Democracy in America | Republicans and taxes

The IRS errs

In all the huffing and puffing, however, two bigger scandals are being ignored

By E.M. | WASHINGTON, DC

WHAT bigger gaffe could the Internal Revenue Service commit than to single out groups that criticised the government for greater scrutiny? Republicans, naturally enough, are outraged by the revelation that America’s taxmen consciously and explicitly did so, picking on the applications for charitable status from tea-party chapters and other right-leaning campaign outfits. Had the Obama administration desired to sow doubts about the impartiality of the federal bureaucracy and undermine confidence in America’s institutions, it would have struggled to come up with a better method.

Happily, the Obama administration does not seem to have been involved in this idiocy at all, although with its usual defensiveness, it took some time to condemn it strongly. The president names only two people to jobs at the IRS: the director and the general counsel. Until a few months ago, and throughout almost all the period at issue, the director was a Republican holdover from the administration of George Bush. Anyway, the biased investigations seem to have originated way down the chain of command, at a field office in Cincinnati. When higher-ups found out about them, they ordered the criteria for scrutiny changed—although it does seem to have taken them two years to hit upon a politically neutral formula to determine which applications to review in depth.

In all the huffing and puffing, however, two bigger scandals are being ignored. The first is the frequent abuse of America’s system of regulation of political campaigns, which the IRS, for all its incompetence, was rightly seeking to investigate. Very roughly speaking, if an organisation weighs in on a federal election campaign, it is subject to a certain set of rules, including revealing where it gets its money. (If it campaigns in coordination with a particular candidate or party, it is subject to a second, more stringent set of rules, including limits on how much it can spend.)

The applications the IRS handled so ill-advisedly were for a particular tax status—501(c)(4), in the jargon—that has become a common means to avoid these restrictions. The category is intended for organisations devoted to “social welfare”, such as community associations and economic-development groups. Those that receive it can intervene in campaigns without disclosing their donors, as long as electioneering is not their “primary activity”. Clever lawyers spotted a loophole in all this: a group that had no discernible purpose other than promoting a particular political viewpoint could still register as a 501(c)(4), as long as it was careful to spend at least half its money on campaigns that were not explicitly tied to an election. Thus Crossroads GPS, a 501(c)(4) in good standing, spends the majority of its time and money educating the public about the benefits of small government and low taxes (which can be passed off as promoting social welfare) and slightly less telling people to vote against Democrats and for Republicans (which cannot).

The IRS was at least, in however ham-fisted a fashion, trying to limit the scope for this kind of casuistry and ensure that political groups pay the taxes they owe. It should have found an ideologically neutral means to do so, beginning, perhaps, with an investigation of Organizing for America (OFA), a 501(c)(4) which evolved from Barack Obama’s re-election campaign. OFA, unsurprisingly, is energetically promoting the president’s policies and denigrating his opponents’, all in the name of social welfare.

The fact that the IRS has not found a way to stop this kind of thing is an indicator of the second scandal: the willful neglect of the taxman by politicians from both parties. The agency has 10% fewer employees than it did three years ago. Its budget has been cut three years running. It has not had a director since November. Starving the IRS is popular with voters of all stripes, but it leads to diminished revenues and thus extra debt for all Americans to bear. If those complaining about the agency’s conduct want better results, they will have to pay for them.

(Photo credit: Alamy)

Discover more

The fifth Democratic primary debate showed that a cull is overdue

Thinning out the field of Democrats could focus minds on the way to Iowa’s caucuses

The election for Kentucky’s governor will be a referendum on Donald Trump

Matt Bevin, the unpopular incumbent, hopes to survive a formidable challenge by aligning himself with the president


A state court blocks North Carolina’s Republican-friendly map

The gerrymandering fix could help Democrats keep the House in 2020