

“Government is simply the name we give to the things we choose to do together,” says Barney Frank. Like persecute our political enemies.

Topics: 
Government and Politics, Law and Civil Liberties, Political Philosophy, Tax and Budget Policy

Barro and de Rugy on Defense Spending and the Economy

By
Christopher A. Preble

Earlier this week, Harvard economist Robert Barro and Veronique de Rugy of the Mercatus Center published a short paper assessing the economic effects of defense spending. Their findings are consistent with those of other studies, including one that Cato published last year by Benjamin Zycher. To wit, from Barro and de Rugy’s abstract:

While the impact of across-the-board federal defense spending cuts on national security may be up for debate, claims of these cuts’ dire impact on the economy and jobs are grossly overblown…

[A] dollar increase in federal defense spending results in a less-than-a-dollar increase in GDP when the spending increase is deficit-financed…

[O]ver five years each $1 in federal defense-spending cuts will increase private spending by roughly $1.30

The Barro-de Rugy paper should be of particular interest to Republican politicians and those who advise them. 2012 GOP presidential candidate Mitt Romney and his fellow Republicans attracted considerable scorn (including from yours truly) during a campaign in which they railed against government spending, but also wailed against military spending cuts. His critique was not primarily, or even chiefly, about the potential impact of sequestration on national security; rather, echoing the hardly objective estimates flogged by the Aerospace Industries Association and the National Association of Manufacturers, Romney asserted that cuts in military spending would result in the loss of hundreds of thousands of jobs. 

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Topics: 
Foreign Policy and National Security, Tax and Budget Policy

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