Revelations that the Internal Revenue Service (IRS) in the run-up to last years presidential election purposefully delayed processing applications for tax-exempt status from politically conservative groups, pried unnecessarily into their internal affairs and singled out Tea Party activists and donors for tax audits has produced a firestorm of righteous indignation.
The furor is understandable given the popular view that the IRS is a neutral nonpartisan agency with no particular agenda other than collecting taxes.
But nothing could be further from the truth.
As Michael Scherer noted recently in Time magazine, the IRS has been used frequently since World War II to harass and intimidate political organizations.
Under President John F. Kennedy, for example, the IRS had a program known as the Ideological Organizations Project, which was used to investigate right-wing groups.
President Richard Nixon famously compiled his enemies list, using the IRS to microscopically examine the tax returns of mainly left-wing antiwar groups and activists.
According to a 1997 book, Unbridled Power: Inside the Political Culture of the IRS, a super-secret "Special Services Staff" created within the IRS in response to Nixons directive eventually targeted 11,000 private individuals and organizations for politically inspired tax audits.
The IRS also has been known to go easy on friends of the White House and powerful members of Congress. According to the same book, the head of the IRSs Chicago office intervened in 1979 to prevent local agents from auditing the tax return of a staffer working for then-Rep. Frank Annunzio.
In a 2001 peer-reviewed article I wrote with Michael Reksulak of Georgia Southern University and Marilyn Young of Lipscomb University for the journal Economics & Politics, we found a statistically significant pattern of abuse.
First, we assembled a data set consisting of blind information (meaning we had no access to names, Social Security numbers or any personal information) on all individual income tax returns filed from 1992 through 1997 across the IRSs 33 geographically defined districts.
Our examination of the data showed a disturbing pattern. In addition to the usual criteria the IRS uses to screen returns for closer attention, such as individuals reporting income from self-employment or claiming unusually large deductions or tax credits, the data showed that tax returns were significantly less likely to be audited if the taxpayer lived in a district that was politically important to the sitting president or was represented by a member of Congress serving on a committee with IRS oversight responsibility.
Additionally, in every year included in our sample, we found that audit rates were substantially lower in so-called battleground states with large numbers of electoral votes where presidential elections have historically been close, such as Ohio, Pennsylvania and Wisconsin.
Although the investigation of the latest IRS scandal is still ongoing, it would be stunning to find that the agencys administrators and bureaucratic functionaries acted on their own.
Bureaucrats certainly enjoy some policy discretion, but given that people at higher levels of political authority determine agency budgets and nominate and confirm senior administrators, there are strong institutional incentives to conform to policy directives originating in the White House or Capitol Hill.
Those directives sometimes are nakedly partisan and sometimes are driven by the narrow self-interests of individual members of Congress.
Combined with related news that the Department of Justice seized the telephone records of Associated Press reporters to uncover the source of alleged leaks about some of the Obama administrations policies, and that other administration officials engaged in dissimulation and obfuscation with respect to the terrorist attack on the American embassy in Benghazi, Libya, the IRS abuses would seem part of a pattern.
In the movie Casablanca, Captain Louis Renault, played by Claude Raines, remarks that he is shocked shocked! to find that gambling is going on in Ricks nightclub.
No one other than the most naïve observer of American politics should be shocked to find that the IRS, like all bureaucracies, is susceptible to political manipulation. Its happened before and will probably happen again.
At this stage, we probably should follow Captain Renaults order and round up the usual suspects on both ends of Pennsylvania Avenue.
|William F. Shughart II is Research Director and Senior Fellow at the Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, Editor-in-Chief of Public Choice, editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination, and co-author of the Independent Briefing, Plastic Pollution: Bans vs. Recycling Solutions.|
So-called sin taxesthe taxing of certain products, like alcohol and tobacco, that are deemed to be politically incorrecthave long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such sinful products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?