Friday, July 5, 2013
It Is a Scandal, Just Not That One
It's not political activity," insisted the president of the Ohio Liberty Coalition (an offshoot of the Tea Party), which was being scrutinized by the IRS for possible violations of its 501 (c) (4) tax exempt status. He acknowledged that his "social-welfare organization" emailed members inviting them to Romney campaign events, distributed pro-Romney literature, canvassed potential voters, and blanketed neighborhoods with partisan "door hangers," but his attorneys had assured him the IRS was only concerned about money given to buy radio and TV time. The Wetumka (Alabama) Tea Party admitted that it had sponsored training programs for a get-out-the-vote initiative dedicated to "the defeat of President Barack Obama," but insisted that this particular training session was just one of a variety that it sponsored for "educational purposes."
Welcome to the "down the rabbit hole," "through the looking glass," "never, never land" of income tax exemptions!!!!!
As you are doubtless aware, one of the "scandals" that Republicans are revving up in their concerted efforts to bring down the Obama presidency is the charge that the IRS--at the clear direction of the White House-- is systematically and deliberately conspiring to deprive conservative "social-welfare organizations" of their tax-exempt status under Section 501 (c) (4) of the Internal Revenue Code. Senator Susan Collins of Maine calls it "absolutely chilling." Darrell Issa of California,, chair of the House Committee on Oversight and Government Reform charges that "the indication is that they were directly being ordered from Washington," while Dave Camp of Michigan, chair of the House Ways and Means Committee, insists that "we know it didn't originate in Cincinnati." Harold Rogers of Kentucky, chair of the House Appropriations Committee, fulminates that "the enemies list <Nixon anyone?> out of the White House proves that the IRS was engaged in shutting down, or trying to shut down,the conservative political viewpoint across the country." Erstwhile Reagan mouthpiece Peggy Noonan calls it "the worst Washington scandal since Watergate." Jenny Beth Martin. national coordinator of the Tea Party Patriots, charges that "the IRS has demonstrated the most disturbing, illegal and outrageous abuse of government power." Pompous pundit George Will has even threatened resort to the dreaded "I word."
The real story is much more convoluted--and much less sinister--according to the "audit" by the Treasury Inspector General for Tax Administration, and probably by the transcripts of the interviews of IRS staff conducted by agents of the House Committee on Oversight and Government. The problem with the latter is that the chair of that committee is none other than Darrell Issa, who refuses to make them part of the public record, despite repeated requests from its ranking Democratic member--Elijah Cummings of Maryland. <Why do I think that if those transcripts upheld Issa's conspiracy theory in any way, shape, or form, he would have broadcast them on every media known to our mass communications-obsessed universe? >
The overall objective of the TIGTA audit was to "determine whether allegations were founded that the IRS: 1). targeted specific groups applying for tax-exempt status, 2) delayed processing of targeted groups' applications, and, 3) requested unnecessary information from targeted groups." The TIGTA concluded that "the IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions, instead of indications of potential political campaign intervention" In addition, it accused the agency of "ineffective management," because it allowed those criteria to be developed and continue in force for more than 18 months, resulting in substantial delays and allowing "unnecessary" information requests to be ignored. Although the IRS began processing some applications with "potential significant political campaign intervention," there was no work completed on the majority of them for 13 months," primarily due to delays in receiving assistance from the Exempt Organizations function Headquarters Office. Specifically, the TIGTA audit found that of the total 269 total campaign intervention applications reviewed as of 17 December 2012, 108 had been approved, 28 were withdrawn by the applicant, none had been denied, and 160 were open from 206 to 1,138 calendar days ("some of them for more than three years and crossing three election cycles.") During that period, many of those organizations received requests for additional information that included "unnecessary burdensome questions," such as lists of past and future donors. Oddly enough, the IRS later informed some organizations that they did not need to provide the information previously requested. Agency officials also stated that any donor information received in requests from its Determinations Division were subsequently destroyed.
