As a CPA who has practiced for four decades, I can say without hesitation that the IRS conduct was severely overreaching. The cherry-picking of organizations and the burdensome scrutiny that was administered by IRS official is utterly beyond the scope of anything they should, and are allowed, to do.
The likelihood that the White House coordinated with the IRS (as well as the media) is strengthened based on the well-researched timeline provided by Kim Strassel at the WSJ. She demonstrated that the IRS attacks on conservative groups happened at the same time the Obama Administration and the media began chiding activity by ominous “shadowy groups”. In one specific example, Americans for Prosperity — a conservative 501c4 — was derided by the White House and media while also simultaneously being subject to intense scrutiny by the IRS.
Part of the issue stems from the difference between a 501c3 and a 501c4. A 501c3 engages in charitable, educational or religious activity, and donations are tax-deductible. Not so with a 501c4, whose main purpose is social welfare, and whose donations are not deductible.
It must be noted that tax-exempt social-welfare groups organized under section 501(c)(4) of the Internal Revenue Code are allowed to engage in some political activity, but the primary focus of their efforts must remain promoting social welfare. That social-welfare activity can include lobbying and advocating for issues and legislation, but not outright political-campaign activity.
But some of the rules regarding 501c4s leave room for IRS officials to make judgment calls and probe individual groups for further information. This is how the IRS justified their targeting, except that they went way beyond what is normal and customary procedure.
In reality, the concept of being a “tax-exempt” organization really has little to no meaning. Despite what the Left has been trying to portray or insinuate, being “tax-exempt” does not mean tax evasion in any way, but rather that the particular organization simply generates no income. And if it does not generate income, it cannot be taxed. But there is nothing untoward about an organization being “tax-exempt” (except perhaps that the government laments this category as “lost revenue”).
A 501c4 operates by collecting money to do things in a collective manner, meaning as a group — as opposed to individually. This organizational status then allows them to function as a group and lets the IRS know that monies collected are for its own non-taxable (non-income generating) purposes.
The fact that there was a coordinated effort by the White House, media, and DCCC to try suggest that conservative-formed 501c4s might be operating in an illegal or clandestine manner is chilling. What’s worse is that low-information voters bought into the narrative because they cannot even recognize anymore whether or not they like a particular idea or position on an issue without knowing where it comes from.
We have freedom of speech and freedom of assembly in this country guaranteed under the First Amendment. If the Left truly believed that their ideas were right and true, those ideas should survive on merit. But that is not what has happened in this country. To go beyond the usual “talking points” that happens in the normal course of politics and use a function of the government in such an overreaching manner is alarming. It is anathema to many Americans that the Left has gone to such great lengths to try to silence or intimidate those who may have viewpoints counter to that in the White House. Such actions are disdainful and they are not the American Way.
Recently, the IRS proposed a new regulation that is inconsistent with and actually in direct violation of Congressional law. The IRS was instructed by the Obama Administration to implement the extension of premium assistance tax credits not only for those purchasing through State run exchanges (as provided for in the law) but also for those purchasing through federal exchanges – which is incompatible with what is contained in the Patient Protection and Affordable Care Act (PPACA).
Thankfully, the legality of this regulation is being challenged. If not confronted now, this new regulation will have a crippling effect on the ability of the IRS to function in the years ahead.
An important part of making Obamacare work is providing an insurance product for everyone. They need to have enough healthy people paying into the pool in order to cover those who are unhealthy and uninsurable. The cost of insurance for the core healthy people is high; those who cannot afford to pay the premiums are eligible for individual credits back — which are administered by the IRS — so that they can afford the Obamacare plan.
The way the law is written, that credit is available for people who go on the state run exchanges. This was built on the premise that every state would create its own Obamacare insurance exchange. Only half of the states actually did. Therefore the federal government (as allowed by PPACA) could come in and set up its own exchange.
In this scenario, however, and according to the PPACA, anyone who receives insurance on the federal exchange is ineligible for the insurance credit. What the Obama Administration has done in response is to order the IRS to allow those people on the federal exchanges to get the credit anyway.
