Almost everyone agrees that the IRS should not target groups based on their ideology or political alignment — which is exactly what it looks like Obama’s IRS has done.
But a few of the IRS’s critics on the Left make a partial defense of the agency: The IRS needs to make sure these tax-exempt groups aren’t abusing the law.
Take a tour of the Journo-List circuit, and you’ll see this argument.
Kevin Drum for example: “the explosion of 501(c)4 groups is a genuine problem … lots of them really are used primarily as electioneering vehicles.” You see similar arguments at the Washington Post’s Wonkblog and Slate’s Moneybox.
The Wonkblog discussion did a good job of explaining what would be involved in the IRS doing a better job of regulating tax-exempt behavior — and that discussion makes me uncomfortable:
It will mean taking the political rhetoric of the moment and watching for it in applications. It will require digging into the finances and activities of groups on the left and the right that seem to be political….
Are you comfortable with the IRS policing speech?
First, we know the IRS has, under administrations of both parties, used this policing power to go after political rivals.
Second, the speech the IRS is charged with policing here is the very speech the First Amendment was crafted to protect: political speech; criticism of people in power.
How comfortable are you with an immensely powerful and oft-politicized organization warning citizens, “Watch what you say about our government”?
So, maybe we need to end this whole game of granting various types of tax-exemption to groups (501[c]3, 501[c]4, 527, etc…) depending on the degree to which they engage in politics.
The two simplest ways to do this: (1) make every organization pay taxes on its profits (2) make no organizations pay taxes on their profits. That is, end tax exemptions, or end the corporate income tax.
There are many good reasons to end the corporate income tax, and economists make a ton of convincing arguments why we should. After all, corporations aren’t people, and so, corporate “profits” are either individual profits (in the form of dividends or S-Corp profits) and thus taxed on the individual level, or they are retained earnings, in which case they aren’t realized or enjoyed by anyone.
Getting rid of the corporate income tax would end the costly, seedy game of corporate-tax-loophole-lobbying, and this would enhance economic efficiency by removing incentives for corporations to play silly tax-avoidance games.
But most importantly, if everyone was tax-exempt, that would make it unnecessary for the IRS to police groups’ political speech.