Cato Studies: IRS, Environmental Law Limit Constitutional Rights

May/June 1995 • Policy Report

Why You Can’t Trust the IRS
This year some 40 million Americans will clash with the Internal Revenue Service, and in a rising number of those confrontations, the taxpayer will be right, writes Daniel J. Pilla in “Why You Can’t Trust the IRS” (Policy Analysis no. 222). Pilla, author of How to Fire the IRS, finds that despite a doubling of its budget over the past 10 years and a nearly 20 percent increase in enforcement personnel, the IRS is increasingly incapable of administering the nation’s tax law. He notes, for example, that the IRS telephone taxpayer‐assistance program provides about 8.5 million Americans the wrong answers to even the most basic inquiries about the tax laws. This year roughly 10 million Americans will receive correction notices from the IRS assessing about $4 billion — and about half of those notices will be erroneous, Pilla writes. He also points out that about 40 percent of IRS penalty assessments are abated when citizens challenge the penalties. (In 1993 taxpayers were overcharged $5 billion.) Further, a 1993 General Accounting Office audit of the IRS found widespread evidence of financial malfeasance and gross negligence. The IRS could not account for 64 percent of its congressional appropriation.

Pilla says the IRS fails to meet the standards of financial accountability and diligence that it imposes on the citizenry. Since the IRS can no longer adequately police itself, he writes, it can no longer be trusted with the authority to police individual American businesses and taxpayers. Pilla concludes that the time has come to abolish the complicated and intrusive income tax system — including the IRS — and replace it with a national sales tax.

Environmental Law Threatens Basic Liberties
Many basic constitutional principles are being compromised to facilitate environmental investigations and prosecutions, writes Timothy Lynch, assistant director of Cato’s Center for Constitutional Studies, in “Polluting Our Principles: Environmental Prosecutions and the Bill of Rights” (Policy Analysis no. 223). According to Lynch, federal lawmakers have authorized coercive “self‐confession” programs and warrantless inspections of commercial premises. The law has stripped environmental criminal suspects of traditional legal defenses such as good faith, fair warning, and double jeopardy. Stringent regulations make it extremely difficult for legitimate businesses to operate within the law. Indeed, Lynch adds, the web of regulations has grown so dense that many observers believe compliance with the law is unachievable. Many American businesses are currently operating in what is essentially a regulatory police state. In recent years environmental criminal prosecutions have become a major interest of federal prosecutors. Each year the Department of Justice announces “record levels” of fines imposed, persons indicted, and jail time served for infractions of environmental regulations. The ostensible purpose of the criminal program is to punish and deter polluters whose actions might endanger public health and the environment. However desirable those policy objectives may be, Lynch argues, they should not obscure the means by which the government pursues its environmental mandate.

Lynch concludes with a call for fundamental reexamination of the federal regulatory structure. Reform should begin with the immediate restoration of the legal rights and privileges that are enshrined in the Bill of Rights, he says.

Medical Savings Accounts Reduce Health Care Costs
The most politically viable health care reform proposal, medical savings accounts (MSAs), has a track record of success in the private sector. That is the conclusion of Cato adjunct scholar Peter Ferrara in “More Than a Theory: Medical Savings Accounts at Work” (Policy Analysis no. 220). Ferrara examines the experience of a variety of companies currently using MSA‐type insurance plans. In all of the companies studied, he shows that MSAs have proven highly effective at controlling costs for employers and highly popular among workers. The companies studied include Golden Rule Insurance Company, Dominion Resources, Forbes, Inc., Quaker Oats, Indresco Corporation, and a number of small businesses across the country. MSAs would give individuals more incentives to be informed consumers of health care services by allowing them to save money in tax‐exempt savings accounts similar to individual retirement accounts. That money would be used to pay routine, low‐dollar medical expenses. To supplement those funds, individuals or employers could purchase relatively inexpensive catastrophic insurance policies to protect against major medical expenses. The study calls on Congress to remove the significant tax bias against MSAs. By doing so, Ferrara says, Congress would clear the way for a fully comprehensive cost‐control system that would restrain costs without rationing imposed by either the government or insurance bureaucracies.

Term Limits Still Needed, Despite GOP VictoryThe 1995 Republican takeover of the U.S. Congress does not dispense with the need for short term limits, writes Cato senior fellow Doug Bandow in “Real Term Limits: Now More Than Ever” (Policy Analysis no. 221). On the contrary, he writes, Republican reluctance to enact term limits shows the need for them irrespective of the partisan composition of Congress. Those who advocate a limit of six terms (12 years) in the House are the biggest threat to term limitation, Bandow adds. Most states that have limited the terms of their representatives have approved limits of three terms (6 years). Shorter House limits, Bandow argues, would create more competitive elections and would reestablish a citizen legislature. To effectively end politics as a lifetime sinecure requires that terms be short, says Bandow.

Bandow also refutes the claims that term limits would enhance the power of congressional staff members and lobbyists, who, revealingly, oppose term limits, and that the loss of legislative experience would harm the nation. Moreover, by making elections competitive, he writes, term limits will actually increase choice, not constrict it. The nation’s Founders strongly believed in rotation in office, Bandow concludes. They left term limits out of the Constitution because they did not foresee politics’ becoming a career for so many people. Short term limits would remedy that oversight. Nothing is more important today, argues Bandow, than reversing the pernicious rise of a professional political class.