There is a pending lawsuit against the federal government by individuals and businesses in six states, who claim that the IRS provision is indeed illegal. Should they prevail against this overreach by the IRS, which they certainly should, a critical new problem unfolds.
Obamacare is supposed to begin in 2014. There is an estimated 18 million people who may receive an annual subsidy, based on the criteria that they make less than $45,000/year or be a part of a small business that buys coverage for workers.
Consider the nightmare scenario that those subsidies received for being a part of the federal exchange are considered incorrect. How would the IRS begin the process of collecting back those credits that were given to taxpayers for their participation in Obamacare? Tens of thousands of people, most barely able to afford their premiums, will then get dunning letters from the IRS for back taxes and interest, and the IRS will have to expend huge manpower in collecting those back taxes. The IRS capability of doing its regular work would be severely hampered.
It is widely known that the IRS is already burden financially from Obamacare. Treasury Department estimates were $881 million for IRS enforcement spent to implement Obamacare from 2010-2013. Former IRS head Doug Shulman asked Congress for an additional $13.1 billion for 2014 alone.
This new IRS provision, being foisted upon the American people, needs to be repealed now before Obamacare even begins. The amount of insurmountable paperwork and backtracking that will ensue when the illegal provision is repealed, as it inevitably must, shows, again, the irresponsibility of the Obama Administration.
As a final note, how can the President continue to insist that the IRS is an independent agency, when he can so blatantly direct them to violate the law?
Senator Barack Obama at Woodrow Wilson Center on Terrorism, 8/1/07:
“This Administration puts forward a false choice between the liberties we cherish and the security we provide…I will provide our intelligence and law enforcement agencies with the tools they need to track and take out the terrorists without undermining our Constitution and our Freedom”.
“That means no more illegal wiretapping of American citizens, no more National Security letters to spy on American citizens who are not suspected of a crime. No more tracking citizens who do nothing more than protest a misguided war. No more ignoring the law when it is inconvenient”
Faithful devotees on the Left continue to peddle the notion that Social Security is not in crisis, that it doesn’t contribute to the deficit, and there is no need for reform. However, reading through this year’s just-released Social Security Trustees report, the annual “State of the SSA”, we find that the Trustees tell a different narrative — one that is grim indeed. The following primer pulls directly from the report and then explains the statement in layman’s terms. It is copied text from summary of the entire report.
What it actually says:
“Social Security’s total expenditures have exceeded non-interest income of its combined trust funds since 2010, and the Trustees estimate that Social Security cost will exceed non-interest income throughout the 75-year projection period”.
What it means:
Non-interest income includes payroll taxes, taxes on scheduled benefits, and general fund transfers. Expenditures (payouts to beneficiaries) have exceeded (been more than) income (taxes collected ) since 2010. Social Security has not been paying for itself for the last three years. Anyone telling you otherwise is patently false.
What it actually says:
“The deficit of non-interest income relative to cost was about $49 billion in 2010, $45 billion in 2011, and $55 billion in 2012”.
What it means:
Again, right here the report describes that there is a deficit occurring and provides a tangible figure for each year. It directly contradicts the notion the idea that Social Security is PAYGO. It is not.
What it actually says:
“The Trustees project that this cash-flow deficit will average about $75 billion between 2013 and 2018 before rising steeply as income growth slows to the sustainable trend rate after the economic recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers”
What it means:
The deficit is only going to worsen by about 30% over the next 5 years to $75 billion a year. Then the deficit is going to RISE STEEPLY because even more people will be claiming benefits than those working and paying into the system.
What it actually says:
Redemption of trust fund asset reserves by the General Fund of the Treasury will provide the resources needed to offset Social Security’s annual aggregate cash-flow deficits.
What it means:
The Government is using Trust Fund Asset Reserves by the General Fund of the Treasury NOW — and has been for three years — to meet its Social Security obligations. What the Left fails to understand or deliberately doesn’t explain is that we are already borrowing from reserves (think using savings) just to meet basic program costs.
