ataxingmatter

"Getting Rid of the IRS"--Detroit's Nolan Finley's wrong solution to the wrong problem

I suppose it shouldn't be surprising that the mostly-to-the-right Detroit newspapers would have a center-page opinion piece calling for the elimination of the IRS, that ages-old mantra of the radical right and of those corporate-backed propaganda tanks and radical-liberatarian idea pushers like Cato and Heritage Foundation and Claremont and many of the Tax Party groups, etc.  But this one is so bad that it is necessary to call it out for what it is--a bunch of hog-wash.  See Nolan FinLey,  Let's Get Rid of the IRS, Detroit News (June 10, 2013).

Finley starts out with a presupposition that the scandal-mongering about the IRS is not only completely accurate (which it isn't--liberal and conservative groups were selected for scrutiny, and scrutiny was called for in respect of groups that had "tea party" in their names, since most of them were in fact mainly doing politicking) but that it was also "obvious[ly]" done from at the orders of Obama operatives to aid the President's election chances (which is completely unfounded conspiracy-mongering speculation).  He states that "the IRS has been caught red-handed targeting conservative political groups for special scrutiny in what seems obvious was an attempt to aid the reelection bid of President Obama."

An initial scaffolding of distortions and malicious speculation cannot bode well for any opinion piece.  So it isn't a surprise that the rest of the piece doesn't hold water, either.  He calls the required statutory scrutiny of applicants for 501(c)(4) status a "dragnet"--failing to even acknowledge that the statutory requirement states that such groups must be "exclusively" operated for social welfare purposes and that it is in fact through administrative dispensation via interpretative regulations that the IRS applies instead a "primarily" for social welfare purposes test, thus permitting (too much) politicking as long as it isn't the primary activity.

He goes on to claim that use of the term "patriot" as a screening filter for politicking groups implies that "the United States government finds something sinister in patriotism".  Again, that's a ridiculous association of what may possibily have been a perfectly reasonable though politically unwise filter term--i.e., if there are lots of groups with "patriot" in their names that do a lot of politicking, then it is a reasonable term to pick for giving those groups extra scrutiny to see if they do too much politicking, though the expectation that conservatives would rise up in arms if those types of groups receive extra scrutiny should have been a red flag cautioning against use of that term in spite of its usefulness.

Then Finley asserts that this conspiracy-theory thinking provides "more than enough reason to jettison plans to make it [the IRS] the enforcement arm of Obamacare."  Now, it is true that the IRS has so many different federal programs that it has to oversee that it is almost impossible for it to do an appropriate task of doing so.  Congress has loaded it with tasks (including all the tax expenditure programs embedded in the federal income tax code) and consistently underfunded it so that it is usually understaffed and overstretched.  But the answer to that is not to take away a task that it is perhaps best suited for out of all the agencies, but rather to fund the IRS appropriately so that it can do the tasks assigned to it by Congress.  Finley completely ignores the underfunding problem, since--as revealed later on--he really wants to decimate or eliminate the IRS entirely.

 Finley talks about the IRS as "an institution America no longer trusts"  because it is "the most feared agent" and on "that has proven itself willing to manipulate the levers of government to achieve a political end."  Again, many problems in this rhetoric. 

• If the IRS is actually the "most feared" (I personally suspect the CIA and FBI and NSA would come in ahead in that race, but haven't seen any actual empirical study on this issue)--even after the enactment of three laws pulling back on its power to enforce and essentially hamstringing its employees with the "ten sins" provisions included in the 1998 act (see earlier post)-- it is because for decades the right-wing propaganda tanks and media have been pushing distrust of the IRS and of taxes and of government generally.  People are influenced by that constant cry of "bad guy" based on blowing up of individual anecdotes into massive (presumed) patterns.
• And the claim that the IRS "has proven itself" using its power for political purposes is simply unfounded.  There is no "proof" of the assertion made by Finley.  He is merely playing the Bill O'Reilly game of asserting speculation--or even worse, falsehoods,-- as fact in order to buttress his own personal vendetta against the IRS and its employees.  Most IRS employees are civil servants, not political appointees.  I've known quite a few Republican IRS employees in my years as a tax practitioner, and have considered writing about what I consider a related problem -- that  too many IRS employees are too willing to court the pleasure of taxpayers such as big multinationals or large law firms or accounting firms that may well become their future employers or clients when they leave the Service.

 Now Finley hits his stride with his real objective--arguments for disbanding the IRS, eliminating the income tax, and replacing it with a (regressive and hard to enforce) national sales tax.

The most fitting punishment would be to disband the IRS. And junk the income tax, too. Mike Huckabee, former governor of Arkansas and now a TV talk show host, is urging Congress to replace the income tax with a national sales tax. You’d pay tax on the money you spend instead of the money you earn.That would eliminate the need for an IRS that audits tax returns, hands out non-profit status and enforces a tax code that is egregiously complex and unfair. Id. (paragraphing removed).

 Finley reveals his true ignorance here (if he hasn't done for most readers already).  Let's just consider first some of the ancillary issues around "disbanding the IRS".

• Because the IRS does function as the major enforcement agency for many things besides the income tax, Congress would have to undertake a comprehensive analysis of all of those activities and assign them to some other agency.  In all likelihood, that other agency would lack agents with expertise to handle the assigned task, and the result would be essentially a transfer of those currently staffed with the activity to the other agency, requiring considerable time to merge functions and perhaps failing to do it well enough to maintain current operating efficiency, much less improve it (just as huge mergers or consolidations of businesses often go awry). 
• Further, the time to do the study, legislate the transition, and implement the transition would require continued operation of the current agency and the replacement agency, duplicating costs at a time when conservatives like Finley claim they want to cut wasteful government spending.
• The Internal Revenue Code is not really "egregiously complex."   

1. Read earlier posts on the right's tendency to overstate (by tens of thousands of pages) the "size" of the Code and to treat "size" as an appropriate substitution for any analysis of complexity. 
2. Only 30% or so of individual taxpayers itemize, and itemization is the primary complexity faced by individual taxpayers.  Most of those who do itemize are in the relatively wealthy part (upper 30% )of the income distribution, and most of those who have difficult and complex decisions to make are the very wealthy who have expensive tax experts to do their work for them.
3. Most of the complexity in the Code stems from two factors--(a) tax expenditures (subsidies) that benefit (substantially, in most cases) particular types of wealthy and business taxpayers lobbied for by those taxpayers and (b) anti-abuse rules necessitated by the clever tax strategies invented by the wealthy taxpayers' (especially corporate and business taxpayers') expensive tax experts.
4. It is naive to think that any tax system--whether income or excise or transfer or territorial or worldwide or sales or VAT-- could be "simple" for wealthy individual and corporate taxpayers with a global playing field and incredible sums able to be spent on avoidance and at the same time generate sufficient revenues to provide for the most basic of public goods and services, including a decent safety net for those caught in vulnerable positions by age, illness, or other lack of privilege.

5. Most sales tax systems include incredible arrays of exemptions (for example, for non-profit groups and charities) and exclusions (for "necessities" where the sales tax could make a difference between life and death for those living in poverty) and special provisions (lobbied for by particular industries).  A VAT (if that were the form required) would in all likelihood require the same complexities about what is income or not that an income tax requires.  A VAT or a national sales tax would require a mechanism for enforcement of collection not unlike the IRS's function and a mechanism for tracking individual's payments not unlike the IRS's current function.  It would not permit the elimination of audits of tax returns (just different kinds of returns), handing out nonprofit status (just a different rationale and basis) or enforcing a complex tax code (just a different one). 

 Finley's ignorance is further revealed by his claim that a "similar outcome" (disbanding or making the IRS much smaller) could be achieved by "vastly lowering current income tax rates in exchange for eliminating all deductions and credits" because there would be "no reason to examine returns."

