A Philosopher's Blog

Philosophical Essays on Many Subjects

IRS

Scandling

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English: Barack Obama delivers a speech at the...

The current narrative is that the Obama administration is floundering in three major scandals: Benghazi, IRS TPT (Tea Party Targeting), and the DOJ’s AP incident. I agree with Socrates’ view that the “gadflies” have a duty to keep the “horse” that is the state from falling into laziness and corruption. But, of course, I also agree with Socrates’ view that we should better ourselves rather than endeavoring to tear others down with deceits. As such, I believe it is rather important to find and properly consider the truth in these matters.

During the first four years of Obama’s administration, those who wished to attack Obama had to generally rely on made up and often absurd attacks, such as the infamous Birther and Secret Muslim movements. Obama was also charged with being a socialist, a communist, a tyrant and so on. However, these charges only seemed to stick within certain minds-those who wished to believe the worst of the president regardless of the evidence.  Interestingly, real problems such as drone assassinations, the grotesque disparities in wealth, the endemic problems in the VA, and so on were largely ignored by most folks on the left and the right. Someone more cynical than I might suspect that the pundits and politicians work to focus public rage in what they regard as safe channels.

The start of the second term saw what the folks at Fox probably regarded as a gift from on high, given that they had been desperately flogging Benghazi with little effect: two scandals that might actually have some substance. Interestingly, even the “liberal” media jumped onto the scandal bandwagon. However, the question remains as to whether or not there is any true substance behind these alleged scandals.

Again, someone more cynical than I might suggest that the pundits and politicians are focused primarily on scoring political points against Obama rather than operating from a desire for justice and ethical government. After all, some of the conservative pundits who are expressing outrage at Obama are the same people who embraced contrary views when their favorites engaged in worse misdeeds. Peggy Noonan is, of course, one of the outstanding examples: when it came to Iran-Contra, she claimed that Reagan did not know and was failed by his people. In the case of Obama, she contends that the President is fully accountable. Such blatant inconsistencies nicely reveal the truth of the matter. Naturally, folks on the left do the same thing: many of those who railed against Bush give Obama a pass on the same matters, presumably because he is their guy and Bush was not. But, left or right, such inconsistency is intellectually and morally wrong.

Someone far more cynical than I might even spin a tale of conspiracy-that outrage is generated, managed and directed so as to divert attention from real problems. After all, if the media and the people are in a froth over the IRS or the DOJ, then they have little outrage to spare for such matters as the pathetic state of our infrastructure or the fact that congress engages in legal insider trading. But, to get back to the main subject, I turn to the IRS scandal.

On the face of it, the IRS scandal is being sold as the IRS specifically targeting conservative groups. The flames of the scandal certainly have been fanned by the fact that Lerner pleaded the Fifth before Congress. While she might have been reacting out of fear because of the inflammatory rhetoric, this sort of thing is rather like when Romney refused to release his tax information: it leads people to believe that the damage that could be done by whatever is being hidden is far worse than the damage done by trying to hide it. However, let us go with the facts that are actually available.

One key part of the narrative is that the IRS only targeted conservative groups. However, the numbers show that this is not the case: only 70 of the 300 groups looked at were tea party organizations. There is also the fact that the IRS is required to determine whether or not those applying for tax-exemption are “social welfare” groups or are engaged in the sort of political activity that is forbidden to such groups. As such, the IRS was actually looking for exactly what the law required. As far as why they flagged the 300 rather than everyone, this seems to be a practical matter: the IRS was apparently faced with a flood of documents.

Another part of the narrative is that the IRS harmed those targeted for this review. However, the tax exempt status is not actually contingent on the IRS approving it: such groups can operate with that status even before official approval. Somewhat ironically, the only groups denied this status were three progressive groups: Emerge Nevada, Emerge Maine, and Emerge Massachusetts. The reason they were denied approval was because they were created to support Democrats, a violation of the law.  The IRS commissioner at the time was a Bush appointee.

The facts would seem to reveal that there is not much here in the way of  a scandal. The IRS and the administration can, however, be dinged for their poor handling of the matter. The Obama administration does have a poor track record of addressing the “scandling” from the right. Most infamously, they threw Shirley Sherrod to the wolves without even bothering to check on the facts. As such, I would say that one true scandal of the administration is how it handles allegations of scandals.