Based upon those findings, TIGTA recommended that the IRS finalize the interim actions taken, better document the reasons why applications potentially involving political campaign intervention are chosen for review, develop a process for tracking requests for assistance, develop and publish guidance, develop and provide training to employees before each election cycle, and expeditiously resolve remaining political campaign interventions (some of which have been in process for three years), and request that social welfare activity guidance be developed by the Department of the Treasury. In response, IRS officials agreed with 7 of 9 of the above recommendations and proposed "alternative corrective actions" for the other 2. The TIGTA , however, does not agree that these "alternative corrective actions will accomplish the intent of its recommendations and insists that the IRS should better document the reasons why applications involving political campaign intervention are chosen for review and develop and publish guidance.
Probably the most important finding of the TIGTA is that whatever malfeasance occurred was strictly "in-house"--specifically within the Tax Exempt Organizations Division of the IRS. The offending individuals were lower-level and middle-range bureaucrats and managers who were trying to find a "short-cut" way of dealing with an avalanche of 501 (c) (4) applications with a severely depleted staff. The number of applications had jumped from 1741 in 2011 to 2774 in 2012, while the IRS budget had been cut 17 percent per capita since 2002. Congress had also piled on new duties, such as hunting for off-shore accounts and dealing with the complexities of the Affordable Care Act. The task was so overwhelming, according to TIGTA, that TEOD workers were forced to engage in a form of "triage," in which they developed "lookout lists" or BOLOs <Be on the Lookout> of some 300 new applications for closer examination. It found that 75 had in their name or explanatory papers words like Tea Party, Patriot, Constitutional Education, or the like. Moreover, the agency did not reject a single application prior to the 2012 election. It only asked for additional information, only some of which the TIGTA auditors regarded as "inappropriate." That it dragged on for 13 months was due mostly to "ineffective management" and to "delays in receiving assistance from the Exempt Organizations function Headquarters office." (Heads did roll, including that of the IRS Commissioner). The TIGTA audit found no evidence that those at fault were acting under mandates issued by the leadership of the IRS or the Treasury Department, let alone by the Obama administration. The criteria under which they operated were strictly sui generis; the result of a desperate,"ham-handed" attempt to put some form of order on the chaos.
In what could well be the death blow to the right-wing conspiracy theory, new acting IRS Commissioner, Daniel Werfel, just released the instructions that had been issued to officials vetting the 501 (c) (4) applications. They reveal that BOLOs issued to examiners not only included such obviously conservative words as "Tea Party' and "Patriot," but also such clearly liberal words as "Progressive" and "Occupy." Far from being a plot to reject applications from conservative organizations, the instructions contained "key word short cuts" to help identify overtly political groups--of any and all ideological bents--that were seeking tax favors by claiming to be "social welfare organizations. The BOLO lists also included medical marijuana advocates, organizations promoting the new health care law, and even applications that dealt with "disputed territories in the Middle East." One such list warned that the "common thread is the word "progressive," and in which "activities appear to lean toward a new political party" and are "partisan" and appear as anti-Republican." The lists also targeted "open source software organizations" because they "are usually for-profit business or for-profit support for technicians," groups for carrying out provisions of the Affordable Care Act, and regional health information organizations. For whatever reason, "occupied territory advocacy" groups "seemed subject to the most scrutiny of all." IRS officials cautioned
all employees that "applications may be inflammatory, advocate a one-sided point of view, and promotional materials may signify propaganda." The essence of the "scandal" thus morphed from a putative liberal conspiracy to stifle nascent conservative political movements into an investigation of questionable sorting tactics used by IRS screeners.