• lowering rates doesn't achieve anything but less revenue--which will have to be made up for in other ways (adding complexity) or by further hardship on the already suffering ordinary people of this country who bore the brunt of the Great Recession, the foreclosure crisis, the unemployment crisis, and the corporatisation of education that has paid administrators twice or more what they are worth while cheating professors, teachers and students;
• eliminating all deductions and credits might simplify somewhat the income tax, but at the cost of considerable unfairness in many cases--for just a few obvious examples, removing the foreign tax credit for taxes paid to other countries would result in some instances in "double taxation" of the same revenue by the US and the other country; removing the "standard deduction" and "personal exemption" would undermine a universal view that the income tax shouldn't reach the amount necessary to maintain a barely sustaining level of income for food, shelter and clothing;
• even if it were possible to "lower rates and eliminate all deductions and credits", it wouldn't be possible to get rid of the IRS or eliminate audits or curtail enforcement or reduce the tax code to something a kindergartner could understand--a critical question for the Code is "what is income"--and therein lies a huge portion of the complexity and most of the ways that taxpayers have found to abuse the rules by claiming "phantom" losses.  (Note that Finley doesn't talk about removing elections, exemptions, and exclusions--was that intentional?)  There would still be the same need for returns, audits, and enforcement, and there would still need to be all the procedural provisions for litigation and regulations and penalties and interest on overdue taxes.  There would be rules still for all the different types of entities (much of the complexity of the Code lies in the rules for permitting partnerships to have considerable flexibility in their allocation of income and losses among the partners).  Certainly Finley wouldn't suggest that the tax code should get to tax gross income and taxpayers be required to forego claiming any losses!

Finley ends with what he thought was a question requiring an obvious answer of "none"--essentially asking that if we can eliminate the IRS and get rid of the health care "entitlement", "what's the downside?"

The answer is not the one he so ignorantly professed to believe.  The downside is huge, and there is little upside.  Finley disregards the growing inequality in this country and the continuing poverty in what is still the richest country in the world.  He doesn't care, apparently, that his "solution" would create even more problems for the poor, as programs that they depend on administered through the IRS-such as the Earned Income Tax Credit and the standard deduction and personal exemptions--would be eliminated with his proposal.  Further, without a tax collection and enforcement agency, much of the good done by the federal government would wilt on the vine--from the Centers for Disease Control to the NIH and the Smithsonian, from transportation safety to education funding, and even the right's much beloved military.  We simply can't and shouldn't get rid of the IRS--every advanced country in the nation has a bureau that collects and enforces the tax laws.  We could get rid of the particular health care reform enacted as Obamacare, but we shouldn't --rather, we should continue to improve it, ultimately instituting Medicare for all and removing the rent-seeking profiteers from the picture except for those who have so much money that they can afford to buy luxury health care.

Finley's proposal amounts to more hot-air from the right about their favorite target--taxes and tax enforcement--that would have regressive results lopsidedly benefiting their favorite beneficiaries--the wealthy and Big Business (owned mostly by the wealthy).  Apparently, people like Finley really want a country where brute market forces allow a few to reap all the benefits and the many to suffer, resulting in a classed society with the few living in relative splendor and the rest living off the dregs.  That would be the result of most of these proposals for turning to a regressive sales tax and shutting down federal tax enforcement, making such proposals a form of class warfare pure and simple.

(if you don't believe me about "rent-seeking profiteers" in the health care business, read Saturday's New York Times story about the way Questor--a Big Pharma company--has reaped huge profits by essentially building a monopoly power over an immune-disorder drug called Acthar and now intends to purchase a competitor's potential threat (selling for tens of thousands less) because  a US startup wanted to make it available cheaply in the United States.  Questor bought Acthar in 2001 when it was selling for just a few hundred dollars a vial.  By 2007 questor had increased the price to almost $1500 a vial.  And in 2007, Questor increased the price in a single jump to $23,000 a vial--yes you read that number correctly.  This is the perfect example of the fact that the right's beloved "market" doesn't work if the government doesn't provide the right framework--in this case, enforcement of anti-trust laws much more stringently than has been done in the last few decades as anti-trust has practically dropped from the national vocabulary.)

Related articles

The real IRS scandal

More on The Overblown IRS "scandal"--Cummings (D-vice chair) vs Issa (R-Chair)

As the House hearings have continued into the "much ado about nothing" "scandal" of the IRS Cincinnati office using terms like Tea Party and Patriot to filter 501(c)(4) status appications for groups that were likely to be politicking and thus merit extra scrutiny before granting the status, there continue to be statements that lambast the government generally and the Obama White House in particular, accusing it of intervening in IRS affairs and implying that the Obama White House is using the agency to get at its political enemies.

Darryl Issa, the Republican chair of the House Oversight Committee, one of the various politicians avidly pursuing the issue, spoke with CNN's Candy Crowley and claimed that IRS agents were being "directly ordered from Washington".  See Joan Walsh, Elijah Cummings Outplays Darryl Issa, Salon.com (June 9, 2013).  Issa hinted that interviews with IRS staff had turned up plenty of proof of such shenanigans, but Cummings, the Democratic vice-chair of the Committee, called his bluff, saying that a senior Republican staffer who described himself as a "conservative Republican" had made quite clear that wasn't so and challenging Issa to release the transcripts of interviews.  (Cummings ultimately released the transcripts himself.)  Cummings suggested that it was time to close the book on this case. id.  If only.

Related articles

The real IRS scandal

Cummings calls Issa's IRS bluff: 'I'll release' transcripts clearing White House if he doesn't

Dem Rep. Elijah Cummings: Darrell Issa, 'release the full IRS transcripts or I will. Period.'

Rep. Cummings Promises Candy Crowley: If Rep. Issa Doesn't Release IRS Transcripts Within The Week, 'I Will'

Rep. Cummings: Proof clears WH of IRS targeting scandal

Cummings Calls Issa's IRS Bluff: 'I'll Release' Transcripts Clearing White House if He Doesn't

White House not involved in reviews, IRS manager says - Boston.com

Social Security Meets Real Needs

Sometimes when you look at the hype on Social Security from the right, you wonder what in the world is going on in the heads of the hypers.  Here's the way it tends to go:

1) Social Security is meant to be an insurance program that pays for itself.

2) Down the road in 20 or 30 years it is predicted by Social Security trustees (using prudently conservative estimates based on present valuing for infinity the obligations of the trust fund) that Social Security will be {pick your term: insolvent, bankrupt} and as a result , the program will, at that future date, be able  to pay only about 75% of the benefits promised to retirees (which will, nonetheless, exceed the benefits that are currently being paid to retirees).

3) So therefore we should "save" Social Security by "reforming" it now : the way to do that reform is not by lifting the cap (so the rich pay into the program the same way everybody else does) but by cutting benefits so that the program starts paying less benefits today to retirees.

When you write it out in stark terms like that, it becomes strikingly clear how idiotic these "reforms" are and how unprincipled the purported "reformers" are.  As Paul Krugman noted in an earlier New York Times opinion piece, Krugman, The Geezers Are All Right, New York Times, Opinion (June 2, 2013), they are proposing preemptively decimating benefits today because the program might reach a situation decades off where benefits would be partially reduced of necessity if nothing at all is done. 

 [I]t does look as if there will eventually be a shortfall, and the usual suspects insist that we must move right now to reduce scheduled benefits. But I’ve never understood the logic of this demand. The risk is that we might, at some point in the future, have to cut benefits; to avoid this risk of future benefit cuts, we are supposed to act pre-emptively by...cutting future benefits. What problem, exactly, are we solving here? Id.

This is not unlike policies of voluntary war--we'll suffer a great harm now (going to war, with the huge cost now in weaponry and lives and the huge cost in terms of long-term care of injured vets later) because we might have to suffer it in the future.  As we found in Afghanistan and Iraq, that speculative concern is a very poor excuse for going to war: the result of overthrowing a dictator may be extraordinary costs to the overthrower and the overthrown people and the result may breed more enemies than it kills them.  Preemptive war mostly aides warmongers in the military-industrial complex and the private companies (mercenaries and arms dealers) that make money off of war. 

