Free the IRS from regulating political speech
A final聽thought, I hope, on the IRS/tea party scandal: Why do we want the IRS聽 regulating political speech?聽 It seems crazy on its face, yet that is exactly the system we have created.
True,聽the agency bungled its scrutiny of conservative political groups seeking tax-exemptions.聽But should it even be deciding which political organizations should get favored tax treatment and which should not? Why is a tax collection agency regulating political speech at all?
That this is happening at all is an accident of history. The section of the law聽political organizations are using to win tax-exempt status was never intended for this purpose. Section 501(c)(4) has been around for a hundred years, but its purpose was to grant tax-exempt status to social welfare organizations such as community groups and citizens associations.
In the wake of the Supreme Court鈥檚 2010 Citizens United decision, (c)(4) status聽became a popular mechanism for bankrolling political campaigns. Citizen鈥檚 United made it possible for unions and businesses to spend unlimited amounts of money on politics, but the vehicle聽they used for funneling cash to campaigns, Sec. 527 organizations, required public disclosure of their gifts.
501(c)(4)s聽are different. They can collect massive amounts of money anonymously. 聽
But they have one restriction. They may lobby, but their primary purpose must be social welfare, not financing political campaigns.
And this has thrown the IRS into a cesspool. What does primary purpose mean? And what does campaigning mean? Where do you draw the line between lobbying and politicking? The law demands that the IRS make those distinctions. It must, in other words, define political speech鈥攁 role for which is seems particularly ill-suited.
IRS agents don鈥檛 have much help. The statute is murky. Case law is vague. The agency鈥檚 own guidelines require that these applications be decided on a case-by-case 鈥渇acts and circumstances鈥� basis.
So the IRS is put in an untenable position. On one hand, it has been under pressure to crack down on what some see as abuses (I wrote a聽urging the agency to act back in 2010). Yet, when it tried, it was rightly accused of political partisanship. True, it could have avoided much of the current mess if it was more even-handed in its investigation of these groups. But can the IRS ever define what is a permissible political activity and what is not? Should it even try?
Worse, no politician will ever defend the agency from criticism. Whatever the IRS does, elected officials of both parties will throw it under the bus at the first hint of criticism. 聽Just watch President Obama.听听听
What鈥檚 the answer? Alan Viard at AEI聽聽Congress to write rules that better delineate political activity by tax-exempts.聽The New York Times聽has called on Congress to retain (c)(4) status but only for groups that have no political activity. 聽
I鈥檇 get the IRS out of the political speech business entirely. 聽If Congress wants to regulate campaign finance, it ought to do so explicitly rather than through an ad hoc structure built around an obscure section of the tax law governing citizens associations. Congress could, for instance, simply pass a law requiring public disclosure of all campaign gifts, no matter how they are delivered. That one step would largely dry up requests for (c)(4) status.
Congress could reserve tax-exempt status for those organizations that completely eschew politics. We鈥檇 all be free to say what we want and give money to whom we want. But this activity would be entirely disconnected from tax-exempt status. 聽Fellow Forbes.com blogger Peter J. Reilly made a聽聽yesterday. So has Bloomberg鈥檚 Josh Barro.
I know, you鈥檙e going to ask what agency would regulate this, the Federal Elections Commission? Well, you鈥檙e right, the FEC is a punchline today. 聽But Congress could fix that. Besides, the FEC鈥檚 failures don鈥檛 justify dumping this mess into the lap of the IRS. Honestly, I鈥檇 rather have the Transportation Dept. regulating political speech than the IRS.听听听 聽
In effect, Congress and the Supreme Court have thrown the IRS into a lose-lose situation. And the agency has lost. Why are we surprised?