Interestingly, some conservatives are still trying to turn Benghazi into a scandal, and ABC News’ Jonathan Karl apparently engaged in fabrication, only to be exposed by CNN.  There real scandal here would seem to be on the part of those who are trying to make Benghazi into a scandal.

It might be countered that the Obama administration is so bad (perhaps a socialist, communist, Muslim tyranny) that all of these tactics are justified. That, for example, it is acceptable to manufacture a scandal so as to undercut Obama’s support (and pave the way to the White House in 2016). The easy and obvious reply to this is that if the Obama administration is truly as bad as claimed, then there would be no need to manufacture scandals. One would merely need to provide evidence of the badness and that should suffice.

I do actually think that there is considerable badness. However, this badness is of the sort that neither party wishes to expose or bring to attention of the public. Thus, we generally get a war of manufactured scandals while the real problems remain festering in the shadows.

There can, of course, be real scandals. However, what is to be rationally expected is actual objective evidence from credible sources supporting the key claims as well as a rational value assessment regarding the seriousness of the scandal. For example, the DOJ AP scandal might be a real problem-if so, a presentation of the actual facts and a rational evaluation of the wrongdoing should reveal the scandal. These rational standards are generally ignored in favor of  partisan interests and the desire to keep the eyes of America looking a certain way.

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Tea, Taxes and Tyranny

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Seal of the United States Internal Revenue Ser...
 (Photo credit: Wikipedia)

Somewhat ironically, during the 2012 campaign season the IRS decided to flag for review applications for tax-exempt status from groups whose names included “Tea Party” or “patriots.”  Not surprisingly, this has created some furor. While an IRS spokesperson has claimed that the extra attention was not at the behest of the Obama administration and an apology has been issued, this matter certain deserves greater scrutiny.

As should come as no surprise, Republicans (and some Democrats) have already called for a congressional investigation and a review by the administration.

The obvious point of concern is that the IRS was involved in partisan politics. After all, groups with “Tea Party” and “patriot” in their names would generally tend to be anti-Obama (if not pro-Romney) and if they were singled out for special review, this would certainly suggest partisan motivation. What would be more damning would, of course, be evidence that the IRS denied tax-exempt status unfairly to groups with such names. As it stands, the IRS claims that none of the groups in question were rejected (at least not yet).

While such flagging for review would seem to be partisan, perhaps the motivation was not partisan. An alternative explanation is that the IRS folks involved in this were concerned that such groups might be more likely to have “problematic” applications because of the Tea Party’s view of taxes (that they are taxed enough already) and hence flagged them for more careful review on that basis.  While such a motivation (if it actually existed) might be understandable, it would still be problematic in that it would still have the effect of targeting on partisan lines and the IRS should avoid even the appearance of being partisan.

It might also be the case that folks involved were concerned that such groups would be more likely to be involved in partisan politics, which is supposed to deny them tax-exempt status. However, if they only flagged “Tea Party” and “patriots” rather than any phrases  or words that would be indicative of partisan politics, then they could be justly accused of focusing on conservative groups. This would, obviously enough, be unjust.

The IRS also endeavored to play the usual “rogue employee” gambit. In this case, the claim is that the targeting was the work of a few lower level revenue agents in Cincinnati rather than as a general policy taken by the IRS.  If this can be proven, there would still be a problem-but obviously not as bad as having the IRS engaged in such behavior as a matter of general policy. If it can be proven that this matter reaches up the chain of command, it would be rather bad for the IRS and also for the Obama administration.

On a somewhat related note, there are also concerns that while the IRS flagged certain applications, the agency has been lax in enforcing the law forbidding tax-exempt  501(c)(4) groups from engaging in partisan politics. While these groups can collect anonymous money and spend it on advertising, they cannot endorse candidates or parties. They can, however, engage in political advertising, provided they at least make a token effort at creating the illusion that they are non-partisan. Thanks to the absurd Citizens United decision, corporations can spend unlimited money in federal elections and they have certainly been doing so, to the detriment of democracy in America.