What it actually says:
“Since the cash-flow deficit will be less than interest earnings through 2020, reserves of the combined trust funds measured in current dollars will continue to grow, but not by enough to prevent the ratio of reserves to one year’s projected cost (the combined trust fund ratio) from declining. (This ratio peaked in 2008, declined through 2012, and is expected to decline steadily in future years.)”
What it means:
Remember, we are talking about the reserves now. The reserve amount (savings) will still grow slowly even after paying the Social Security deficit, until about 2020. This is how the Left claims that there is a Social Security “surplus”. They count the Social Security Trust Fund (deficit) + Trust Fund Asset Reserves (savings) = surplus. That is not a true surplus. That is fuzzy math.
What it actually says:
“After 2020, Treasury will redeem trust fund asset reserves to the extent that program cost exceeds tax revenue and interest earnings until depletion of total trust fund reserves in 2033, the same year projected in last year’s Trustees Report”.
What it means:
By 2020 (that’s 7 years from now) the Social Security Trust Fund deficit amount will grow and finally outpace any growth (surplus) in the Trust Fund Asset Reserves (savings). This outpacing will continue until 2033: that’s the year that the Social Security Trustees project a depletion of total trust fund reserves (the savings account runs out!). Yet because this projection date, 2033, was also in last year’s report, the Left can dismissively remark that there are “relatively few changes or surprises” in this year’s report — so that no one bothers to actually read it.
What it actually says: “Thereafter, tax income would be sufficient to pay about three-quarters of scheduled benefits through 2087”.
What it means:
Even though you’ve faithfully paid in, you’ll only be able to get back 75% of the money. One-fourth of it gone. Poof. That means the Trust Fund Asset Reserves (savings) will have been propping up the Social Security Trust Fund a full 25% by 2033, and that Social Security will have been under-funded for 23 years by that time.
What to do about it?
Well, the very first paragraph of the Social Security Trustees report urges action:
‘Neither Medicare nor Social Security can sustain projected long-run programs in full under currently scheduled financing, and legislative changes are necessary to avoid disruptive consequences for beneficiaries and taxpayers. If lawmakers take action sooner rather than later, more options and more time will be available to phase in changes so that the public has adequate time to prepare. Earlier action will also help elected officials minimize adverse impacts on vulnerable populations, including lower-income workers and people already dependent on program benefits”
So, despite what the media and the Left tell you, Social Security is not fully funded. There is no surplus. Its current modus operandi takes the benefits being paid today and uses them to pay their current beneficiary obligations (instead of being held in trust like its original intent). It also borrows from reserves (savings) in order to meet just those basic current obligations.
The Trustee Summary concludes,
“Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.”
It is signed by the Trustees:
Jacob J. Lew, Secretary of the Treasury, and Managing Trustee of the Trust Funds. Kathleen Sebelius, Secretary of Health and Human Services, and Trustee. Charles P. Blahous III, Trustee. Seth D. Harris, Acting Secretary of Labor, and Trustee. Carolyn W. Colvin, Acting Commissioner of Social Security, and Trustee. Robert D. Reischauer, Trustee.
Therefore, the next time someone claims that Social Security is not in a crisis, is solvent, is able to meet all of its obligations, and/or is running a surplus, show them the Trustees report about the real situation — in the Trustees own words.
How does Obama go from being the smartest person ever to be elected President to learning about important stuff going on by watching the news?
One of the key components of Tea Party ideology is the championing for smaller government. As the IRS scandal targeting the Tea Party, Conservatives, and pro-Israel Jews continues to fester, a quick glance at the various figures involved in the wrongdoing have resorted to finger pointing and the blame game. According to Obama and others officials themselves, we have an answer: “Not Me” did it.
“The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued”.
“During interviews with Determinations Unit specialists and managers, we could not specifically determine who had been involved in creating the criteria. EO [Exempt Organization] function officials later clarified that the expanded criteria were a compilation of various Determinations Unit specialists’ responses on how they were identifying Tea Party cases”
Former IRS offical Doug Shulman testified before the House Ways and Means Committee that he was “dismayed and saddened” when he learned about the IG report, and suggested that the IRS is burdened.
