The Monday Long Read: Why the IRS scrutiny of conservative groups is less nefarious – and more necessary – than you think

Americans’ favorite government agency to hate, the Internal Revenue Service (IRS), has managed to make itself even more loathed by conservatives. How? It is coming under fire for (over?) scrutinizing conservative, tea party groups’ tax-exempt status, which just plays too well into the Republican narrative of persecution on all fronts – from the liberal media to the War on Christmas. However, this particular issue is not so simple.

Let me begin by saying the IRS is not – and should not be – political. Because it wields such power, there must be an overwhelming number of safeguards to ensure its impartiality. If it becomes clear there was serious wrong-doing at the IRS, those responsible should be punished and held accountable. President Obama rightly called the targeting of conservative groups “outrageous.”

However, this story is part of a much wider problem: the huge amount of cash flowing intoMoney pipe campaigns from anonymous groups and the government’s inability – or unwillingness – to do much about it. It all starts with the 2010 Supreme Court decision Citizens United vs. Federal Elections Commission, which eliminated caps on groups’ political spending in the name of free speech. It also allowed these groups to apply for tax-exempt status with the IRS, under Section 501(c)4 of the tax code. There are two major perks to filing your organization as a 501(c)4: you don’t pay taxes and you don’t have to disclose your donors.

However, this section of the tax code was not created for groups like Karl Rove’s Crossroads GPS or the liberal Organizing for America, both of which have explicit political purposes. Though 501(c)4s can engage in some political activity, such as lobbying, their primary purpose must be promoting social welfare – an ill-defined term, to say the least.

Not surprisingly, after Citizens United, applications for 501(c)4 status doubled. And the IRS does not have the tools to make sure no shenanigans are going on. So when does a group that has filed for 501(c)4 status cross the line and become too political for the IRS? It’s hard to say, in large part due to the lack of clear, institutional definitions. It reminds me of how Supreme Court Justice Potter Stewart described pornography in the Court’s 1964 ruling Jacobellis v. Ohio: I know it when I see it.

Karl Rove’s super PAC

Guess how much conservative groups, including the Koch brothers’ Americans for Prosperity (AFP), spent in total in the 2012 election cycle. $254,000,000. AFP received tax-exempt status in 2004 and said it planned to spend ZERO dollars on elections in its application with the IRS. Zero. Guess how much it spent in the 2012 election, according to Open Secrets. $36,352,928. Talk about a lot of social welfare promotion.

I don’t mean to frame this as something that only affects conservatives, but there is no question more outside conservative groups sprang up than liberal ones in the wake of Citizens United. And there is also no question conservative groups spent more than liberal ones on elections, though they were not met with much success in 2012.

So, if you work in the tax-exempt organizations branch of the IRS, what do you do?

With all this in mind, let’s return to the story of “targeting” that broke this weekend. IRS civil servants in Cincinnati, where 501(c)4 applications are processed, looked for words including “patriot” and “tea party” in applications to find groups that may have been overly political and, therefore, required extra scrutiny. Of the 298 groups receiving a second look, 72 had “tea party” in their name, and 13 had “patriot.” Other terms may have been used, but they have not been disclosed yet. One thing you may not hear in conservative talking points is that every group received 501(c)4 status. That’s right – in the witch hunt conservatives are alleging took place, no witches were found, let alone burned.

The problem here isn’t that the IRS was looking to make sure it wasn’t giving tax-exempt

The liberal 501(c)4 was overtly political

status to the groups that flood swing states with partisan attack ads – that’s their job. The problem is that it lacked the institutional mechanisms to do it effectively and free from bias, resulting in non-political appointees in Ohio improvising judgement calls without much oversight. That’s a very serious problem.

But the real problem is that the IRS didn’t go far enough: every group applying for 501(c)4 status deserves a very thorough vetting by the IRS, regardless of its ideological leanings. The IRS needs the right tools to protect the American people from groups anxious to thwart the tax code and spend millions on elections. If it isn’t going to monitor shadowy outside political spending, who is? Congress? Fat chance. And now that the agency is coming under fire from all sides, it’s even less likely to go after these groups in the future, giving them even more free reign.

So, is there a problem? Absolutely, but without the right context you’ll miss the real story.

The Gilded Age of Clinton: or how I learned to stop worrying and love the Benghazi hearings

Photo Credit - AP

Photo Credit – AP

Yesterday the House Oversight Committee held yet another hearing on the immediate US response to the September 11th 2012 attack on the US diplomatic compound in Benghazi.  Many on the left have characterized the hearings as politically motivated, which is about as insightful as announcing the discovery of one’s own belly button.  And, indeed most of the hearing featured committee members having a spirited match of rhetorical ping pong over who was at fault (if you were guessing the whistleblowers were the ping pong balls).  Commentators taking the longer view of the political effects of the Benghazi tragedy suggest it will have a chilling effect on a Hillary Clinton run at the White House in 2016. Hillary Clinton was Secretary of State during the attack and ultimately it is unseemly for her to walk too far away from taking responsibility for the fiasco. That said, you can make a case that taking Clinton down a peg or two could actually be good for the Democratic Party in 2016.

