POLITICS

Little guys fight H&R Block's regulatory robbery

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Politics,Beltway Confidential,Timothy P. Carney

Regulation is often best understood as a tool used by Big Business to keep out competition. This collusion of Big Business and Big Government is always destructive, always unfair, and often illegal. The Institute for Justice levels all three charges against the tax-preparation rules issued by Obama's IRS.

Kelly Jane Torrance at the Weekly Standard explains the suit and thelaw:

The suit challenges licensing requirements that the IRS introduced last year. Tax return preparers must take a test and obtain IRS permission—and pay fees to the bureaucracy—before they can continue to offer their services. As IJ attorney Dan Alban says in the ... video, “Congress never gave the IRS the authority to license tax preparers, and the IRS can’t give itself that power.”

H&R Block and Jackson Hewitt, by far the two largest tax preparers, benefit from this rule. Bloomberg reported at the time:

H&R Block and Jackson Hewitt, the largest and second- largest U.S. tax preparers, expressed support for the plan.

“We think if the focus shifts to who has the highest standards, that’s good for us,” said Kathryn Fulton, a lobbyist in Washington for Kansas City-based H&R Block. The company filed 21.1 million tax returns last year, or about 15.8 percent of all returns.     

That's just off the top of my head.

UBS, advising clients, saw the regulations as a reason to buy H&R Block stock, I reported two years ago:

The new regulations should help Block by: 1) reducing fraudulent preparers (that generate oversize refunds dishonestly), 2) add barriers to entry (or continuation) for small preparers, 3) provide revenue as Block may sell their continuing education and competency tests to others, and 4) perhaps boost paid prepared share.

Got that: "add barriers to entry." That's at the heart of what I call the "Overhead Smash." Regulations add to overhead, thus driving out small competitors, and preventing new competitors from entering.

But again, H&R Block isn't just a passive beneficiary of this regulation -- it was an active supporter. In July, once the IRS announced it was considering these rules, H&R Block hired the Podesta Group to lobby on the matter. The Podesta Group was co-founded by John Podesta, who later became an Obama confidant and his transition director. Podesta Group is currently run by Tony Podesta, the leading lobbyist-bundler in the country, who has raised, together with his lobbyist wife, well over half a million for Democrats this election.

But wait, it gets better. The IRS official in charge of writing these rules: Mark Ernst, former CEO of H&R Block. As I wrote at the time:

Mark Ernst, in December 2007, was chief executive officer of H&R Block, the nation's largest tax-preparation company. Thirteen months later, once President Obama took office, Ernst was named a deputy commissioner at the Internal Revenue Service, where he would spend his first year drafting new regulations for tax preparers -- regulations that H&R Block welcomes and market analysts say will benefit the company.

With Ernst in mind, recall Barack Obama's campaign pledge: "No political appointees in an Obama administration will be permitted to work on regulations or contracts directly and substantially related to their prior employer for two years."

This campaign pledge manifested itself in an executive order requiring "every appointee in every executive agency" to pledge, "I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts."

Ernst obviously didn't follow these rules, but the IRS tells me that Ernst is not covered by these rules. "Mark Ernst is a civil servant at the IRS; he is not a political appointee," according to an e-mail IRS statement by an agency spokesman.

Because the media has so thoroughly bought into The Big Myth that Big Business and Big Government are rivals -- that regulation is primarily about curbing the power of corporate America -- expect plenty of media to note H&R Block's support for the regs as an oddity. An "interesting twist."

But it's the norm. Here are some examples of Big Business supporting regulation of itself and benefitting from it:

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