At the same time, Werfel formally ordered an end to all existing BOLOs, and promulgated an "expedited process" for groups to attain tax-exempt status under section 501 (c) (4) of the IR code. To qualify, groups must agree that no more than 40 percent of their expenditures and time can be spent on campaigns for candidates seeking political office. Conversely, at least 60 percent of a group's time and expenses must be dedicated to "social welfare activities." But this new "expedited process" ignores the fundamental question of whether "social welfare organizations" should be allowed to participate in partisan politics at all. The crux of that issue dates back to the enactment of the Revenue Act of 1913, which established the federal income tax system that we still "enjoy" today. <For a detailed discussion of the ratification of the Sixteenth Amendment and the subsequent passage of the Revenue Act of 1913, see my The Income Tax and the Progressive Era (Garland Publishing, 1985).> The nation's first permanent income tax was one of moderate rates and generous exemptions and deductions, the last of which evolved exponentially over the next century to include 28 types of "nonprofit" organizations subsumed under Section 501 (c). The fourth category of these favored groups--(501 (c) (4)--specified "civic leagues, social welfare organizations, and local associations of employees." operated "EXCLUSIVELY for the promotion of social welfare," with membership "limited to a designated company or people in a particular municipality or neighborhood and with net earnings devoted EXCLUSIVELY to charitable, educational, or recreational purposes." An organization is "operated EXCLUSIVELY for the promotion of social welfare if it is PRIMARILY engaged in promoting the common good and general welfare of the people of the community," Thanks largely to the efforts of legions of lobbyists and generations of Congressional horse-trading, EXCLUSIVELY was superseded by PRIMARILY, while "promoting the common good and welfare of the people on the community" was distended to incorporate virtually every organized human activity under the sun, no matter how contrived or far-fetched. By the same token, the calculation of PRIMARILY kept being revised downward to something like single digits or less. In that sense, Werfel's dictum of a 40-60 split would at least require a major reordering and upgrading of activities for most "social welfare organizations."
Indeed the major bone of contention for progressives is that the IRS concentrated on "small-fries," while such behemoths, with little or no discernible "social welfare" functions, as Crossroads GPS and Priorities USA have generally escaped serious scrutiny. And, as my introductory vignette graphically illustrates, the IRS has never established any reasonably clear dividing line between "social welfare' and "political activity, let alone any rational definition of either. 501 (c) (4)s "may inform the public on controversial subjects and attempt to influence legislation relative to its program." They may also "participate in political campaigns and elections, so long as its primary activity is the promotion of social welfare." Their tax exemption applies to most of their operations, but contributions may be subject to a gift tax, while "income spent on political activities--generally the advocacy of a particular candidate in an election--IS TAXABLE." It may directly or indirectly support or oppose a candidate for public office as long as such activities are not a substantial amount of its activities. Contributions to 501 (c) (4) organizations are not deductible as charitable contributions on Form 1040, but dues and some contributions may be deductible as business expenses. Amounts paid for intervention or participation in any political campaign, direct lobbying, grass roots lobbying, or contact with certain federal officials are not deductible. If an organization engages in any of these activities, only the amount of dues or contributions that can be attributed to other activities may be deductible as a business expense. It should provide a notice to its members containing a reasonable estimate of the amount related to lobbying and political campaign expenses, or be subject to a proxy tax on said spending. It should also provide an express statement that contributions to the organization are not deductible as charitable deductions. 501 (c) (4) organizations are not required to disclose their donors publicly. This lack of disclosure has led to extensive use of the 501 (c) (4) provisions by organizations that are actively involved in lobbying." SPENDING FROM THESE ORGANIZATIONS ON POLITICAL TV ADS HAS EXCEEDED SPENDING FROM "SUPER PACS."
Actually, both phony "social welfare organizations" and Super PACs are fruit from the same poisoned tree, the spawn of two of the most anti-democratic decisions in the history of the Supreme Court: SpeechNow.org v Federal Election Commission.and Citizens United v. FEC. The first ruled that restrictions on individual contributions to independent organizations that seek to influence elections are unconstitutional; the second that limits on corporate and union spending to influence elections are also unconstitutional. Combined, these rulings allowed individuals, unions, corporations, and other organizations to contribute freely to political action committees that are independent of political candidates. They also constitute the most lethal anti-democratic one-two punch in the nation's history. You generally don't need a "3" after a one-two punch, but the Supreme Court threw one in for good measure last week by invalidating Section 4 of the Voting Rights Act of 1965.