Similarly, preemptive reduction of benefits in a program that does not yet require it to "save" us from having to make reductions in the future (since they've already been made and caused even more suffering in the here and now) is absurd.  It smacks of no reason other than:

(i) the real possibility of so fooling so many of the people so much of the time,

(ii) being able to gain "kudos" with the government-and tax-haters, and (likely the real purpose, these earlier just being gravy to the doing of it)

(iii) protecting the real clients who are the corporatist wealthy campaign donors who want to see these social welfare (they like to call them "entitlement") programs ended so that their own true "entitlement" programs --preferential capital gains rates; preferential "carried interest" taxation of compensation for service to private equity funds; preferential retirement programs; and preferential taxation of offshoring and Big Oil, Big Pharma, Big IP and similar industries--can continue unabated.

Remember that Social Security serves real needs.  To arrive at a decision to cut benefits, just because it seems to be the politically expedient thing to do given the anti-tax furor stirred up by the likes of the Koch brothers and Grover Norquist and the Tea Party groups, is penny-wise and pound foolish--and smacks of class warfare.  Do we really want to return to the pre-Social Security situation of a large population of seniors with too little to eat and nowhere to live?  Continuing to reduce benefits when wages have been declining for most ordinary Americans (while the tiny number at the very top of the wage pyramid see their wages mushroom) would be disastrous.  Just look at the story in the New York Times today about the near-crisis situation for most retirees, even with Social Security.  Jeff Sommer, For Retirees, A Million-Dollar Illusion, New York Times (June 9, 2013), at BU-1. 

"We're facing a crisis now, and it's going to get worse," said Alicia Munnell, director of the Center for Retirement Research at Boston College.  "Most people haven't saved nearly enough, not even people who have put away $1 million."

***

And if you're not close to being a millionaire--if you're starting, say, with $10,000 in financial assets--you've got very little flexibility indeed.  Yet $10,890 is the median financial net worth of an American household today . . ..

***

Social Security is going to be a major, and maybe primary, source of income for people, even for some of those close to the top." [quoting Edward N. Wolff, economics professor at NYU]

 

The "cut benefits" rhetoric is made even worse when "protecting future generations" is added as to the mix as a "principle" that is claimed to underlie Social Security, as in the following

4) And we should do this in the name of caring about future generations, who should not "on principle" be "paying more" to support their parents' or grandparents' generations. 

See, e.g., Robert Shiller's op-ed, Want to Fix Social Security? Use the Right Wrench,ⁿ New York Times (June 9, 2013), at BU 4 (claiming to be supporting a fundamental "principle" of Social Security that "one generation shouln't be more burdened than another").   The problem with claiming this principle as an underlying principle of Social Security is that  the original legislation provided benefits to a slew of seniors who hadn't paid into it anywhere near what they would be getting out of it (even with the then-likely life expectancies) which was made possible, of course, by demographics that led to increasing numbers in the workplace. 

And it isn't clear that there is any reason to consider it essential as an underlying principle now.  If we have an economy in which there is sufficient resources to support increased benefits for an aging baby boomer population--even if that means that current workers should be more highly taxed than workers were 20 years ago--why not do so? 

We know that we could increase the amount available by simply removing the payment amount cap on wages taxed, while continuing a payout cap based on a reasonable index --ideally, a more generous one than currently used.  That just requires the really rich to participate in the insurance system in a way similar to everybody else.  We could also make the system more intentionally redistributive, with significantly higher payments in the "bottom bracket" of paid-in amounts (to everybody) and rapidly descreasing payments in additional brackets of paid-in amounts.  After all, most insurance is redistributive according to the degree of loss, with higher payments to those that suffer great losses made possible by the more or less consistent premiums paid by everybody, including those who suffer few losses.

 

ⁿ The footnote

I've put a footnote indicator at the Shiller article because there is a lot more about this Shiller op-ed worth pointing out.  Shiller is a Yale economist--a profession that too often seems to be at the center of all discussion of tax policies but that tends to spend too much time trying to sound scientific (by reducing everything to equations) and thus missing the mark on truly understanding economies. 

• Shiller's op-ed starts out talking about the "mere 20 years" when Social Security is predicted to run out of reserves and noting the proposals for addressing that problem. 
• His second sentence states as near fact that "the public [is] apparently opposed both to tax increases and benefit cuts" to address the problem.

That raises red flags for me.  I'm not convinced of the truth of the statement on increasing taxes.  I consider it quite plausible that a survey in which the public was asked, in a reasonable framework, about increasing taxes to support Social Security benefits would yield a majority that favor removing the cap on wages to which the Social Security tax applies.  If you gave people enough information, it might even be likely that a majority would support removing the preferential rates for capital gains and applying the Social Security tax to all income. 

• He gets something right:  "[t]he purpose of Social security is to help families."

This is something that many on the right tend to ignore when talking about Social Security--it's all treated as a matter of "personal responsibility" (the dislike for so-called "entitlements"--even though these entitlements are earned benefit programs and the push for privatization--as though that would automatically make people able to save enough to take care of themselves no matter their actual financial condition) and fiscal sanity (the tendency to emphasize the potential future shortfalls in benefit payouts as a justification for reducing benefits today, and the implication that otherwise we will face an unimaginably steep deficit, etc.).  Very little is about the importance of a social safety net to ensure that our seniors (and children) are not left in dire circumstances, poverty-stricken in a rich country.

• He spends the first third of the article seemingly moving towards providing a solution to "the problem"--that if nothing is done, "the Trust Fund runs out in 2033" and the system would only be able to pay about 75% of promised benefits.  He discusses the current indexing system, Obama's proposal (which would reduce benefits, stupidly), and then his "alternative" proposal--to index benefits to GDP, leading to increases in growth periods and potentially cutbacks in recessions.
• Then he admits that his "alternative" (offered as an alternative to suggestions for changing the index to address the problem of insolvency, since tax raises and benefit cuts are disliked by everyone) doesn't  address "the identified problem" of potential future insolvency
• But he claims the change should be adopted because it would instead "support the principle that one generation shouldn't be more burdened than another." 

This is said as though this "principle" is something everyone recognizes.  But let's be clear--there is no per se reason that one generation should be less burdened than another.  It depends on need and ability to pay. 

As we came out of the Depression and WWII, the younger generation was quite clearly the one burdened with paying for the older generations who had contributed very little for the benefits they were receiving, appropriately so.  Even if we end up with fewer workers supporting more baby boomers during the baby boomers retirement years, that's okay--especially if we are wise enough to remove the cap (as suggested above).  There is no inherent injustice in that.  The injustice would only come into play if the sacrifice asked of a later generation was so great that it outranked the offsetting sacrifice that would be asked of the earlier generation in cutting benefits.  That is hard to measure, for sure, and not obviously true merely if later workers pay slightly more in taxes to support earlier workers.

Now, there may be some good reasons for changing the index to a dirrect correlation to GDP, as Shiller suggests.  But the op-ed left me wishing he had just addressed that.  All his cloaking of his proposal in language that would get the attention of those on the right--talk of insolvency, talk about tax increases not being on the table, talk about the current proposed solutions to the "problem" and his "alternative", which turns out not to be an alternative solution but an alternative indexing proposal that is being proposed for different reasons than the ones that underlie the proposals his is an alternative to--distracts from the meat of his article.