“Given the challenges the agency faces, it does its job in an admirable way the great majority of the time. Men and women of the IRS are hardworking, honest public servants. While the inspector general’s report did not indicate that there was any political motivation involved, the actions outlined in the report have justifiably led to questions about the fairness of the approach taken here. The effect has been bad for the agency and bad for the American taxpayer.”
Yet those same (nameless) hardworking, honest public servants are the ones that Shulman blames for the activity. He said, “I agree that this is an issue that when someone spotted it, they should have run up the chain, and they didn’t.
Recent IRS head Steven Miller concurred during his testimony that “I’m not going to disagree with your characterization at all of bad management here.”
So, where is the accountability within the levels of the IRS? Ultimately, the IRS falls under U.S. Department of the Treasury, which is part of the Executive Branch. But you wouldn’t know it talking to this Administration.
When the IRS scandal was erupting, Jay Carney and Obama both stated publicly (Jay on Friday, May 10, and Obama on Monday, May 13) that the IRS was an “independent agency”. This is patently untrue.
The Federalist Society reminds us that there are two types of agencies: One is an “independent agency” which is not part of an Executive Branch department (thinks Boards and Commissions). They are headed by a Cabinet Secretary and are “independent of presidential control, usually because the president’s power to dismiss the agency head or a member is limited”.
The other type of agency is the one kind that the IRS falls under. It is headed by a Senate-confirmed Presidential appointee, and is directly part of the Department of Treasury (in the same way that Federal Bureau of Investigation is part of the Department of Justice). The particular IRS Commissioner position was created in 1997, (26 USC 7803), and the confirmed appointee serves a five-year term.
Our President is counting on either ignorance from the general public ,or else he does not understand how his own government operates. “Not Me” is in charge.
The President and those with whom he has surrounded himself have not been leaders. They have abrogated the basic responsibilities of leadership by refusing to take ownership of the problem and deal with it. It is short on accountability and long on blame. Rich Lowry aptly noted this week that the corruption in our administration” is the distortion of our form of government by sidestepping democratic procedures and accountability and vesting authority in bureaucrats”.
The greatest irony in this debacle is that the Tea Party has been vindicated. It concern about a government-too-big has proven to be unequivocally and terrifyingly true.
As each day passes, the various facets of Obamacare are getting implemented in order to be fully operational by 2014. And we are beginning to hear about difficulties in the implementation caused primarily by either 1) people or companies trying to avoid the “penalties” or 2) people wanting to pay the penalties in order to avoid having to pay for intentionally overpriced health “insurance”.
In order to achieve adequate and targeted enrollment in Obamacare those representing the Government have begun to be aggressive. They are choosing to use all methods at their disposal to pressure, cajole, and otherwise push people to “do the right thing” and buy the mandated insurance product. Health and Human Services Secretary Kathleen Sebelius has millions now at her disposal to dispatch “navigators” and “in-person assisters” to help enroll more Americans into Obamacare. But the very act of doing so may be rendering Obamacare unconstitutional.
It is worthwhile to remember that the only way in which the law of Obamacare was saved from being declared unconstitutional was the that that there is no penalty associated with Obamacare. It was ruled to be a “tax” derived from not purchasing the mandated health coverage. In reaching his conclusion, Justice Roberts accepted the Administration’s position that there is absolutely no negative interference whatsoever on anyone opting to pay the “tax” rather than buy the product.
Therefore, any attempt by the administration or any of the implementing bodies to pressure, threaten or even imply some sort of wrongdoing by those choosing to not buy insurance would be clearly unconstitutional.
If those implementing Obamacare are properly following the Supreme Court’s mandate, they should be telling prospective insurance purchasers that they should be deciding for themselves whether they would be better off with the insurance or the penalty. We know this is not happening. At the macro level, governors have been hustled to implement the exchanges in their states. And at the individual level, Obamacare officials are pushing for more enrollees to ensure a steady flow of premiums paid by healthy patients in order to cover those who are high-risk and high-cost.
What can be done? If we are vigilant in not allowing individuals and businesses into being compelled to buy Obamacare, can we starve the beast? Are the tactics and funding unconstitutional? If so, Obamacare may just die of its own deficiencies.
