Thursday, May 16, 2013

Charitable Government Agenda

Last week the IRS disclosed that in evaluating an application for tax-exempt status, ‘low level’ staffers had used search words such as “tea-party” and “patriot” to single out organizations for further review.  Conservatives are outraged at the McCarthy-style tactics, seemingly immune to the irony that McCarthy was a Republican conservative.  No mention in the reporting (or ranting) is what happened in 2006 when (under a Republican President) the IRS went after All Saints Episcopal Church and tried to rescind its tax exempt status over a sermon.  (Church and State?) Heads are starting to roll, but it's a bit of a head scratcher.
When it comes to charities, the IRS has specific rules.  In exchange for not having to pay income tax organizations must have a purpose and mission that is for the public good.  They must also disclose donor lists, contributors, etc.  The government then gets groups that are doing things that are beneficial to many (public benefit).  Feeding the homeless, for example, is something that without private not-for-profit organizations would ultimately become a government program…or so goes the theory.  These organizations are exempt under 501(c)3 of the IRS code.
Political groups and lobbying fall under a different section of the non-profit code 501(c)4…and that’s what these groups fell within.  From all of the reporting thus far, none of these groups were DENIED tax-exempt status, they were just required to go through additional screening.  There are rules about disclosure and purpose for those groups – and because they are overtly political in nature they are more carefully evaluated since they are exempt from having to pay into the tax system.  The fact that “code words” were used is stupid, partisan and not at all surprising…but totally understandable since the IRS job is to determine if a group is political, charitable or lobbying.  People will be fired, and that's appropriate.

The kerfuffle over the IRS’s latest embarrassment is further evidence that the entire tax code is rigged.   By having incentives for individuals to give to charities (less tax burden) the government is incentivizing certain behavior patterns.  This exists all over the code:  think mortgages, child care deductions, eco-friendly cars --- there are thousands of ways the tax code is used to drive individual behavior in a way that the government encourages...or alternatively discourages like smoking and drinking and buying yachts. 
The best solution, of course, is to eliminate the tax code altogether.  It would require government to make stark choices about the handful of things that it could fund.  (The Constitution is a good guide for what should be funded.)  It would require Americans to be really clear about those things they are willing to fund for themselves and their neighbors, and what things they wanted to fund personally.
It’ll never happen.  Republicans and Democrats agree that the existing tax code works.  They each want to adjust the code for their own agenda and drive behavior to their thinking.  The underlying philosophy of a government collecting funds and reallocating those dollars to others is where both parties agree.  It’s quite a charitable government if you’re part of the agenda.

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