Related articles

Another reason for NOT cutting Social Security benefits--seniors poorer than you think

Robert Reich: Chained CPI Makes No Sense For Seniors

'Scrap the cap' to keep Social Security fair

The Tax Code Ain't Nearly So Big as Often Claimed

I can't resist pointing readers to tax professor Jim Maule's excellent post chastising everybody--from those obviously slanted propaganda-tank tax gurus Chris Edwards (you all know him as the purported tax expert from the right-wing pseudo-libertarian Cato Institute, whose other associate, Dan Mitchell, makes similar ridiculous claims in touting the purported "Laffer Theory" about how tax cuts restore tax revenues--I should note that I debated Chris in the run-up to the 2012 elections on Herman Cain's ridiculous tax "plan") and Steve Malanga (you all know him as the purported tax expert from  the right-wing Manhattan Institute) to generally reasonable Taxpayer Advocate Nina Olson--about their ridiculous claims of a tax code that runs to the tens of thousands of pages. See James Maule, Code-Size Ignorance Knows No Bounds, MauledAgain (June 5, 2013).

Many of those claims about a giganormous Code that is pressing down on taxpayers from the sheer weight of its pages stem from three facts:  (i) that the CCH looseleaf service itself notes that the service (in 20-odd volumes, with extensive and often duplicative annotations to cases, private letter rulings, notices, and various legislative history and rev.proc and rev.rul. items as well as the actual current Code provisions and regulations promulgated thereunder) runs more than 70,000 pages; (ii) that it is very useful to propaganda tanks and others bent on painting a negative picture of IRS tax enforcement and collection and taxes in general to portray the rules as so complex and lengthy that no one in their right mind could think it appropriate; and (iii) people without those bad propaganda intentions frequently serve as shilling boom-boxes for those (false) claims, because they don't stop and think or do their own homework.  So the claims are repeated, over and over, and --as psychologists have shown--once something is repeated often enough, it gets to be accepted as fact even by those who should know better.  

What people need to know --besides the obvious one fact that Congress, not the IRS as often insinuated in those blogposts condemning the length of the "code", writes the tax laws--is that:

(1) the CCH tax service includes more extra "stuff" that tax practitioners find very useful to help interpret the actual statutory language and the regulations promulgated thereunder than actual Code and Regulations! The tax code itself is relatively short--you can read it quicker than most good novels.  (Additionally, the regulations have a lot of specifics applicable to particular types of taxpayers and situations, but even they aren't tens of thousands of pages long.  And the page counts also depend greatly on the size of print on the page, folks.  Word counts are much more meaningful.)

(2) most of the complexity that actually exists in the Code affects only the 3 in 10 taxpayers who "itemize" their deductions on their tax returns--and then, mostly the ones in the very tip-top of the distribution--the 1 in 10,000 who have lots of complexity in doing that itemization; and

(3) most of that complexity is necessary to prevent abuses by those who can hire very expensive lawyers, accountants and banks to set up schemes to avoid (or even evade) taxes.

Related articles

Simplifying the Tax Code Isn't So Simple

Orrin Hatch on tax reform at the ABA--a predictable right-wing rant

The Boom and Bust Cycle of Tax Shelters and Intimidation of the IRS

[edited 6/9/13 to correct some glaring typos :) ]

In response to concern about taxpayer rights and potentially abusive tax collection activities, Congress passed two "taxpayer bill of rights" laws, in 1988 and again in 1996.  Together, these laws protect taxpayers with further notice and information, shift the burden of proof to the government in many cases, and create an office of taxpayer advocate that reports directly to Congress, among many other provisions.  The 1988 law (consolidating five different proposed bills into an "omnibus" bill under HR 4333) included provisions that sharply restricted IRS' employees' ability to ferret out tax evasion for fear of potentially violating the law. See summary of HR 2190,  "the IRS Administration Reform and Taxpayer Protection Act of 1987", incorporated in the 1988 legislation passed as HR 4333.  The 1996 law, HR 2337/ Public Law 104-506, beefed up the Taxpayer Advocate office, modified various penalty and collection provisions, and required an annual report to Congress on IRS employee misconduct.  While these laws provided important new protections for taxpayers and noteworthy additions to the law governing collection authority, some were  overgenerous to taxpayers and at the least made enforcing the tax laws more difficult for IRS employees.

It was only a short while after the 1996 law was enacted when the Senate Finance Committee held an elaborate series of hearings looking into alleged "abuses" of "innocent" taxpayers by the agency in collecting taxes and investigating potential criminal evasion of taxes:   hearings on IRS practice and procedures, Sept. 23-25, 1997;  hearings on IRS restructuring, Jan. 28-29, Feb. 5, 11, and 25, 1998; and hearings on IRS oversight, May 28-30 and June 1, 1998. Let it be clear: these  hearings targeted the IRS with an apparent objective of changing the agency's focus from enforcement and collection of taxes to "nice-guy" relations with taxpayers.  They included "sob stories" about harassment by the IRS from a priest, a divorced mother, a restauranteur and others, and alleged abuses in the collection and investigatory processes within the agency.  

Much of the inflammatory testimony in those late 90s hearings was just that--stories, hand-picked to highlight purported problems, with the result that they inflamed the citizenry against the agency.  The selected testimony was anything but balanced, in that it ignored myriad examples of just the opposite and included made-up tales of abuse.  Danshera Cords, in an article discussing the 1998 Act, describes the restaurant owner's testimony and its lack of truthfulness as follows:

John Colaprete, owner of the Jewish Mother restaurants, "told the Finance Committee that IRS agents and other law enforcement personnel forced children to the floor at gunpoint, leered at scantily clad teenage girls, and generally violated his Fourth Amendment rights against illegal search and seizure, all on the word of his felonious bookkeeper." Ryan J. Donmoyer, Judge May Dismiss Jewish Mother Lawsuit, 83 TAX NOTES 1696, 1696 (1999). Mr. Colaprete testified before the Finance Committee that, while attending his son’s first Holy Communion, "[a]rmed agents, accompanied by drug-sniffing dogs, stormed my restaurants during breakfast, ordered patrons out of the restaurant, and began interrogating my employees." IRS Oversight: Hearings Before the Senate Comm. on Finance, 105th Cong. 75–79 (1998); ROTH & NIXON, supra note 5, at 189.

Danshera Cords, How Much Process is Due? IRC Section 6320 and 6330 Collection Due Process Hearings, 29 Vermont L. Rev. 51, 52 note 7.

That sounds atrocious, until you find out that Colaprete later recanted the whole thing, when it was found that he was actually out of the country at the time it was claimed to have happened.  Id.

There were two later reviews of the testimony--the Webster Commission and a GAO study (both cited in Cords' article).  The Webster Commission found isolated abuses but no pattern of misconduct by the criminal investigation division.  Criminal Investigation Div. Review Task Force, IRS, Review of the IRS's Criminal Investigation Division (1999).  The GAO study found no evidence supporting the allegations that tax assessments were improperly handled or criminal investigations inappropriately undertaken. GAO, Tax Administration: Investigation of Allegations of Taxpayer Abuse and Employee Misconduct Raised at Senate Finance Committee's IRS Oversight Hearings (reprinted in 2000 Tax Notes Today 80-13 (Apr. 25, 2000)). David Cay Johnston, in his highly regarded book on the tax shelter business, describes those hearings as "going after the IRS".  Perfectly Legal (2003).  Bryan T. Camp describes Congress as seeing tax administration as an "inquisitorial" process.  Bryan T. Camp, Tax Administration as Inquisitorial Process and the Partial Paradigm Shift in the IRS Restructuring and Reform Act of 1998, 56 Fla. L. Rev. 1 (2004) (describing the hearings at 78-86).

The  Senate Finance hearings enabled the passage of additional legislation in 1998, the Internal Revenus Service Restructuring and Reform Act of 1998. The law reorganized the IRS, the main agency to enforce the law, into "units serving particular groups of taxpayers with similar needs"--i.e., changing its focus from law enforcement to "serving taxpayers".  It  "significantly limited" the agency's "historically broad powers".  Id. (Cords, at 51).  It created a collection due process hearing requirement before the IRS can proceed to collect on taxes due; a bureaucratic (red-tape) approval process for levies, liens and seizures; and severe limitations on examination and audit techniques and impositions of penalties.  The agency suffered not only from increased disrespect (from media attention to the inflammatory hearings) that facilitated the right's mission to spread the Reagan mantra that "government is the problem," but also from underfunding, strict limitations on methodologies, and effective intimidation that made it harder to enforce the tax laws and collect unpaid taxes, thus encouraging tax evasion and even tax fraud. Stress, time and resource constraints, and understaffing, got worse, even while Congress dumped more and more administrative responsibilities on the agency.

