The Apparent Corruption of the IRS

By
John Samples

Early in the IRS scandal, the defenders of the Obama administration seemed baffled and unable to defend the agency’s actions. Recently, they have starting putting together a defense of the agency and thereby, the administration, a story to counter recent revelations. This defense comes up short.

The defenders’ account goes this way. Yes, the IRS was inept in enforcing the law, but incompetence does not equal partisan malice. The real scandal, we are told, was the groups posing as charities and spending money on political campaigns. Congress should strictly revise the rules governing tax exemptions to make sure no one can hide their political activities from the government. And, finally, as Nancy Pelosi remarked, Citizens United should be overturned.

This defense has two weak points and a major flaw. First, Citizens United had nothing to do with charitable organizations. The groups freed up by the decision already disclose their spending. Second, the defenders assume disclosure is an unquestioned good. But the IRS was trying to force the target groups to disclose a lot of information about their political activities criticizing the Obama administration. The IRS intimidated those groups. It could be said – and may yet be said- that the Tea Party groups were wrong to feel intimidated. The agency was only trying to enforce the law and so on. Good luck trying to convince most Americans that an IRS grilling is not intimidating.

Understanding the major flaw of the defense requires a brief side trip into campaign finance law.  The authors of the apologia – the campaign finance reform community and its media allies - have long supported restricting and regulating campaign spending, restrictions that run counter to freedom of speech. They have insisted – and courts have partially agreed – that an appearance of corruption justifies restrictions on political speech. The reformers argue that an appearance of corruption weakens public confidence in government.

The “appearance of corruption” standard is a weak foundation for restricting political liberties. We ought to be concerned about the reality of corruption, not its appearance. We ought to determine what actually exists rather than what people believe exists.  Truth, not opinion, should guide policymaking, not least when First Amendment rights are at stake. But these criticisms of the standard have not found favor, least of all among those who now defend the IRS.

Does the IRS scandal pose an appearance of corruption? A government agency with a long history of being used by incumbent administrations to attack their political opponents admits harassing the opponents of the Obama administration. And they are found to be doing that just at the periods such harassment could make a difference, prior to the 2010 and 2012 elections.

Of course, there may be reasonable explanations for everything that has come out. Such explanations appear highly unlikely. Therein lies the problem for the administration. The IRS scandal stinks to heaven: there is an unmistakable appearance of corruption in all this. Public confidence in government will take another hit.

The authors of the counter-narrative advise us now to look beyond appearances toward the realities of low agency budgets, political innocence, and bungling officials. But it is too late for that. The truth of the matter has long not mattered in campaign finance debates. Those who have spent the last four decades saying the appearance of corruption matters cannot now ask us to look beyond appearances. We must apply their standard to the IRS scandal.

The IRS’s defenders face a dilemma. To succeed, their IRS story must reject the “appearance of corruption” standard they apply to all other campaign finance matters. To win this battle, in other words, the defenders must be inconsistent. However, if they embrace their usual standard, the IRS and the administration appear corrupt and will probably lose the battle. A better path would be to worry about real, not apparent, corruption regarding the IRS and all other campaign finance questions.

Topics: 
Government and Politics

Supreme Court Errs in Giving Agencies Power to Define Their Own Power

By
Ilya Shapiro

Although it did good by taxpayers today, the Supreme Court also issued a divided ruling that unfortunately expands the power of administrative agencies generally.  In City of Arlington v. FCC, six justices gave agencies discretion to decide when they have the power to regulate in a given area – which expands on the broad discretion they already have to regulate within the areas in which Congress granted them authority.

But why should courts defer to agency determinations regarding their own authority?  Courts review congressional action, so why should theoretically subservient bureaucrats – appointed by the executive branch and empowered by Congress – escape such checks and balances?  

Underneath the legal jargon and competing precedent regarding the line between actions that are “jurisdictional” (assertion of authority) versus “nonjurisdictional” (use of authority) is a very basic question: whether a government body uses its power wisely or not, it cannot possibly be the judge of whether it has that power to begin with.  Yet Justice Scalia, writing for the majority, essentially says that there’s no such thing as a dispute over whether an agency has power to regulate in a given area, just clear congressional lines of authority and ambiguous ones, with agencies having free rein in the latter circumstance unless their actions are “arbitrary and capricious” (what lawyers call Chevron deference, after a foundational 1984 case involving the oil company).

That makes no sense.  As Cato explained in our brief, since the theory of deference is based on Congress’s affirmative grant of power to an agency over a defined jurisdiction, it’s incoherent to say that the failure to provide such power is an equal justification for deference. Furthermore, granting an agency deference over its own jurisdiction is an open invitation for agencies to aggrandize power that Congress never intended them to have. One doesn’t need a doctorate in public choice economics to recognize that we need checks on those who wield power because it’s in their nature to husband and grow that power.

