If you want to feel bad about your country, look no further than Congress. Today’s case study: The so-called IRS scandal. First a brief refresher course.
The law allows special tax treatment for 501(c)(4) organizations. They are to be civic-minded non-profits “operated exclusively for the promotion of social welfare.” Well, that’s pleasant enough. Nice idea, congressional tax writers, doing good deeds without hope of profit ought not to be a taxable activity. Mother Teresa would be gratified.
Of course any law is open to finagling, but this one would appear to be pretty safe from oddball interpretation. What else could “exclusively” mean but solely, entirely, completely. But an IRS ruling years ago fuzzed up the issue by saying that what 501(c)(4) really meant by “exclusively” was not exclusively but “primarily for the purpose of bringing about civic betterments and social improvements.”
That would seem to be a small change, but think again. It opened the door to organizations whose idea of social betterment was feathering their own nest. To Republicans, electing Republicans looks like social betterment. To Democrats, Democrats. The cause of restricting the good works exemption to actual good works took another blow when a subsequent ruling decided “exclusively” which now meant “primarily” could mean 50 percent.
As a result 501s are now the preferred vehicle by which groups with a blatant political agenda can practice tax free, anonymous advocacy because another benefit of 501 status is that the identity of donors doesn’t have to be revealed. This is the source of all those god awful campaign ads by groups with opaque, anodyne names like Americans for Justice, Patriots for Liberty.
The ads aren’t permitted to stoop to actually advocating a candidate’s election but they can try to destroy a candidate’s opponent. “Congressman Witless claims to be working for the little guy, but he stole millions of dollars from your pension account, attacked your grandmother in an alley and took away her Social Security and plans to murder your children in their beds. Write Congressman Witless and tell him, no mas.” Thus, attacking Witless as a menace to civilization now equals social betterment. It’s a wonderful world.
As such ubiquitous ads show, 501 organizations have strayed somewhat from the original intent of the lawmakers. Critics have begun to demand a return to a strict construction of the law as written, not as liberally interpreted. When it suits their electoral hopes and dreams Republicans are all for strict interpretation, but not in this case.
It so happens that ever more blatant abuse coincided with the rise of Tea Party groups. Many began as grassroots organizations objecting to government business as usual, but whether that made them social welfare organizations seems like a stretch. They were frankly political advocacy groups from the get go.
Even the local, grassroots claims of Tea Party groups soon came into question as many were co-opted by the same old political manipulators who used them to practice the same old politics disguised as the voice of regular people. And following the decision by the Supreme Court to deem corporations capable of free speech, the floodgates opened. Bazillions flooded in from anonymous bazillionaires wrapped in Tea Party clothes, all advocating for the defeat of candidates who might eliminate their tax breaks and other accustomed perks. At last, justice and equality for the rich and powerful.
The burgeoning number of organizations claiming 501 status predictably caused the IRS to react by subjecting more of them to scrutiny. And since a lot were labeled Tea Party or Patriots and might be construed as not out for social betterment but for electoral victory they attracted attention.
Enter Republican members of Congress, hardly an unbiased group, claiming that paying attention to Tea Party groups seeking 501 status was a Democratic plot to prevent their new best friends from giving them aid and comfort. On the other side, IRS defenders and math students claimed a lot of Tea Party groups got scrutinized because a lot of them suddenly applied for 501 treatment.
Needless to say, any semblance to dispassionate discussion of the real issue is off the table. Yet the real issue remains. Should a provision in the tax code intended to offer donor anonymity and favorable tax treatment for non-profits dedicated to social welfare be restricted to just that? Has it been corrupted and distorted over time? Should it be returned to its original purpose?
No chance of a debate on the merits. We are now in a partisan cat fight. And the side with the longest claws and dirtiest punches will win. Probably they will win by running fat cat funded smear ads sponsored by 501s with names like The Committee for Free Speech or the Coalition for Fair Taxes. Ironic, but don’t be fooled.
The latest chapter tops all previous turns of the wheel. The Republican House has voted to pass an IRS budget that cuts tax enforcement funding by 25 percent. They argue that the IRS has shown itself to be a rogue agency targeting poor, innocent Republicans at the behest of Obama, so it doesn’t deserve to be funded.
First, no such thing has been proven. Second, even if it had, cutting the budget for tax enforcement wouldn’t reform the agency or the law they are accused of misinterpreting. On the surface this looks like the behavior of a spoiled child on the playground. The game’s not going their way so they are taking their ball and going home. Or someone has dissed them, so they are going to egg their house.
Look a little deeper, however and this looks less like petty pique and more like rank opportunism. What will be the practical effect of cutting the enforcement budget? Not to clarify who is entitled to 501 exemptions or find malefactors, if any, and punish them. No, cutting the enforcement budget will make it harder to collect taxes from scofflaws who are refusing to pay their share.
And who might these people be? Well, last year 0.9 percent of people making under $200,000 a year got audited. The lowest on record, largely because regular working people who pay the payroll tax have very little opportunity to jigger their taxes through the kind of baroque gimmicks available to the affluent. A larger 10.9 percent of those making over one million got audited, still the lowest percentage in years.
But cheer up, Wall Street fat cats, corporate crooks, Republican donors, illegal offshore account holders and other wealthy tax avoiders, a budget cut of 25 percent for IRS enforcement will make it much less likely you’ll be caught. Maybe instead of a 10 percent chance of an audit, it will come down to 7 percent.
In gratitude, you will be able to open your hearts and wallets. So give generously (and anonymously) to a tax-advantaged 501 dedicated to your social betterment. In return, it will sponsor smear campaigns against the opponent of your friendly, pliant Congressmen. Your untaxed dollars at work.