The always innovative tax practitioners (attorneys and CPAs) noticed.  Corporations and their high-wealth CEOs and majority shareholders were already engaging in more tax avoidance with the help of crafty lawyers finding loopholes in the interstices of the tax law and the more restrictive 1988 and 1996 laws that made it harder to enforce or collect.  Many now took advantage of the newly flourishing tax shelter schemes from the late 1990s to mid 2000s.  These were often promoted by big-money law partners at law firms like Donna Guerin at (now shut down) Jenkens & Gilchrist or Raymond Ruble at Brown & Wood (later Sidley Austin) and financed by investment banks like Deutsche Bank and others eager to profit from derivatives that made deals appear to move money around while essentially leaving it in place, with avid assistance (and sometimes design) by accounting firms like Arthur Anderson, KPMG, and BDO Seidman. The shelters usually had fancy acronyms like "COBRA" and "FLIPs."  They frequently involved invented (phantom) losses or phony deductions.  Many used purported federal income tax partnership structures to selectively pass gains to tax-exempt or tax-indifferent parties so (phantom) losses could be passed to parties that "needed" a tax loss to offset a large, expected, and real gain. 

Hitting the news today is yet another story about a top CEO who engaged in those phantom-loss- generating partnership tax shelters.  Zajac & Drucker, Ray Lane Rode Tech-Boom Tax Shelter Wave Broken by IRS, Bloomberg.com (June 7, 2013). Lane, former president of Oracle and current chair of Hewlett-Packard, used a shelter involving partnerships with long and short positions called "POPS"--put together by Sidley & Austin, Deutsche Bank, and BDO Seidman--to shield $250 million from taxation. Id.  As Chris Rizek, a tax lawyer at DC's Caplin & Drysdale told Bloomberg, the IRS slacked off on enforcement in those years after the series of bills restricting tax administration because "they were intimidated." Id.  "They could be cowed again," Rizek said, given the focus in Congress this month.

We seem to have a "boom or bust" cycle in terms of attitudes towards the IRS as the primary agency for enforcing our tax laws.  And that's unfortunate, because a country that cannot force wealthy and corporate taxpayers to pay their share of the tax burden is a country that will fail.

This history should serve as an important warning to Congress, the mainstream media, and citizens as hearings exploiting anti-IRS sentiments spread cries of alleged abuses (seemingly with as little evidentiary support for widespread patterns of abuse as the 1998 hearings) that may again lead to overly restrictive legislation.  

While any agency should avoid wasting money on unnecessary travel (and certainly luxury suites is a waste for any government employee), IRS employees should not be restricted from participating in important activities like attending and speaking at the ABA Tax Section's three annual meetings.  And while it is important to ensure that there isn't a corrupt abuse of agency power, the hearings so far into the 501(c)(4) selection of various groups (conservative and liberal) for greater scrutiny bear too strong a resemblance to the hyped-up hearings by the Finance Committee in 1997-98, which inappropriately intimidated IRS employees from doing their jobs.  Congress should not prevent the IRS from taking forceful actions to fight violations of the tax laws, such as appropriately screening applicants for 501(c)(3) and (c)(4) tax-exempt status.

Related articles

Former HP Chairman Ray Lane Slapped With $100 Million Tax Bill (HPQ)

Ernst & Young Pays $123 Million to Avoid Tax Shelter Prosecution

LIVE NOW: Hearing on excessive IRS spending

Another False Media-Generated IRS "Scandal"

Fox News and similar outlets (and even some of our esteemed Congresspeople, like Jim Jordan) have been fuming that Doug Shulman, the former IRS Commissioner, had more visits to the White House than any other cabinet officer.  See, e.g., Evan McMurray, Bill O'Reilly Rails: IRS Commish's 157 White House Visits "A Smoking Gun", Mediaite (May 30, 2013).

“The President of the United States should explain tomorrow what Mr. Shulman was doing at the White House so many times,” O’Reilly added. “There’s no way on earth this Shulman should not have to explain in detail what he did inside of the IRS. So again we call upon President Obama to clarify the situation. Make Shulman testify as soon as possible.” Id. (quoting O'Reilly on Fox program).

The right-wing blogosphere went ballistic with this, as one would expect. See, e.g., Coglianes, IRS's Shulman had More Public White House Meetings Than Any Cabinet Member, Daily Caller (May 29, 2013) (apparently one of the frequently quoted sources for the misleading statistic);  For God's Glory Alone Ministries, May 30, 2013 (repeating information generated by the Daily Caller); Michael Patrick Leahy, Former IRS Head Shulman Visited White House 118 Times in Two Years, Breitbart.com (May 28, 2013) (same); Rick Moran, IRS chief visited White House more than any other cabinet officer, AmericanThinker (May 30, 2013).  The Moran article is about as bad as the O'Reilly junkfomation.  In the typical way that these rightwingers have of presupposing corruption in government, Moran confides

 If you were the head of an agency that was doing something you know your boss would approve of - if only in private - wouldn't you brag about it to him and get a good chuckle about the discomfort visited upon your boss's political enemies?  Id.

This is the kind of conspiracy craziness that abounds in Washington these days. It makes for blogposts going viral and conjures up donations for tea party politicking.

But  the first response of most reasonable people was NOT to see a report of visits by the IRS commissioner to the White House complex as a scandal but rather as something perfectly expected and, in fact, mandated by the job.  Anyone who is aware of the broad range of responsibilities that have been heaped on the (underfunded, understaffed, and outmgunned) IRS's shoulders by Congress knows that there would be plenty of reasons for an IRS commissioner to visit the White House complex, since the IRS Is the critical agency central to the implementation of Obamacare and dozens of other federal government programs.  Banking secrecy --FATCA, the effort to get Switzerland to open up its bank records--could also require consultation with White House executives.

The second response of responsible journalists was to doublecheck the records to see if there was other information to shed light on this purportedly "unique" access of the IRS commissioner to the White House.  Something important to recognize--these are the first public records we've had of such visits--Obama made them public; other presidents before him did not.  That means that you can't compare how often a Bush or Clinton IRS commissioner had clearance to visit the White House complex, because the records for that aren't public.  Those who checked the records found some very interesting facts--very very very very many of those visits approved for Shulman to the White House complex were for routine meetings of the group putting together the implementation of Obamacare.  Very very very few were face-to-face meetings with Obama, and those were not the kind of secretive sessions where the right-wing conspiracy theorists orders for "targeting" conservative groups could take place.  

For a good discussion of this issue and the junky media coverage of these routine opportunities for Shulman to visit the White House, see Franke-Ruta, The Fake Story about the IRS Commissioner and the White House: White House records show Douglas Shulman signed in for 11 visits, not 157, between 2009 and 2012, The Atlantic (May 31, 2013).

In a prior posting on "The real IRS scandal", I noted that right wing commentators have spewed a lot of hot air to make a scandal out of something that really isn't one.  Even the TIGTA report seems to fall into that line--it may have been politically insensitive to use "Tea Party" as one of the search terms for likely politicking groups, but it probably was a quite efficient choice and not clearly "inappropriate" as the TIGTA report dubbed it.

 At any rate, for anyone truly interested in how accurate right-wing pundits like Bill O'Reilly actually are,  you might want to read the Atlantic story fairly closely.  It is a detailed, fact-based study of the actual and potential visits that Doug Shulman was cleared for attending. 

Here's what Franke-Ruta says about Bill O'Reilly and that group.