While I am concerned about the claim that the IRS has engaged in partisan politics, I am also concerned that the law essentially allows the creation of tax-exempt fronts for money to be funneled into “non-partisan” political advertising for the left and the right. As might be imagined, to not even properly enforce such a toothless law would be a serious failure on the part of the IRS.

 

 

 

 

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Tax or Penalty?

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Taxes
Taxes (Photo credit: Tax Credits)

The United States Supreme Court ruled that the ACA is constitutional. However, there was an interesting twist in the ruling: while the administration’s main argument for the mandate was made in the context of commerce, this was rejected. Instead, the ruling noted that the ability to impose the penalty for not purchasing the insurance did legitimately fall under the right of congress to tax.

Not surprisingly, a rhetorical battle began shortly after the ruling regarding whether or not the penalty is a tax or not. The Republican’s main narrative is that the penalty is a tax and that it will be very bad indeed. The Democrat’s main narrative is that it is a penalty and that it is a necessary if not good thing. There is, of course, the question of what the truth of the matter might be.

Given the ruling, the Supreme Court’s view (or at least 5 of the 4 members) seems to be that the penalty is a tax. This is mainly because the power to impose the penalty comes under the power of congress to tax rather than being justified in regards to commerce. As such, the idea that it is a tax has a reasonable foundation. That said, it seems to be an unusual sort of tax in that it functions more like penalty-that is, one pays it for failing to do something that is required.

On the face of it, taking the penalty to be a tax is somewhat like taking a ticket for not wearing a seat belt (a common practice in the United States) to be a tax. After all, one has to pay a penalty for not following the requirement to wear a seatbelt just as one has to pay a penalty for not following the requirement to get insurance. It seems rather odd to call such penalties taxes. After all, folks generally don’t say things like “I was taxed for speeding today” or “I got taxed because I parked illegally.” In the case of penalties, they generally seem to aim at punishing people for what they did (or failed to do).

While taxes do cause pain, they generally seem to differ from penalties. After all, when I pay a sales tax, this does not seem to be a penalty (or maybe it is—perhaps I am getting punished for buying local rather than via Amazon.com). Similarly, when my salary is taxed, I find that unpleasant, but it is not intended to deter me from working. That is, it is taxing but not penalizing.

As such, the penalty would seem to be a penalty that has been legally justified under the power to tax.

The obvious reply to this is that this makes all the difference. While it is a penalty, it is justified under the power to tax and is thus a tax. This, of course, does raise a question about what justifies the state in imposing penalties. The state can, of course, arrest me, lock me up, take my property, and kill me and these are justified in terms other than taxes. That is, an execution is not a tax one pays with one’s life. If the state can impose such penalties to get people to do and not do things without them being taxes, then it seems to indicate that the penalty in the ACA could be so justified. The main difference is that the mechanism of imposition is via the IRS rather than via the police.

The obvious reply to this is that involving the IRS makes it a tax—after all, that is what they do.  If the penalty was handled another way by another agency, then it might not be a tax. But, if it is handled via the IRS, then it is a tax.

While this does have considerable appeal, there are other cases in which one agency performs a function that does not automatically make it a function of that sort. For example, the military sometimes functions in a police role or a firefighting role, but it would not be claimed that police functions or firefighting are thus combat actions because they are done by a government body that normally engages in combat. Likewise, just because the IRS is providing the mechanism by which the penalty operates, it need not be a tax.

The counter to this is, of course, to note that the IRS is handling it like a tax. So, if it walks like a duck and quacks like a duck, then it is a duck. So, the penalty is a tax.

At this point (if not earlier), readers might be wondering why it matters. After all, calling it a “tax” or calling it a “penalty” does nothing to change anything about the penalty/tax and this makes it seem to be a mere semantic point.

This does, in fact, seem to be the truth of the matter. The main dispute is not something substantial that would change the law if one side was right and the other wrong. Rather, it seems to be entirely a rhetorical battle. On the current typical Republican narrative, if something is a tax, then it is bad. So, if the penalty is a tax, then it is bad. By imposing this tax, the ACA is also bad.  Plus, Obama claimed he would not raise taxes for the non-wealthy and that the penalty is not a tax—so if it is a tax, he would be wrong twice. As such, the Republicans can score rhetorical points if it is seen as tax.