There is an erroneous sentiment perpetuated by the media that our government gives corporate tax breaks for moving jobs overseas, implying that our tax laws favor countries like China and India over the United States. This is simply untrue. Expenses that companies and businesses incur while doing business are rightly deductible (“a tax break”) but no specific tax benefits exist in our tax code for companies who relocate outside of our country.
What you don’t hear in the media, however, is that the real reason jobs are moving overseas is because of terrible business policies here at home. Companies operating abroad can undersell us — not so much because wages and costs are lower, but more importantly because their ability to conduct day to day business is not burdened by a) government at all levels hampering their every move, b) very high tax rates, and c) courts that allow frivolous and anti-business litigation to become a significant cost of doing business. We are part of a global economy now, but the foreign countries are rapidly becoming more user friendly than our own.
We are overburdening our businesses with convoluted tax codes and paperwork. The host of local, state, and federal regulations and taxes becomes a cost of every product we make and every service we sell. Additionally, the costs of our legal system itself — not just the direct costs of dealing with frivolous lawsuits but also the need to defensively organize business records and processes — constitutes a large and growing tax on conducting business.The end result makes it more expensive to produce a job here and many companies must move overseas to a friendlier business environment in order to remain financially solvent.
I have a close relative who is an owner and executive of a substantial manufacturing operation that he started in Shenzhen, China because of its business friendly environment. I’ve heard from him many times that he went into business, not to comply with government regulations, but to make things. The wages he pays and his operating costs are much lower than they would be here in the US, but that is substantially offset by less skilled workers and high transportation costs. But his taxes are much less than what they would be in the US, and his total legal expenses would be at least 50 times higher here. And he has not suffered a single expensive lawsuit since he started business in China 25 years ago! Is there any wonder why China’s economy is thriving while ours is stagnating?
Simply put, due to government interference, if a company is going to lose money here, it is going to leave. The real reason for jobs moving overseas is that higher taxes, expensive and complex regulations, and stifling legal environment have rendered the United States less globally competitive. Without major changes, we are destined to become a declining force in the business world.
Governor Cuomo is on the list of presidential potentials for 2016. His positions on state and federal taxes need to be elucidated in case he becomes a major candidate in the next couple of years.
For instance, Governor Cuomo lashed out against the recent federal proposal to eliminate the Federal tax deductions for state and local taxes. He calls this “double taxation” because it forces individuals to pay two separate taxes – federal and NY State – on the same income- without giving any relief against the federal tax in recognition of the tax paid to the State. Without the deduction, Cuomo warns that tax bills will rise substantially for New Yorkers.
However, the truth is that Cuomo’s attacks are nothing more than an attempt to shift the focus away from New York State failing its fiduciary responsibility to its taxpayers. It currently levies a very high level of taxation upon its citizens. The deduction is simply a subsidy that masks the egregious overspending of the state which creates the situation in which high taxation is necessary to feed the body politic.
Why should the federal government have to subsidize New York at all? If the residents of New York State think that high (some would say ludicrously wasteful) government spending paid for by very high taxes is the right way to run a state, it is certainly their right. But these residents also have no right to ask taxpayers of other states to subsidize them. And that is exactly what happens when the federal tax code enables New Yorkers to reduce their federal tax simply because they pay high taxes to their state.
Furthermore, Governor Cuomo’s outrage over this “tax increase” is blatantly hypocritical. Where was his outrage when the federal government raised tax rates which fall so overwhelmingly on his NY constituents? Where was his outrage when the federal government’s Alternative Minimum Tax (“AMT”) kept exploding the tax liability of New Yorkers (mostly because the AMT does not allow the deductions for state and local taxes)? And where was his outrage against himself when he broke his clear promise and substantially raised NY income taxes on the most productive New Yorkers?
So yes, although the proposal will seriously hurt all New Yorkers, it is essentially and simply a reform that puts all taxpayers around the country on a level playing field. If Cuomo is so concerned with New York’s taxpayers, he should aim to reduce the scope and size of government and the wildly out of control spending that created it, instead of adding to the budget deficit by his latest spending schemes.