[F]ew of those pushing this line have bothered to read more than the topline of that public information. Bill O'Reilly on Thursday called them the "smoking gun" and demanded of Shulman, "You must explain under oath what you were doing at the White House on 157 separate occasions." His statement built on a Daily Caller story, "IRS's Shulman had more public White House visits than any Cabinet member." An Investors Business Daily story and [a] slew of blog items repeated the charges.
 
"The alibi the White House has wedded itself to is that it had to work closely with the IRS to implement ObamaCare," the Investor's Business Daily has written -- as if that were not true."

The Atlantic story proves the weakness of journalistic investigation by O'Reilly, the Daily Caller, and the Investor's Business Daily, since the public record clearly shows that the vast majority of the Shulman cleared visits to the White House complex were to work on the ongoing health-care implementation. 

Shulman was cleared primarily to meet with administration staffers involved in implementation of the health-care reform bill. He was cleared 40 times to meet with Obama's director of the Office of Health Reform, and a further 80 times for the biweekly health reform deputies meetings and others set up by aides involved with the health-care law implementation efforts. That's 76 percent of his planned White House visits just there, before you even add in all the meetings with Office of Management and Budget personnel also involved in health reform.

 But the cleared visits and attended visits are two different things.  And there is public information that shows that Shulman actually signed in to attend very few visits.

According to the White House records, Shulman signed in twice in 2009, five times in 2010, twice in 2011, and twice in 2012.

 Folks, if anybody talks to you about the "evidence" that Shulman met with Obama more than a hundred times, make sure you set the facts straight.  This kind of misleading punditry appears to have no purpose other than the arousal of anti-Obama partisanship and furthering the anti-tax/"starve the beast" mentality. 

 

Related articles

The real IRS scandal

Records show Former IRS Commissioner signed in for 11 visits, not 157 as the right wing media claims

The 'smoking gun' fires blanks

Wingnuts go bonkers over phony story about IRS commissioner's visits to the White House

Stiglitz on globalization: the MNEs bought the law they wanted; it's time to take it back

Joseph Stiglitz has a new read-worthy article. Globalization isn't just about profits; it's about taxes, too, The Guardian (May 27, 2013).

As he notes towards the conclusion of the piece, the big MNEs aren't simply "applying the law as they find it" in order to minimize their taxes legally.  They were instrumental in making the law what it is today.

To say that Apple or Google simply took advantage of the current system is to let them off the hook too easily: the system didn't just come into being on its own. It was shaped from the start by lobbyists from large multinationals.

So what hope is there to fix the mess?  First, Stiglitz reminds us of the way American MNEs avoid paying taxes to support the very public goods that made their riches possible.

It's no surprise that a company with the resources and ingenuity of Apple would do what it could to avoid paying as much tax as it could within the law. While the supreme court, in its Citizens United case seems to have said that corporations are people, with all the rights attendant thereto, this legal fiction didn't endow corporations with a sense of moral responsibility; and they have the Plastic Man capacity to be everywhere and nowhere at the same time – to be everywhere when it comes to selling their products, and nowhere when it comes to reporting the profits derived from those sales.

Apple, like Google, has benefited enormously from what the US and other western governments provide: highly educated workers trained in universities that are supported both directly by government and indirectly (through generous charitable deductions). The basic research on which their products rest was paid for by taxpayer-supported developments – the internet, without which they couldn't exist. Their prosperity depends in part on our legal system – including strong enforcement of intellectual property rights; they asked (and got) government to force countries around the world to adopt our standards, in some cases, at great costs to the lives and development of those in emerging markets and developing countries. Yes, they brought genius and organisational skills, for which they justly receive kudos. But while Newton was at least modest enough to note that he stood on the shoulders of giants, these titans of industry have no compunction about being free riders, taking generously from the benefits afforded by our system, but not willing to contribute commensurately.  ...

It is not even true that higher corporate tax rates would necessarily significantly decrease investment. As Apple has shown, it can finance anything it wants to with debt – including paying dividends, another ploy to avoid paying their fair share of taxes. But interest payments are tax deductible – which means that to the extent that investment is debt-financed, the cost of capital and returns are both changed commensurately, with no adverse effect on investment.

Then he goes on to discuss what globalization really means and why it is time for the international community to band together to exact reasonable taxes from these global enterprises who use us to make profits but desert us when it comes to supporting continuing innovation.

It is time the international community faced the reality: we have an unmanageable, unfair, distortionary global tax regime. It is a tax system that is pivotal in creating the increasing inequality that marks most advanced countries today – with America standing out in the forefront and the UK not far behind. It is the starving of the public sector which has been pivotal in America no longer being the land of opportunity – with a child's life prospects more dependent on the income and education of its parents than in other advanced countries.

Globalisation has made us increasingly interdependent. These international corporations are the big beneficiaries of globalisation – it is not, for instance, the average American worker and those in many other countries, who, partly under the pressure from globalisation, has seen his income fully adjusted for inflation, including the lowering of prices that globalisation has brought about, fall year after year, to the point where a fulltime male worker in the US has an income lower than four decades ago. Our multinationals have learned how to exploit globalisation in every sense of the term – including exploiting the tax loopholes that allow them to evade their global social responsibilities.

 He has some specific suggestions about how to undo the mess that the MNEs' successful lobbying has gotten us into.  He suggests two actions that could work:

1. The US could lead the way with a "global minimum tax regime"  in which a corporation would be taxed on its net worldwide profits (treating corporate profits taxes paid to other regimes as a deduction, up to some cap) at a rate of about 30%; and
2. Countries would cooperate to deal with tax havens.

We've already begun to see some of Step 2 as the US stepped up its attempts to identify US taxpayers with hidden offshore bank accounts, leading to a crackdown in Europe as well and the first signs that banking secrecy jurisdictions like Switzerland will open up to information sharing practices.  We need to continue to work on those tax havens--Singapore, Caymans, Bermuda, Ireland, Netherlands--and the rules they have in place that make it possible for Apple to claim stateless income (to use Ed Kleinbard's term).

Step 1 will be much harder in this political climate.  Most of the radical right is intent on cutting taxes, in the 'starve the beast' mode of thinking that got us to debt ceiling fights, sequesters, pushes to "curb" earned benefits like Social Security and Medicare.  Legislators are particularly prone to listen to well-heeled corporate lobbyists who argue that if they would just reduce taxes on big corporations, all the tax avoidance gimmickry would go away.  That's pretty clearly not so--tax cuts just lead to demands for more tax cuts, as the "one time" repatriation provision in 2004 clearly demonstrated.  Max Baucus is also one of the "cut rates/broaden base" crowd that will pretend that the broadened base won't be shurnk again within a year or two even while rates go lower and lower.  Dave Camp belongs in that camp as well.  So getting Congress to consider deeply the possibility of a global minimum corporate tax regime won't be easy.  But hey, nothing is these days, so let's get started.  Letter campaign, anyone?

Related articles

Does Apple's Cook Cook the (U.S. tax) Books?

Globalisation isn't just about profits. It's about taxes too | Joseph Stiglitz

Citizen for Tax Justice's Bob McIntyre on Apple's offshore profit-hoarding

Stiglitz: Globalization and Taxes

Joseph Stiglitz on Inequality Differences Between Countries

The 'ignorance is bliss'/'ride'em cowboy' mentality of today's GOP

Today's GOP is dominated by the Tea Party types that are a cross between an ostrich with its head stuck in the sand-- the "ignorance is bliss" philosophy-- and a 1860s cowboy as depicted in the 1960s western-mania TV shows-- the "hell bent on raising a ruckus"/"my way or the highway" mentality.  The combination is deadly dangerous for democratic egalitarianism.

On the ignorance is bliss side, see, for one example out of many possible, the "two pending Republican bills that seek to curtail or end vital surveys by the Census Bureau."  Editorial, Stragegic Ignorance, New York Times (May 25, 2013).  

As described in GOP Census Bill Would Eliminate Key Economic Indicators, Huff. Post (May 26, 2013), the only purpose of H.R. 1639,  the bill introduced by Jeff Duncan (R-SC), appears to be to ensure that the government does not have reliable data on the many important indicators of the health of the economy, from housing and health to crime, employment and the environment. 