On the Democrat’s narrative, the penalty is a penalty, but it is what makes the ACA work and hence it is a good thing because the ACA is a good thing. Plus, the claim is that only a tiny percentage of people will actually be impacted by the penalty.

Thus, it does seem that the dispute is not over anything substantial but rather a rhetorical battle. This is not to say that the dispute is not important. It is, since there are political points to be won or lost here based on which label sticks. For those of us on the receiving end, whether it is a tax or penalty does not seem to change anything—either way we have to get insurance or pay. Or do we?

One part of the dispute that does have substance is the matter of the impact of the tax/penalty (perhaps it should be called a tanalty as a bi-partisan compromise). On the Republican narrative, it is supposed to be something both substantial and bad. On the Democrat’s narrative, it is supposed to be minor and good (or at least necessary).

Interestingly, Forbes did an analysis of the penalty that seems to indicate that both narratives are flawed.

It is estimated that, using today’s data, that about 7% of those under 65 would face the possibility of the tax/penalty. The other 93% either have insurance or are exempt from the penalty/tax.

Of those who might be subject to the tax/penalty some will probably buy insurance. About 60% of them will qualify for insurance subsidies. 3% of those possibly subject to the penalty/tax will have to pay full price. Of course, changes in 2014 (when the law goes into effect) could result in changes in these numbers. However, unless there are radical changes, the vast majority of people will not be subject to the tax/penalty.

But, suppose that a person is subject to the penalty/tax and a person refuses to get insurance. The Republican narrative is that this will be a significant tax while the Democrats claim it will not be that bad.

The price starts off at a modest $95 in 2014 and increases to $695 or 2.5% of your income (capping at $2,085—adjustable for inflation). While not something I would like to pay, the penalty/tax is not terribly high. Of course, I am sure that most folks would prefer to avoid paying it at all—which seems to be something that can easily be done.

While the law specifies that the IRS is to enforce the law by imposing a tax penalty, the law also prevents the IRS from using most of its standard tax enforcement methods. For example, the IRS is not permitted to treat the refusal to pay the tax penalty as a criminal act, thus eliminating that avenue of enforcement. Imposing a tax lien will also apparently be rather difficult. In fact, Professors Barry and Camp contend that the mandate is not very mandatory.

The main tool that the IRS does possess in the context of the ACA is that it can reduce a person’s refund. This does provide some bite since about 2/3 of taxpayers get a refund. This does lend some credence to the penalty being a tax—after all, by removing it from the refund it as if the person’s tax burden has increased. Of course, the overall result is the same as a penalty—a traffic ticket for $95 would have the same overall impact as the penalty in 2014.

Of course, even this bite is not as toothy as it might seem. After all, low income households are exempt from this tax penalty and hence their refunds would be untouched even if they decided to do without insurance.

In the face of this, it would seem that the Republican narrative that the tax will be a significant burden seems to be untrue. After all, it will not apply to the vast majority of people, the price itself will be fairly low, and it seems that even those subject to it stand a good chance of being able to avoid it. At most, it will impact those who are well off enough to afford insurance and who will receive a refund and who do not have insurance. That will probably be a rather small number of people.

Ironically, the same facts that seem to defeat the Republican narrative also seem to undercut the main point of the tax penalty. The ACA requires that pre-existing conditions can no longer be a factor in a person qualifying for a policy or its cost. Naturally, the insurance companies are in the business of making money, so they need to cover the additional costs this will impose on them. The tax penalty is supposed to be onerous enough to push people into buying insurance, but it does not seem to be harsh enough or certain enough to serve that function. It also does not seem that it will generate enough revenue to help offset the increased cost. This, interestingly enough, does support another Republican narrative, namely that the ACA is supposed to increase insurance costs. Somewhat ironically, this narrative seems plausible because of the seeming implausibility of another Republican narrative. After all, if the tax penalty were as onerous and sweeping as has been claimed, then it would either push people to buy insurance or provide revenue to offset their failure to do so. As such, it would seem that both parties appear to be in error. That, I am sure, shocks no on.

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