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The IRS Scandal: Asking the Right Questions

by Michael Austin, published


“I think Thomas Jefferson would have said, ‘The more speech, the better.’ That’s what the First Amendment is all about, so long as the people know where the speech is coming from.” --Justice Antonin Scalia

The current “IRS scandal”  raises a lot of legitimate questions that deserve answers. If, as appears to be the case, IRS agents in Cincinnati and elsewhere subjected conservative groups to exceptional scrutiny, then they are guilty of an illegal and probably unconstitutional act of selective enforcement. Congress is correct to question these actions.

This said, I do not believe Congress, the press, or the American people are asking the right questions. The Congressional investigators, who are still stuck in a Watergate narrative, are asking “what did the President know and when did he know it?” Others are asking, “Who gave the order to target conservative groups?” or perhaps, “How many other conservative groups have been similarly affected?”

I would like to suggest three very different questions that we should be asking, each of them stemming directly from the current IRS scandal, and each of them far more important to the health of our Republic than the “who-knew-what-about-what-when” games that we are currently playing. Here they are:

  1. Why was the same careful scrutiny not given to liberal groups, moderate groups, and any other political group that applied for tax-exempt status under the “social welfare” clause?
  2. Why are groups that are have been created to support or oppose a political candidate or philosophy eligible for tax-exempt status?
  3. Why are groups that are essentially political fundraising machines allowed to conceal the names of their donors by claiming 501(c)4 status?

There seems to be an unstated assumption among some politicians and commentators that tax-exempt status for political groups should be a slam-dunk and that any organization with a perspective ought to be able to raise unlimited amounts of tax-free money without disclosing the names of their donors. This is not quite true. The 501(c)4 status was created for “civic leagues, social welfare organizations, and local associations of employees.” Technically, such status requires that a group engage in civic activities without supporting (or opposing) a specific candidate.

Social-welfare organizations, of course, have become one of the great fictions of the modern age. After the Supreme Court’s Citizens United decision, the 501(c)4 status became the foundation of the “SuperPACs”—the thinly disguised campaign fund raising organizations that have made campaign-spending limitations in America completely useless. Under the guise of “issues education,” backers of specific candidates can now raise as much money as they want, tax free, without disclosing the names of any of their donors.

And donor anonymity is what the current debate is really about. Citizens United says that political contributions cannot be limited, but it does not require that they be permitted anonymously. This is why 501(c)4 status is so important. Groups denied this status can still claim tax-exempt status as overt political organizations under Section 527--which would merely require that they disclose the names of their contributors.

So, rather than criticizing the IRS for harassing Tea Party groups by asking lots of pesky questions about what they would do with their tax-exempt status, perhaps we should make sure that they start harassing everybody else too. This, of course, would mean denying 501(c)4 status to the issue-oriented organizations across the political spectrum that have become no more than money-laundering operations for candidates and political parties. It would also mean that political groups and parties would have to start obeying the few campaign-finance rules that actually still exist.

Enforcing the existing rules would not touch the substance of Citizens United, however. Corporations would still be people, and money would still be speech. It's just that we would finally be able to identify the corporate people doing the speaking.


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