 A spokesman for Duncan declined to explain why the congressman wants to eliminate such data or even whether he understands that the data would be compromised by his bill, which has 10 co-sponsors.

But the proposed Census Reform Act is explicit in its intent to end nearly every survey the Census conducts, mandating the "repeal" of the nation's agricultural census, economic census, government census and mid-decade census. It would also bar the bureau from carrying out the American Community Survey (ACS), which the House voted last year to end, although the Senate let that measure die.

There is very little done by the government or big businesses that does not at some level depend on the reams of information provided by the Census surveys, from writing regulations and distributing federal services to rolling out new products and finding customers. The ACS is an ongoing survey that collects data every month, instead of every 10 years, so that governments and businesses have current information. Id.

Because it bars the Secretary of Commerce and the Census Bureau from carrying out "any survey, sampling, or questionnaire", the bill would effectively hamstring the government's ability to gather any kind of information other than a numerical count of population.  Note that this would also include all of the information collected by the Department of Labor's Bureau of Labor Statistics, since those statistics are generally gathered through the U.S. Census Bureau.  See, e.g., Department of Labor, Bureau of Labor Statistics, Consumer Expenditure Survey.  To get a further sense of the importance of the information provided through the Department of Labor with Census Bureau support, see this page showing the subject categories of Labor statistics collected.  Some information collected by the Census Bureau is also used by the Department of Health and Human Services, although DHHS surveys are so specialized that the department has an extensive set of specialized surveys that various of its agencies conduct.  (Let's hope Duncan doesn't notice them, or he will set out to gut that agency, too.)

A similar bill was introduced in the Senate by Rand Paul (R-KY) which specifically targets the American Community Survey--the frequently updated survey that gathers information anonymously and provides a wealth of data about economic trends across the country. See Poe press release; see also Huff Post, Rand Paul, Ted Poe Sponsor Bill that Seeks Religion Law that Already Exists (May 25, 2013) (noting that a 1976 law already ensures that answers about religion on the Census are voluntary, but the Paul/Poe bill gratuitiously includes the same provision again). 

Paul claims the mandatory survey is too intrusive--he wants it to be "voluntary".  Voluntary surveys get low participation rates, particularly in some geographic areas.  The data needs are universal--having gaping holes where there were too many dropouts to give the survey statistical validity would be a huge problem.  But Paul doesn't care--he's too busy scoring Tea Party points with anarcho-libertarians who've been brought up (since Reagan) to think that "government is the enemy", while at the same time benefitting from billions in government aid because of these very surveys.   And too busy using terms like "protect Americans" (from the Poe Press Release) in hypocritical ways that have nothing to do with protecting anybody but the elite--since the result of not having the ACS survey will be to allow more misleading pronouncements to go unchecked by data.  Like Sarah Palin's ignorant assertions about Alaskan self-sufficiency (when more federal tax dollars go to Alaska than come from it), these anti-tax/anti-government claims are mere posturing that misleads ill-informed people to support policies that favor the elite.   As the HuffPost article notes,

[T]he 14 largest counties in Poe's state of Texas received more than $14 billion in federal funding in 2008 based on ACS data, according to a recent Brookings Institution study. Id.

Without such data, it would be harder to show the failure of the laughable tax-cuts-for-the-rich/austerity-for-everybody-else policies of the rightwing in Congress and in state legislatures.  Take, for example, the recent reporting about the way the GOP legislatures that have decided NOT to expand Medicaid will leave the most vulnerable poor in the lurch (yet again) as far as receiving health care that all of us need and most of us take for granted.  The better off will receive the benefit intended by Obamacare, but the worst off will remain vulnerable in those recalcitrant states where the GOP runs the show with the "ignorance-is-bliss" mentality.  Without the kind of regular information collected by the Census Bureau and in particular the American Community Survey, the government won't be able to track results of these Red State "experiments" in austerity to show how much like Third World countries their states become regarding poverty, unemployment, and all the other economic indicators provided by the census.

This ostrich-with-tits-head-in-the-sand mentality makes sense only if the ideas you support are purely ideological ones, for which data is irrelevant.  As Maurine Haver, head of Haver Analytics, noted to a reporter:

[T]here is a fundamental divide between people who are interested in solid, reality-based data and those who are not. "If you know what you think, you don't need information to help you assess what's going on," she said. "The people that need information are the people who use it because they really want the truth, not people who think that because they believe it, it becomes the truth." Id.(paragraphing changed and italics added).

Of late, that seems to be the position of the Tea Party reps in Congress, like Rand Paul, Ted Cruz and too many others.   And they don't care about the ensuing harm to ordinary folk from their efforts. 

Need more proof of the ostrich-plus-cowboy mentality?  Just look at the fight breaking out in Congress between Ted Cruz and the rest of the Tea Party cohort with the somewhat more sensible GOP members like John McCain over the debt ceiling. Kusskin-Shoptaw, McCain, Tea Party Senators Squabble over Debt Ceiling Procedures, Bloomberg.com (May 22, 2013).

 Once again, the Tea Party is willing to run the United States off a cliff over an artificial fiscal limit that is, in the actual economic scheme of things, meaningless except as a stage for such masquerades about fiscal responsibility concerns.  The Party of No wants to Know Nothing to disguise its "bankrupt the US to get at the liberals" ideology in the sheep's clothing of a fake "we care about economic responsibility" policy initiative.

Freedom does NOT reside in allowing brute force economic might to set the rules.  Freedom is having government institutions that work and are subject to the will of the people.  So that when 81% of the American public want gun check legislation, Congress listens to the people instead of to the well-funded NRA.  So that when a majority of the American people don't want corporate funding to be siphoned to campaigns behind the closed doors of erroneous 501(c)(4) status, IRS employees are allowed to do their work to find "parties" that are circumventing politicking disclosure requirements rather than being hung out to twist in the wind under a fake "scandal" created by the ideological anti-tax right.  So that when agencies allocate resources or describe results of economic legislation, they have accurate data to do so.  Freedom does not rest in willful ignorance.

Related articles

The Republican War on Data

GOP Bill Would Eliminate America's Economic Data

Republican bills declare numbers, science enemy combatants

Why it's called the 'Stupid Party' - 'GOP Census Bill Would Eliminate America's Economic Indicators'

Stephen Colbert Shreds GOP Congressman Who Wants To Destroy The Jobs Report

GOP Proposal Would Eliminate Unemployment Numbers

A new GOP bill would prevent the government from collecting economic data

U.S. Census Bureau Daily Feature for May 25

Republican wants the Party of No also to be the Party of Know Nothing

Another reason for NOT cutting Social Security benefits--seniors poorer than you think

As everybody knows, a constant refrain of the far-right GOP establishment is a desire to cut taxes for the wealthy while cutting benefits for the poor. 

The ideological right talks about benefits for the poor as "welfare" but never talks about the tax expenditures for the wealthy--which amount to much more of an income redistribution, from middle class to wealthy--as "welfare".  They should, because that's what it is.  The tax preference for capital gains, a "privileged" tax rate, favors the very wealthy who own most of the financial assets, who itemize and who have much of their income in the form of capital gains (now, after the Democrats' weak-handed agreement to extend almost all of the absurd Bush tax cuts, also used for corporate dividends), just as the overly generous estate tax exemption levels and rates favor the very wealthy, who are the only ones EVER subject to the estate tax at all. 

(For some interesting stats on the very wealthy around the world, you might find the charts and information here interesting.)

The ideological right also talks about benefits for the elderly--which they have paid for throughout their working lives under earned benefit provisions in place since FDR--as "entitlements", a generally derogatory term meant to engender hostility from middle class hardworking folk (based on the "those welfare bums are not like me" idea).  What the right fails to point out is how important Social Security earned benefits are as the very underpinnings of a decent standard of living at later stages of life, paid for as much as possible by hardworking folk.  It is in fact a decent standard of living when you are older and less able to take care of yourself, when you depend more on community and on what you have managed to put aside during your prime, that is at stake. 

