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The IRS got a bum rap for its investigations

The IRS tempest in a teapot should not be about how the IRS investigates political organizations that file for 501(c)4 tax-exempt status. Rather, it should be about why we have thousands, or, for that matter, any, tax-exempt political non-profits in the first place.

This tax-exempt status, especially the 501(c)4 organizations, rather than the usual 501(c)3 nonprofits, is rightly subjected to more than the usual IRS scrutiny because these are the organizations most likely to misuse their status. They are not required to make their contributor lists public, and the lack of disclosure has led to a fairly massive illegal use of this so-called "dark money" for political advertising and other campaign purposes. These organizations rightly have the burden of a higher standard. That is what the IRS agents in Cincinnati were investigating.

Norman Bernstein

The agents decided to expedite the process by inserting key words to try to ferret out possible misuses. There were several kinds of organizations targeted, because of their known or perceived political campaign activities, as opposed to social welfare activities, which is a violation of the law if you are tax-exempt. These organizations were not just the "Tea Party" or other so-called "conservative" or "right-wing" groups. Some examples are:

  • Patriot Majority USA (liberal)
  • Crossroads GPS (conservative)
  • Citizens for Strength and Security Fund (liberal)
  • American Future Fund (conservative)
  • Priorities USA (liberal)

The IRS wasn't trying to close down these kinds of organizations, or violate their right to free speech.

They were trying to keep them from cheating on their taxes and from using the tax code to hide the names of their donors from the public. A report by the Inspector General showed that most of the applications selected for review by the IRS did indicate significant political activity that might have made the organizations ineligible for tax-exempt status.

Of course, we all dislike the IRS, and the U.S. tax code, in general. But the IRS is not the problem.

The real scandal is that anyone with enough money to hire a good tax lawyer can beat the system. Most large corporations pay zero tax. Occasionally, one of the big corporations will pay as much as 7 percent, but none of them pays as much, percentage-wise, as does the average middle class American.

The United States has the most complicated tax code in the world, by design. It is also the most unjust.

General Electric is an example. In 2010, GE earned $14.2 billion. Its U.S. tax bill for that year was, exactly, zero. By design, most of GE's profits are generated outside the country and are tax-exempt. Beginning in the 1950s, corporations were subjected to a maximum 52 percent tax bracket, and they accounted for about 35 percent of all government revenue. That all changed with the Reagan administration's "trickle down economics," so-called "tax reforms," that trickled down to nobody, that caused the national debt to triple, and the share of government costs paid by corporations to plummet. That share is now about 9 percent. The maximum corporate rate is around 30 percent, but there are enough loopholes to keep that from happening.

The burden of federal spending is now being paid for by payroll taxes — about 40 percent of the total, and by individual income taxes — about 41 percent. In other words, the working middle class now pays for most government spending. This represents a massive transfer of wealth from the poor and middle classes to the rich and powerful. It is that shortfall, between what corporations used to pay and what they now pay, that represents the federal deficit. There would be no federal deficit if the corporations paid their fair share.

This inequality is what defines today's recession, with jobs scarce, and well-paying jobs even more scarce, and the bottom dropping out of the middle class that used to make this country work. There are no longer any rising expectations, but rather, the rapidly rising number of the poor and desperate.

During the past three decades, according to the Congressional Budget Office, the top 1 percent of earners more than doubled their share of the nation's income, as revenues shifted away from progressive income taxes to less progressive payroll taxes. After-tax income for the top 1 percent increased by 275 percent, while income for the poorest 20 percent rose by only 18 percent, for the same 30-year period. This represents "an alarming rise in income inequality."

Social Security and Medicare, the combined FICA deduction on our payroll taxes, are another good example of favoring the wealthy over the not so wealthy. Because of the cap on FICA contributions, the bottom 20 percent of the income population pays a 7.3 percent rate, while the wealthiest 1 percent pays a rate of 0.9 percent.

Increase the cap and all of the alleged problems with the future funding of Social Security disappear.

The problems with Medicare don't disappear because they are largely due to the uncontrolled runaway prices and rampant greed in the medical and pharmaceutical industries.

U.S. corporations are now sitting on a surplus of almost $5 trillion in cash, according to the Federal Reserve. This money does not "trickle down." It does not get spent on job creation or on increasing real wages. It does not translate into higher per capita consumption. It does not encourage capital investment. When you slash corporate taxes, all it does is increase corporate wealth and place more of a burden on individual and payroll taxes. This surplus is what enables big companies to eat up smaller companies, creating more monopolies, which increases the price you pay for the commodities you need, like a gallon of gasoline, for example.

And then there is the current sequestration, which means that the needy, the elderly, the sick, and the young and their education and health, are to be dumped on, so the wealth of the top 1 percent can keepgrowing at this alarming rate.

This is the ongoing significant political scandal of both parties, not the misdirection of the scandals of Benghazi and the IRS, and the turf battles between bloated and incompetent government agencies. This is the real White House cover-up, no matter which party is temporarily in charge of the illusion of dysfunction. It's working just the way they want it to, Dorothy, behind all the smoke and mirrors.

(Norman Bernstein is a roving correspondent for the Havre Daily News.)


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