Context is everything, and David Cay Johnston, the nation’s preeminent tax-policy journalist, provides just that for the IRS scandal. As I said yesterday in a tweet, the issue is only partly about the targeting of GOP-leaning organizations. That, of course, never should have happened. But there also is a question about how 501(c)(4)s are treated more generally.
As Johnston points out, there is supposed to be a “distinction between groups that are ‘primarily engaged’ in politics and groups that really are primarily engaged in ‘social welfare'” and “‘promoting the common good and social welfare of the community,’” though the distinction is “kind of mushy.”
The issue, he said, is that
the social welfare tax exemption is being used by existing 501(c)(4) organizations, including some very large ones, to promote partisan political interests—the very activity Congress has explicitly prohibited for a century.
Of potentially greater concern, however, is that “the IRS is drowning,” with a 17 percent cut in its per capita budget since 2002 and a growing list of duties. Essentially, Congress, which has never been particularly friendly to the taxman, “is demanding that the agency do more and more with less and less,” which has left undermanned at a time it is faced with a surge in the number of 501(c)(4) — 2,774 in 2012, compared with 1,777 in 2011 and 1,741 in 2010.
None of this excuses the targeting of conservative political groups. All indications are that it was a mix of overzealousness in attempting to preserve the social welfare aspect of the 501(c)(3) status and incompetence by managers who failed to set functional policy. These failures, however, have placed the IRS squarely in the crosshairs of the GOP, which sees its chance to tar the Obama administration with scandal.
The Obama administration appears to have moved quickly on this, but it needs to be prepared for the expected — and necessary — Congressional hearings. It need to be open and truthful and the GOP, for its part, needs to avoid the temptation to grandstand and go for political points. The truth of what happened is much more important than the politics and needs to be uncovered so that this kind of thing can be prevented in the future. That likely will mean safeguards against IRS overreach, but it also should include a reconsideration of the social-welfare tax exemption so that it is more tightly worded and less prone to political manipulation.
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Hank Kalet 