Of course, much of the right's ideological tirade against Social Security "entitlements" is misleading and downright wrong.  For instance, you've undoubtedly heard the argument for cutting Social Security benefits that goes something like this: 

Seniors do fine in America today, and can live long after they retire.  We think social Security was just intended to cover the little time between retirement and death that faced Americans a half century ago.  So we should up the retirement age or at least cut benefits, because with fewer workers supporting the big baby boom of retirees the Social Security fund is going bankrupt and we're now sacrificing our children's futures, by  contributing to the deficit with a "bankrupt" Social Security system, just to provide a cushy retirement to seniors that don't need it.

This argument is wrong in so many ways it is hard to count them.  Social Security is one of the most effective programs we have.  It is not bankrupt.   We've used the Social Security surplus for years to mask deficit spending--especially the wasteful deficit spending of the Bush years, to fund his wars of choice rather than pay for them with taxes that has been our preferred means of paying for wars in the past.  To reneg on the promise of benefits now would make millions of seniors, many of whom have fought for this country in Korea, Vietnam, Iraq and Afghanistan or by keeping the mom-and-pop store going and the home fires burning, pay for Bush's wars instead of the wealthy Gun, Oil and other corporate interests that support the neo-liberal/neo-conservative militarization campaign.  There is no need for benefits to be cut--we are a wealthy country and could actually increase benefits by taxing the wealthy on all of their earned income (or better still, eliminating the distinction throughout the Code between earned and "capital" income) and extrapolating the progressive nature of the benefit schedule for those increased income levels as well. 

But the biggest issue is the one that gets overlooked--many of our seniors are not doing so well, and without Social Security would be doing horribly.  Even with Social Security, the medical expenses near life's end are all-absorbing for many seniors, a situation that we should be remedying rather than worsening.  And this is particularly bad for those poorest seniors who worked at grueling labor jobs during their prime--they tended to make less money and receive less in benefits than others, yet have more potential job-related health issues and be less able to work into their seventies as others can do.

For information on the poverty of American seniors, taking into account not just their direct incomes but their benefits from transfer systems and their real costs, see Dylan Matthews, Senior Poverty is Much Worse Than You Think, Washington Post WonkBlog (May 20, 2013). The graphs are particularly helpful in seeing the way poverty and near-poverty take a heavy toll on the senior population.

We should not cut benefits.  We should in fact move to a single-payer Medicare-for-all system that would continue the health care savings that we've begun, and we should move to at least full wage coverage for Social Security taxes, with a corresponding extension of the progressive benefits scale.

Related articles

Robert Reich: Chained CPI Makes No Sense For Seniors

Obama caves yet again: offering Social Security cuts to appease the right...

Richard (RJ) Eskow: Austerity Is Dead, So Drop the Chained CPI and Increase Social Security

States with the Most Americans on Disability

Bi-Partisanship We Don't Need: The President Offers to Cut Social Security and Republicans Agree

The IRS tale--Times letter writers seem to get it (or at least, most of them anyway)

As I've noted in several posts on A Taxing Matter (see links, below), the media and right-wing "hearing" frenzy continues over the purported IRS "scandal" from "targeting" conservative groups for extra scrutiny in determining whether to approve application for 501(c)(4) "social welfare" organization status (referred to herein as "C-4 status").  It's a silly affair.  Obama and his minions appear to have apologized not because anything wrong was done but because the (GOP-appointed) Treasury Inspector General for Tax Administration (TIGTA) was issuing a report that suggested the use of a key word that might be in many conservative groups' name was "inappropriate" and that the failure of IRS leaders to correct that represented "mismanagement."

I find it hard to see the reasonable use of a term that most of us associate with political campaigns "tea party" and "patriots" as inappropriate as a keyword for filtering out applications for C-4 status for further review of whether the group is planning to engage in politicking rather than social welfare activities.  The mismanagement seems really to go back much further to a pro-taxpayer interpretation that put the IRS in an untenable position.  The law passed by Congress states that C-4 organizations are supposed to be dedicated "exclusively" to "social welfare" activities.  Regretably, years ago tax administrators recognized that many of these groups were actually doing lots of politicking.  Rather than take the (politically) risky step of denying C-4 status to those groups, the regs officially interpreted the statute to require merely "primary" social welfare activity, thus opening themselves up for the impossible task of policing the border between doing some politicking and doing too much and opening the C-4 status up for the games-playing that some wealthy sponsors of organizations have engaged in--that is, hiding politicking behind C-4 status in order not to reveal that a purported 'grass roots' organization is in actuality a corporate-funded lobbying and campaigning organization.

Readers at the New York Times who responded to Frank Norris's finance column, A Fine Line Between Social and Political, New York Times (May 17, 2013) show, on the whole, that they get it.  See The Tale of the I.R.S. in Cincinnati, Letters to the Editor, the New York Times (May 21, 2013).

• Russ Weiss (New Jersey) notes that "the fundamental problem here was actually the result of a too passive government.  Clearly, political entities ludicrously masquerading as 'social welfare' groups have been allowed by supposed government watchdogs to subvert our political process for far too long."
• Melvin Jacobowitz (a tax lawyer from Miami) explains that "[t]he I.R.S. properly targets a tax-exempt application for further review if there is a likelihood that its operations will be political rather than educational or for social welfare.  This can be indicated by the group's name.  The application is not denied solely because of the name. ... The I.R.S. would violate its obligations if it failed to target such applications for further inquiry. ...There was no need for an apology."
• Neil Dworkin (Connecticut) adds that non-profit hospitals that apply for charitable status under 501(c)(3)--a provision allowing tax-exemption to the organization and tax-deductible contributrions by donors-- have to "demonstrate a level of community benefit that is at least commensurate to the value of [their] tax exemption. In light of their sometimes murky activities, the I.R.S. should require 501(c)(4) organizations to give some transparent measure of social welfare in order for them to continue to carry that designation."

The one letter to the editor that misses the point is, not surprisingly, from Texas.  I say "not surprisingly" because I graduated from high school in Texas when much of Texas was known for its racism and bigotry towards anyone that wasn't "white" or "Christian", with private schools often established to avoid anything but token integration and ensure that "God" and "education" were synonymous for many Texan children.  It has since moderated its racism somewhat but at least the part I know best has become radically anarcho-libertarian, pro-gun, pro-business (the word "regulation" is almost a cuss-word in most of Texas), anti-taxes/anti-government and not very charitable towards its poor, its hungry, its homeless, its environment or any kind of intellectual (except in the oases around Austin and, to some extent, around other universities). So what did the Texan commentator have to add to the IRS sham-scandal discussion?

•  James Russell (Bellaire, Texas) suggests that it doesn't even matter whether there was intentional or unintentional mistreatment of Tea Party groups.  What matters is that "the federal government is an elephant and we are all mice who can be squashed flat at any time."

This is a perfect example of the failure of the right to look at all relevant facts.  It ignores the fact that while groups with "tea party" in their names were selected for scrutiny, there is no evidence that any group was denied C-4 status inappropriately.  It ignores the fact that failure to scutinize these groups for politicking would essentially be carte blanche for donors to avoid the sunlight required by our laws under the rules for 527s.  And it disregards the fact that government is in fact a major provider of the wealth that has created most of Texas--from tax expenditures for the Oil and Gas Industry, to railroads to highways, Texas has depended on government for its economy throughout its membership in the Union.

Related articles

Useful information on 501(c)(4)s and 527s and the IRS's scrutiny dilemma

Leo W. Gerard: IRS Scandal a Carbuncle -- on a Cancer-Wracked Body

Liberal groups received same IRS letter that ignited Tea Party outrage

The GOP and media frenzy over IRS scrutiny of tax exempts continues