Questioning the IRS

Glenn Hubbard and Tim Kane were wrong to say in their Op-Ed article Wednesday that the IRS’ targeting of unorthodox political groups chills free speech, wrote reader Harrison Stephenson in a letter to the editor. He said:

“The dismal task of the IRS was to determine if groups applying for tax exemption as ‘social welfare’ organizations were really political groups, which do not qualify under the fuzzy wording of the tax code. Certainly the words ‘tea party’ and ‘patriot’ would suggest groups applying for tax-exempt status under these names are likely to be principally political. So would ‘civil rights’ and ‘union power’ on the other end of the political spectrum.

“The question is not the one posed by Hubbard and Kane: ‘Should you need a license from the government to exercise free speech?’ The question before the IRS was whether groups pretending to be devoted to social welfare deserve tax-exempt status.”

--

Glenn Hubbard and

Tim Kane respond:

Stephenson makes good points. But let’s not kid ourselves that something that sounds reasonable can’t or won’t be abused by government officials. All the world over, governments make reasonable requests to make sure “your papers are in order” under the guise of regulations on behalf of the public good, which operate in effect as instruments of harassment or corruption. This is the very definition of “rent seeking” that economist Anne Krueger described in seminal research on corruption in 1974.

In the case of the IRS scrutinizing the 501(c)(4) applications of “tea party” and “patriot” groups, the corruption was not financially but politically motivated, but it was corruption nonetheless.

To the social entrepreneur, byzantine regulations can be terrifying. And in trying to comply with the law -- and fearing punishment if they ran afoul -- new, creative activists did what they thought was necessary and applied for 501(c)(4) status. This is a de facto license, issued by the IRS -- and it strikes us as wrong.

So to answer Stephenson’s question, yes, the government should assume innocence when an organization applies for tax-exempt status. It should indeed grant such status, and the shield of anonymity for donors to the groups, reflexively. And it should revoke that status if it is misused.

What happened in this case is that IRS agents assumed that nontraditional political groups were guilty before they even existed. Applications were withheld for up to three years, which is indefensible. In extreme cases, the IRS asked about family members and the content of prayers, but they did not give such scrutiny to traditional Democratic or Republican groups. That’s why the public is outraged.

Stephenson’s other point about distinguishing between “political” activity and “social welfare” is not so neat. Where does one draw the line? Who is to say that free speech in defense of the environment, for example, is one kind of speech but not another? Now, if voters think that no such social welfare groups deserve tax-exempt status anymore, that’s fine. But the principle at issue is that the standards were applied by IRS agents unequally and with chilling consequences.

--

(BEGIN TEXT OF INFOBOX)

Numbers and letters

A quick breakdown of the mail we received from readers this week:

474

Printable letters were received between last Friday and this Friday.

49

Readers weighed in on tax exemptions for political groups, the week’s most-discussed topic.

20

Letters responded to articles on public access to beaches in Malibu, the week’s runner-up topic.

2

Of those letters expressed sympathy for the Malibu homeowners wary of crowds on nearby beaches