STAFF NEWS & ANALYSIS
Fallout of IRS Scandals May Be More Serious Than Seen
By Staff News & Analysis - July 17, 2014

Proof that the point of the IRS 'scandal' was to cut the IRS budget … It was obvious almost from the inception of the ginned-up IRS "scandal" that its goal was to intimidate the agency into allowing bogus nonprofits to funnel cash into election campaigns. That's exactly what happened, as is shown by an exhaustive study by the Center for Public Integrity. – LA Times

Dominant Social Theme: This IRS scandal is being blown up by Republican apparatchiks.

Free-Market Analysis: We've noticed this meme is gaining popularity "on the left." The idea is that tax-exempt social welfare organizations should not engage in politics, and that when the IRS began to examine these organizations, Republicans moved in with trumped up charges because they wanted a continuance of "money with secrecy."

Here's more:

Nonprofit tax-exempt "social welfare" organizations, known as C4s from their description in section 501(c)4 of the tax code, aren't permitted to claim a tax exemption for election activities–in fact, they're not supposed to engage in campaign activities at all.

But with the connivance of Congress, they've been crossing the line with impunity. That's a threat to the electoral process, because C4's are permitted to keep their donors secret. Money plus secrecy–the politician's dream.

We reported on the C4 dodge as early as 2012. When the IRS began trying to rein in C4s, something had to be done. Presto: the IRS "scandal," based on assertions from conservatives in Congress that the agency had targeted only right-wing C4s for scrutiny.

That has turned out to be completely untrue: the center's investigation was able to identify only 10 C4s whose applications for tax-exempt status had been rejected by the IRS since 2010. Among them were six groups that train Democratic women in how to run for office, and a seventh that politicked on behalf of former Sen. Blanche Lincoln, D-Ark.

Those inquiries were the last of their kind. After the IRS investigation was launched by that notorious hatchetman, Rep. Darrell Issa, R-Vista, "the IRS' nonprofit division … effectively lost whatever nerve it had left," the center's report says.

Among the beneficiaries of its paralysis was the biggest "social welfare" front, Karl Rove's Crossroads GPS. But so too were liberal groups, such as Patriot Majority USA and Priorities USA. As Kevin Drum observes, the other shoe has finally dropped: Congress is now moving aggressively to cut the enforcement budget of the IRS.

The "scandal" provides cover for this maneuver. Says Rep. Paul Gosar, R-Ariz., sponsor of a measure to strip $353 million out of the IRS enforcement budget, "this agency has shown contempt for the American taxpayer."

There are, of course, dominant social themes and sub-dominant social themes embedded within current IRS travails. After all, taxes are largely a leveling enterprise. "Paying one's fair share," really means participating in a redistributive scheme.

This is a form of price fixing. Congress allocates up to US$3 trillion or more a year for various products and services – but these are arbitrary purchases, clumsily assigned.

The larger issue, of course, is tax exemption itself and the crux is whether political speech ought to be regulated. Democrats believe it ought to be; what Republicans believe seems a bit more unclear.

A real libertarian/republican perspective would be a simple one: Don't regulate. If people want to make their political positions known, they ought to be able to do so without being taxed.

Speech is protected constitutionally, but the judicial branch of the US government has regularly whittled away at speech rights, discovering first "commercial speech" and now "political speech."

There is also the issue of IRS culpability. It seems fairly evident that the Obama administration sought to delay C4 status for tea party and conservative groups that might have tipped the election against him. Missing emails and suspiciously timed computer crashes seem to confirm this sort of speculation.

This latest scandal is undermining IRS credibility. It is playing out across the Internet and via YouTube in a way that it could not have in the 20th century. It doesn't look good for IRS employees to take the "fifth." It certainly doesn't look good for IRS Commissioners to maintain ignorance or defend indefensible IRS behavior.

This latest scandal comes on the heels of embarrassing revelations regarding IRS over-spending for luxurious conferences and misguided Star Trek training tapes. The constant drumbeat of IRS criticism is surely undermining the IRS's efficiency and reputation for fairness (such as it was).

Given the IRS's positioning at the fault-line of US politics, there is probably not much chance that IRS behaviors will become less noticeable over time. It is true that there were record-breaking tax revenues this year, but that was probably more a function of money printing than IRS efficiency.

Added responsibilities of collecting for ObamaCare and of investigating expat bank accounts worldwide are probably going to weaken the IRS further.

In the 21st century, the Internet allows citizens to scrutinize tax collections and the fairness of the larger enterprise. The lasting legacy of the current series of scandals in the US may be the foundering of progressive tax collection and the imposition, bit by bit, of something else.

After Thoughts

The Internet is a process not an episode. Like so many other facilities, tax collection will eventually have to adapt.

Posted in STAFF NEWS & ANALYSIS
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