More broadly, this case should make us question the whole doctrine of Chevron deference: Yes, decisions about the scope of agency power should be made by elected officials, not by bureaucrats insulated from political accountability, but courts should also review with a more skeptical eye agency decisions about the use of power even within the proper scope.

Topics: 
Government and Politics, Law and Civil Liberties, Regulatory Studies

The Progressives’ Lynchpin: The IRS

By
Roger Pilon

Peter Beinart has a piece at the Daily Beast today – “Don’t Throw the IRS Under the Bus” – that has to be read to be believed. Drawing from a similar page-one story in yesterday’s New York Times, it’s one long apology for the IRS, an effort to explain away the scandal now before the nation as the product of a single, hopelessly overburdened “backwater” IRS unit.

Along the way, Beinart flags the usual suspects, especially the Supreme Court for its Citizens United decision. But his main aim is to encourage the president and his allies to hold firm:

if Obama and his fellow Democrats don’t rebut that narrative and defend the IRS, they’ll be surrendering crucial ground in the battle that has roiled American politics since the financial crisis: the battle over whether Washington regulates too much or too little.

Granting that the situation at the moment is a mess, Beinart avers that “it was a mess born less of overregulation than underregulation.” Indeed,

A right-wing Supreme Court has made it virtually impossible to regulate money in elections. And now Republicans are casting the Tea Party—a movement founded in part by robber barons like the Koch Brothers—as the victim of a mythic, all-powerful IRS in order to further neuter an actually existing IRS that is already too weak to make the rich pay their taxes or respect the rules of democratic fair play. With any luck, the GOP will render it unable to help competently implement Obamacare as well.

One only hopes. But it’s Beinart’s conclusion that brings it all home:

It might seem shrewd for Obama to sit out the IRS scandal while he focuses on bigger fights. But this scandal is about government’s capacity to make private wealth serve the public interest, and for a progressive president, there’s no bigger fight than that.

He’s got that right: for a progressive president, there is indeed no bigger fight than that. But focus on what that says. For the progressive, government’s purpose is “to make private wealth serve the public interest.” Make no mistake, “private wealth” means “private people,” people who must be made to serve not their own but “the public interest” – and not by acts that enrich the lives of others through voluntary association, but through forced association, as with Obamacare, designed by those very progressives.

That is the Obama vision. The president himself made it clear a fortnight ago in his Ohio State commencement address, telling the graduates that “this country cannot accomplish great things if we pursue nothing greater than our own individual ambition.” People must be “harnessed” – his word – and what better agency to do it than the IRS.

Topics: 
Government and Politics, Tax and Budget Policy

Turning the Page: How to Legalize Marijuana?

By
Tim Lynch

An excerpt from an op-ed by Bill Keller in today’s New York Times:

The marijuana debate has entered a new stage.  Today the most interesting and important question is no longer whether marijuana will be legalized–eventually, bit by bit, it will be–but how.

Agreed.  However, it would have been nice to hear a bit more on the horribly misguided prohibition policy that was supported by so many for so long and a more urgent plea to Obama and others in officialdom to end prohibition sooner, not later.

Topics: 
Government and Politics, Law and Civil Liberties

Supreme Court Strikes Another Blow against IRS

By
Ilya Shapiro

As if the IRS weren’t reeling enough already, today the unanimous Supreme Court dealt the beleaguered agency another blow, unanimously ruling that companies who paid a British “windfall tax” could get credit for that payment against their U.S. tax liabilities. This should’ve been a simple case, and the federal tax court got it right – the tax code credits foreign income taxes – but the court of appeals found a convoluted way to rule for the IRS.

As Cato’s brief explained, however, taxpayers have the right to be free from double taxation and here the IRS improperly disregarded the substance of the windfall tax. A foreign tax’s form or label can’t mask its substantive character for legal purposes. American businesses operating overseas should be able to rely on a stable, substantive application of U.S. tax law instead of arbitrary interpretations and constructions manipulated to generate payments to the IRS.

The Supreme Court had to invoke and explain complicated equations to reach its decision – I’ve never seen so much math in an opinion – but this ruling ultimately boils down to the longstanding doctrine regarding how to evaluate a tax: (1) A tax’s “predominant character,” or the normal manner in which it applies, controls what kind of tax it is for other legal purposes; and (2) foreign tax creditability depends not on the way a foreign government characterizes its tax but on is economic effect – whether the tax, if enacted in the United States, would be an income tax or something else.

