Outrage continues to escalate over the revelation that IRS
employees focused on conservative groups applying for tax-exempt
status. The indignation is understandable: political targeting is an
abuse of power, and the idea of using the IRS to go after one’s enemies is a classic dirty trick. Unfortunately, the incident provides a new fuel source for the paranoid style in American politics.
The reality is that this is a story of institutional incompetence. And Congress should share the blame.
The root of the problem is poor institutional design, not a
political conspiracy. Current law forces the IRS to enforce a vague
set of campaign finance laws that have next to nothing to do with
raising revenue. The conservative groups at issue were applying for
tax-exempt status as “social welfare” organizations rather than Section
527 tax-exempt political organizations. The chief benefit of becoming a
social welfare organization is the ability to keep the names of one’s
donors private. These social welfare organizations may engage in issue
advocacy, and may do some lobbying, but are not supposed to engage in
political campaigning. How much political activity is too much? No one
The IRS is supposed to enforce the tax code, not administer a
byzantine campaign finance system. It is good at gathering and
processing enormous amounts of data that help the nation raise revenue.
Under current law, however, it has little choice but to exercise
discretion in the constitutionally dangerous waters of campaign finance.
As Lloyd Mayer, a law professor at the University of Notre Dame, explained, “because Congress and the Treasury have left both the definition of political activity and, for [social welfare organizations], the amount of permitted political activity uncertain, the I.R.S. is required to make broad inquiries and to use politically sensitive criteria to decide if a given organization qualifies for tax-exempt status.” ...
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