“Inappropriate” became the word of the day Friday when it was spoken by both White House Press Secretary Jay Carney and Lois Lerner the director of the IRS (Internal Revenue Service) that oversees tax-exempt groups. In both cases it was used to describe actions by “low-level” employees against conservative groups applying for 501(c) (4) tax exempt status. “Inappropriate” is an inoffensive euphemism for what was obviously a politically motivated, despicable act. Though they have come to naught, predictions of right wing violence have been a stable of the Obama Administration from the get-go.
The Department of Homeland Security, early in Mr. Obama’s first term, issued a report predicting an increase in extremism. Timothy McVeigh’s and Bull Conner’s were seen in every brown shirt. As Ross Douthat wrote in Sunday’s New York Times , the “dots-connecting peaked, of course, with the shooting of Gabrielle Giffords, which was instantly deemed a case of right-wing incitement leading to political violence…”
The IRS, via the graces of Ms. Lerner, apologized, but denied any political motivation – “The errors were in no way due to any political or partisan rationale.” It was a difficult statement to swallow, especially in these highly partisan times. “It was the ‘line’ people who did it without talking to managers,” said Ms. Lerner. Absolving one’s self from personal responsibility has become standard procedure for this Administration. (It was fascinating to watch Jay Carney bob and weave at Friday’s press conference regarding Benghazi. The only person he found to blame was Mr. Romney, whom he claimed politicized the attack the day afterwards.) Unfortunately this refusal to accept responsibility has inculcated our culture. It indicates how far we have fallen from those words of Jesus about the adulterous woman: “Let anyone of you who is without sin cast the first stone.” Mr. Carney is an extension of the President; thus his embarrassment is the President’s, or should be.
The power embedded in the IRS is fearsome. The founding fathers, who were naturally concerned about the abuse of power, introduced a series of checks and balances to keep that power under control. In the case of taxes, Congress would levy them, while the Executive branch would enforce and collect. The power to tax may be second only to the power to prosecute in terms of government’s influence over its citizens. Such abuses of power deserve more than an apology by an underling who was quick to place blame on “overzealous audits” by “low-level employees.” In a world in which politicians never cease campaigning, it is hard to believe that those “low-level” workers were not responding to directions from above, especially since their programs were set to search for words like “patriot” and “tea party.” Ms. Lerner’s explanation that those applications, like others that were chosen for review, “received the same even-handed treatment,” should have been sufficient to allow her Pinocchio’s nose to extend another foot. Heavy-handed, not even-handed, would have been the more apt adjective. In any event, the Left should be concerned about this as well, for what has proved sauce for the goose will very likely become sauce for the gander when the White House next changes Parties.
Under current law, the primary focus of 501 (c) (4) organizations must be social welfare, though they may become involved in advocacy and lobbying efforts and even campaigning. Political Action Committees (PACs), like Moveon.org on the left and Crossroads GPS on the right have 501 (c) (4) spin-offs. Personally, I object to having any tax-exempt money spent on political campaigns or lobbying, but the law is the law and fair is fair. What is significant about these complaints of targeted harassment is that they were raised well over a year ago early on in the campaign. Testifying a year ago last March, IRS Commissioner Doulas Shulman (who was appointed by George W. Bush) told Congress: “There’s absolutely no targeting. This is the kind of back and forth that happens to people.” Mr. Shulman is another candidate for a Pinocchio nose.
The abuses, according to a report in Saturday’s USA Today, were discovered last year, but were not acknowledged until now, six months after the election.  An Inspector General’s report is due out shortly. Ms. Lerner allegedly could not say as to whether officials at the Treasury or White House were aware of the problem; she claimed to have been too busy. As Saturday’s Wall Street Journal editorialized, this sort of “back and forth” is a price one pays for being a conservative: “In May 2011, the IRS was caught sending letters to big donors of conservative 501(c) groups, suggesting their contributions could be retroactively taxed under the gift tax.” They asked for the names of individual donors, another no-no under IRS rules. Again, like Friday’s admission, blame was placed on low-level employees and they did not reflect a coordinated effort by the White House.
The Internal Revenue Service, as we know it today, was a creation of the 16th Amendment that was ratified on February 3, 1913 and which allowed for an income tax. Since that date it has been enlarged, modified and amended countless times. Today, the U.S. federal tax code comprises 55,000 pages and its complexity can be seen in that approximately 1.2 million tax preparers now labor to decipher its meaning. That fact, along with the fact that more than a third of Congress are lawyers, suggests that a simplified, easily understood tax form will likely remain only a pipe dream. Its nooks and crannies provide ample opportunities for lawyers.
The use of the IRS to impose one’s political will is a frightening prospect, infested with unintended consequences. It goes to the heart of what caused our break with England in 1775. Campaign finance reformers have suggested enlisting the agency and broadening its powers to help regulate policies and politics. It is a path down which we dare not tread. As mentioned above, supporting any politician with tax-favored dollars is something I find offensive. While I personally find the amount of money spent on campaigns to be a disgrace and against the best interests of the people, I don’t think we can impose artificial restrictions, but there is no reason that I, through somebody else’s tax deduction, should support policies with which I disagree. The names of all people who give to campaigns either directly or indirectly should be a matter of public record. If you don’t want your name disclosed, don’t give. Additionally, in my opinion, PACs should not be allowed spin-offs that qualify as tax-exempt entities, be they from the left or the right. It is unfair to us taxpayers who feel there is already too much money in politics. Yet, because of the tax code, their deduction becomes our higher rate.
In politics we often have people with strongly held, but differing views. However, respect for one’s opponents is integral to civility in democracy. This incident, along with Benghazi, speaks to character, or rather to the observation that character in politics and politicians has sadly gone missing. Typical of the infecundity of any moral sense in Washington could be seen in the question asked by Secretary of State Hillary Clinton at the Senate hearings earlier this year. In testimony as to the cause, she asked, “What difference – at this point what difference does it make?” Madame Secretary, it makes a difference because the truth matters, at least it does to the families of those who were killed and all those who love the spirit of this nation.
During one’s lifetime, power may be exercised and fortunes may be amassed, but in the end we are left with our reputations, which largely reflect the person we are. Character involves trust and honesty, fair treatment and transparency. Whatever strengths this Administration may have, the events of the past week suggest that character is not among them. “Inappropriate?” Forsooth!
This memorandum has been prepared as a matter of general information. The accuracy of the material submitted, though obtained from sources believed reliable, is not guaranteed by us and may not be complete. The opinions and estimates expressed in this memorandum accurately reflect the personal view(s) of the analyst(s) covering the subject securities on the original date the memorandum was issued, but are subject to change without notice. Analyst compensation at our firm is not directly related to any specific recommendation or views contained in this research. The analyst, officers and employees of this firm may at times have a position in the securities mentioned herein.
Monness, Crespi, Hardt & Co., Inc. is an Institutional Broker Dealer. All investment advice is tailored to institutional investors. If you are not an institutional investor and have received an email containing investment information, please do not act on it and contact compliance at 212-838-7575.
 This morning, reports in both the New York Times and the Wall Street Journal indicate the problem was deeper and that it was known earlier than previously acknowledged. Expressed concerns about government spending and debt were also targeted, and the Times reported that Ms. Lerner was aware of the problem as early as June 2011, about ten months before Douglas Shulman’s testimony, and almost two years before the entire episode was publically disclosed.
“The Thought of the day” by Sydney Williams
The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.