That’s the big takeaway here: The specific since-repealed UK tax at issue in PPL Corp. v. Commissioner of Internal Revenue isn’t likely to come up again, but the IRS is on notice that it doesn’t have discretion to err in favor of the Treasury whenever it feels like it. The tax code provides rules –albeit often overly complicated ones – that courts will enforce.

Topics: 
Law and Civil Liberties, Tax and Budget Policy

WSJ: ObamaCare Could Reduce Employee Health Benefits

By
Michael F. Cannon

ObamaCare supporters promised the law’s employer mandate would require employers to provide workers with comprehensive insurance. But they apparently didn’t read the bill very closely. It’s a recurring theme.

According to the Wall Street Journal, employers and employee-benefits consultants have found, and federal regulators now confirm, that the law actually requires most employers to offer no more than very flimsy coverage. Many employers are now exploring the option of offering limited-benefit health plans that cover preventive services and maybe “$100 a day for a hospital visit” but “wouldn’t cover surgery, X-rays or prenatal care.” Indeed, the law could push many employers to reduce the amount of coverage workers receive on the job.

The Obama administration’s reaction demonstrates they had no idea what they were doing. The Wall Street Journal:

Administration officials confirmed in interviews that the skinny plans, in concept, would be sufficient to avoid the across-the-workforce penalty. Several expressed surprise that employers would consider the approach.

“We wouldn’t have anticipated that there’d be demand for these types of band-aid plans in 2014,” said Robert Kocher, a former White House health adviser who helped shepherd the law. “Our expectation was that employers would offer high quality insurance.”

The Law of Unintended Consequences strikes again.

This and other employer responses to the law could make the roll-out of ObamaCare’s health insurance “exchanges” even more of a train wreck.

  • To the extent ObamaCare’s employer mandate pushes firms to offer bare-bones plans, premiums for plans offered through Exchanges will rise. The healthiest workers will enroll in their employers’ bare-bones plans, but workers who have expensive illnesses (or with dependents who have expensive illnesses) will seek more-comprehensive coverage through the Exchanges. The influx of sick consumers will increase the premiums for Exchange-based plans. Many of these sick workers won’t receive any premium-assistance tax credits or cost-sharing subsidies because their employer’s bare-bones plan will likely satisfy ObamaCare’s definition of adequate – and because the statute forbids those entitlements in the 33 states that have declined to establish an Exchange.
  • Employers are also renenwing their health-benefits contracts early (i.e., before January 1, 2014), which allows them to avoid many of ObamaCare’s regulatory costs for several months. That move could also increase premiums for Exchange-based plans by encouraging workers with high-cost illnesses to seek coverage through Exchanges while healthy workers stick with their employer’s plans.
  • Many employers are also considering self-insuring their health benefits, an arrangement in which the employer bears the risk that is usually borne by the insurance carrier and just hires someone (often an insurer) to administer the coverage. This strategy allows also employers to avoid many of ObamaCare’s regulatory costs and could also increase premiums in the Exchanges and small-group market.

Again, the Journal:

Regulators worry that some of these strategies, if widely employed, could pose challenges to the new online health-insurance exchanges that are a centerpiece of the health law. Among employees offered low-benefit plans, sicker workers who need more coverage may be most likely to opt out of employer coverage and join the exchanges. That could drive up costs in the marketplaces.

These are the sort of unintended consequences that ObamaCare’s opponents warned would plague any attempt by Congress to centrally plan one-sixth of the U.S. economy.

Topics: 
Government and Politics, Health Care

Virginia Republican Candidates Not Joining 21st Century

By
David Boaz

Last week I reported that 40 percent of Virginia Republicans – and 56 percent of independents – now support gay marriage. But on Saturday the Virginia GOP nominated three statewide candidates whose views on homosexuality and marriage equality range from unwavering opposition to bigoted to insane. 

Gubernatorial nominee Ken Cuccinelli came out swinging against the “extremist” label in his convention acceptance speech:

“When did it become extreme to protect children from predators and human traffickers?” Cuccinelli asked. “When did it become extreme to guard our Constitution from overreach? When did it become extreme to secure the freedom of the wrongly convicted? And when did it become extreme to ask government to spend a little less so our economy can grow?”

Like Gov. Bob McDonnell four years ago, Cuccinelli will try to focus on jobs and the economy in his race against big-government crony capitalist Terry McAuliffe. But there’s a reason that a report by the Republican National Committee found that voters see the GOP as “scary,” “narrow minded,” and “out of touch” – and the Virginia Republican ticket is part of that reason.

Topics: 
Government and Politics

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