Clinton is seen as a “field clearing” candidate for 2016. If she were to run, the deep Clinton network of donors and her trademark tenacity would ensure a long drawn out primary.  Democrats who are keen on protecting Clinton now to help her in 2016 should look closely at her prospects as a general election candidate and consider her effects on the rest of the Party’s bench.

Presidential primaries help develop talent and expose charlatans. Second tier candidates  often become valued communicators after elections season has ended and debates (if not too numerous) help develop ideas and themes for the campaign. Primaries can make eventual nominees more extreme, but that is more common in statewide races.

The trouble with a “field clearing” presumed mega nominee, like Clinton, is that you limit opportunities for party growth. Promising younger candidates might sit the race out and those that don’t would feel pressure to put on the kid gloves during the debates.

Furthermore, political favor moves in cycles and no one stays on top for more than a year or so.  Democratic operatives gaming out a Clinton response to Benghazi for 2016 might want to start looking for another horse because the current gilded age of Clinton will come to an end sooner rather than later.

I think Hillary Clinton is national treasure, but if Benghazi is what forces her to go out on top rather than get coaxed into being dragged through the mud based on overconfidence than I will side quietly with the Republican witch-hunt. Keep in mind that a party needs heroes as much as it needs quarterbacks, but heroes have to go out on top.

Heritage Foundation has a new standard for citizenship, low wage workers need not apply

Jim Demint heads the Heritage Foundation, authors of a sketchy report on the fiscal effects of immigration reform.

Jim Demint heads the Heritage Foundation, authors of a sketchy report on the fiscal effects of immigration reform.

As the Senate’s Gang of Eight prepares to bring their immigration plan up for a vote, the usual players are coming out of the woodwork to scare lawmakers into voting no. Chief among them is the Heritage Foundation, which released a report today that uses some rather crude accounting to claim that immigration reform would add $6.3 trillion to fiscal deficits over the next several decades. Major economists on both the left and right beg to differ, but the report’s bad math is small potatoes compared to its troubling view of the average American taxpayer.

Let’s start with the basics.  Heritage looks at the average value of government benefits received by undocumented, lawful immigrant and low-education households and compares it to the value of the tax receipts those households pay. Many of those households, on paper, receive more in government benefits than they pay in taxes. Heritage looks at projected demographic changes caused by immigration reform over the next fifty years and does some basic multiplication to come up with the $6.3 trillion number. It gives the impression that immigration reform would be the nail in the coffin for U.S. fiscal policy over the coming decades. Luckily we have some smart people on both sides of the debate telling us that it is total bunk.

In 2006, the Congressional Budget Office scored an earlier Senate proposal that contains many of the same policies as actually reducing the ten year fiscal deficit by $12 billion. David Bier at the Competitive Enterprise Institute, a major free-market public policy group, recently concluded that a more ambitious immigration program that actually allows more guest workers into the country would “boost the economy [and] protect American businesses,” and he isn’t alone.  The right-leaning Manhattan Institute for Policy Research has put out a report that argues, “Embracing a more flexible legal immigration system can dramatically improve” the country’s fiscal situation.

So with so many smart people arguing for the economic benefits of immigration, what is driving the Heritage report?  It has a lot to do to with contempt for the average American taxpayer, regardless of their immigration status.

“Following amnesty, the fiscal costs of former unlawful immigrant households will be roughly the same as those of lawful immigrant and non-immigrant households with the same level of education. Because U.S. government policy is highly redistributive, those costs are very large.”

In essence the problem isn’t immigrants – it’s poor people.

In the view of Heritage, most households are “net tax consumers” and take in more in benefits than they provide in taxes. They argue these people are a drag on the economy and that reducing the number that come into the country is a good thing. However, using Heritage’s methodology, these immigrants are economically identical to “non-immigrant” households, i.e. existing citizens.  It stands to reason that shipping these people out of country would be good for the economy, as well.  Of course that is absurd. Shrinking populations generally are not good for growth – just ask Russia and Japan. But that’s the logical conclusion of the Heritage’s reasoning.

So the report isn’t really about immigration as much as it’s a rehash of Heritage’s existing concerns with mainstream fiscal policy. That said, I’d encourage the Heritage staffers to submit their tax returns so we can evaluate whether or not they are worthy of legal status.