A Super PAC is allowed to raise and spend unlimited sums of money from corporations, unions, individuals, and associations (Read the U.S. Chamber of Commerce and its constituent trade associations) without disclosing where their money came from. They are technically known in the federal election code as "independent expenditure-only committees," and are laughably easy to create <all you need is access to obscene sums of money.> They advocate for the election or defeat of candidates for federal office by purchasing television, radio, and print advertisements and other media. They differ from garden-variety PACs in who can contribute and how much. They differ from 501 (c) (4)s in that they must reveal the names of their donors.Their only limitation is that they cannot spend money "in concert or cooperation with, or at the request or suggestion of a candidate, the candidate's campaign, or a political party." Although there are both conservative and liberal PACs, the former far outweigh the latter in both number and money. Even John McCain admits that "there is too much money washing around politics, and it's making the campaigns irrelevant." In his dissent to SpeechhNow v. FEC, Justice John Paul Stevens charged that the majority constitutes "a rejection of the common sense of the American people, who have recognized a need to prevent corporations from undermining self government since the founding, and who have fought against the distinctive corrupting potential of corporate electioneering since the days of Theodore Roosevelt." The truth is that Super PACs and phony social welfare organizations"--whether conservative, liberal, progressive, reactionary, or whatever--are, to quote Robert Weisman of PCN, carefully contrived "dirty money laundering operations." They force Americans "who are willing to put their mouths where their money goes," to subsidize candidates and ideas that they find abhorrent.
It is glaringly obvious that Werfel's "expedited process" with its 40-60 split will do absolutely nothing to stanch the flow of "dark money" that is threatening to make a mockery of our democratic political system. Nor would the complete elimination of the 501 (c) (4) deduction of the Internal Revenue Code, which would also destroy thousands of legitimate "civic leagues, social welfare organizations, and local associations of employees." Nor is there any real possibility of reaching consensus on the definition of "political activity" itself, let alone how much and what kinds of "it" to permit. Above all, that determination should NOT be the province of the IRS, which has no constitutional or rational authority--nor expertise--to pass judgment on issues so fundamental to our very essence as a political democracy.
Even more essential is the necessity to remove the corrupting advantage of money itself in politics. Of course, any attempt to do that would meet the implacable opposition of the country's most powerful special interest groups, but that, ipso facto, is the biggest single reason for taking drastic measures. We must enshrine it in law that corporations are NOT people, and that the right to free speech is not graduated according to wealth. The first step is to overturn Citizens United, most likely by constitutional amendment, which would require proposal by two-thirds of both houses of Congress and ratification by three-fourths of the states. As daunting a task as that certainly is, sixteen state legislatures have already called for such a move: California, Hawaii, Massachusetts, New Jersey, New Mexico, Rhode Island, Vermont, Connecticut, Maryland, Colorado, Montana, and Oregon. Properly understood, such action should receive bipartisan support, as it has in most of those states, because it is an issue that affects every American, regardless of political affiliation or ideology. This will almost certainly be a grueling, bitterly fought process, but my own decades of research into America's political history has revealed that the Sixteenth (federal income tax), Seventeenth (direct election of U.S. Senators), and Nineteenth (women's suffrage) only succeeded after decades of frustration and short-term defeats. It also shows that amendments to abolish child labor and to guarantee equal rights for women have not yet prevailed, despite generations of persistent advocacy. The other absolute necessity is the enactment by Congress of public financing for federal elections and a national uniform voting rights and standards act that will guarantee that every American is playing on the same field and under the same rules. That fight will be, if anything, more grueling and bitter, but the Supreme Court's decimation of the enforcement machinery set in place by the 1965 Voting Rights Act, is already spawning a rats' nest of voting restriction laws that will effectively disenfranchise millions of the most vulnerable citizens. Don't forget that is was only injunctions and stays issued by federal judges in several states that prevented such restrictive measures from being implemented in 2012. With the cover provided by Citizens United and the evisceration of the Voter Rights Act, many of those protections will doubtless be obliterated.
What is clearly at stake here, as Justice Louis Brandeis so brilliantly articulated: We can have democracy in this country, or we can have great wealth concentrated in the hands of the few, but we can't have both. Elaborating on that theme on the eve of the Great Depression, Nobel Prize winning economist Irving Fisher warned that Either the plutocracy will buy up the democracy or the democracy will vote away the plutocracy. From the 1930s through the 1960s, the democracy seemed destined to prevail, but over the past four decades, the plutocracy has overwhelmingly succeeded in its scheme to "buy up the democracy." The time to reverse that abomination is clearly long overdue.