IRS Gets a Dose of Its Own Medicine from the GOP

IRS Gets a Dose of Its Own Medicine from the GOP

REUTERS/Jonathan Ernst

Outrage over political targeting on tax-exempt applications from conservative groups, as well as selective leaking of confidential tax information of the National Organization for Marriage to its political foes, has given the GOP a chance to express its fundamental antipathy toward taxes and the intrusive manner in which they are collected. If one is inclined to enjoy karma in the political sense, then prepare to get cheered by House Republicans in their latest response to the IRS scandals. 

Their new budget proposal, released Tuesday, anticipates cutting funding to the IRS by 24 percent. The proposal also addresses another unrelated scandal at the IRS by imposing limits on conferences and bonuses after tens of millions of dollars were wasted over the last few years on both.

As Glenn Reynolds wrote on Instapundit, this is what happens when agencies stop acting objectively and start acting politically. Prior to these scandals, the IRS enjoyed a reputation as a bloodless technocracy focused on revenue collection, albeit with plenty of anecdotal evidence of apolitical abuses. 

While Democrats and Republicans wrangled over tax policy and various proposals for reform and greater simplicity, the IRS’ budget hardly caused a ripple of controversy on its own.  As one Democrat wondered aloud during an early hearing into the abuses uncovered by the Inspector General, why would anyone vote to reduce funding for an agency that collects badly-needed revenue in an era of deep budget deficits?

Perhaps a quote from Lois Lerner might explain the necessity. Blogger Patrick Frey found this potent advice from the woman at the center of the targeting scandal from a November 2011 interview with Bloomberg Business Week  that could explain quite a bit about the IRS’ motivations. 

Lerner, interviewed at the time in regard to an investigation into not-for-profit colleges and universities, underscored the importance of aggressive interrogatories to discourage organizations from pursuing tax-exempt status. Business Week reported Lerner’s response: “Receiving a thick questionnaire from the IRS, she says, is a ‘behavior changer.’”

Frey notes the date of the quote with some interest. The targeting of conservative groups by the tax-exempt unit Lerner ran also used the “thick questionnaire” tactic, which Lerner brags is a form of intimidation.  An entertaining timeline of the IRS targeting scandal compiled by Freedom Works, which supports and trains Tea Party activists and groups, shows Lerner found out about the targeting by June 27, 2011 at the latest, and had initiated an audit of the office and its “be on the lookout” (BOLO) list used for the targeting. 

That resulted in a broader BOLO being put into use, and five months later, Lerner is bragging about the “behavior changer” effect of IRS demands for extensive information. Targeting continued well into 2013, and most of the groups that applied for tax-exempt status dropped those requests, or never received approval.

Lerner was right – those interrogatories are “behavior changers.”

Apparently, so are budget cuts, at least when threatened. Acting IRS Commissioner Daniel Werfel has begun looking for ways to cut costs, including more than $70 million in bonuses that the IRS had been determined to pay as of three weeks ago . At that time, the IRS resolved that the bonuses were owed in compensation to executives, managers, and other employees under contract despite the furloughs other IRS employees are enduring because of spending cuts resulting from the last round of the budget fight. 

The IRS has paid out $92 million in bonuses over the last five years, including $42,000 to Lois Lerner herself, who has thus far refused to testify to the House Oversight Committee about the targeting done by her group, claiming that such testimony might tend to incriminate her.  Another $100,000 went to Werfel’s predecessor Steve Miller, who insisted to Congress that no targeting was taking place.
The agency wanted a $1 billion boost in spending for FY2014, not a big cut.  Supporters of the agency still claim that every dollar spent by the IRS results in $6 of revenue, as Jacob Lew told Congress in May. Unfortunately, it also appears to result in massive waste, unless the $92 million in bonuses can be directly linked to $552 million in revenue received, or the tens of millions of dollars spent on conferences, videos, and other extraneous activities directly produced hundreds of millions in revenue as well. 

Most of this would have passed unnoticed by taxpayers, and probably Congress, had the IRS not started playing political games with its tax enforcement. They made themselves into a political target, and while the extensive cuts envisioned by the House GOP caucus may not entirely materialize, the agency is certainly going to be forced to make do with less at the end of this budget cycle.  Congress will continue to pursue the scandal with further hearings and perhaps even a special prosecutor to perform an independent probe into the politicization at the IRS. 

Those kinds of interrogatories have already proven to be “behavior changers,” but hopefully the real behavior change will take place in Congress itself.  The scandal demonstrates the dangers of the complexity and enforcement of the current tax code and campaign finance regulation, both of which need reform badly in the direction of simplification and objectivity. Perhaps then the IRS can return to its status as a bloodless revenue-collecting agency, and the American taxpayers can be spared “behavior changers” from bonus-collecting bureaucrats with axes to grind.