Why Are Republicans Determined to Waste Money on Government? The Upside-Down Logic of Taking Responsibilities (and Funding) Away From the IRS

Posted in: Politics

By now, it is becoming abundantly clear that there is no actual scandal behind the supposed “political targeting” of some conservative groups—and, it turns out, of some liberal groups as well.  As early as last week, both John Dean (in a column here on Verdict in which he called the pseudo-scandal “all smoke and no fire”) and I (in a post on Dorf on Law) saw through the circus atmosphere that had quickly developed around the entire non-scandal.

As so often happens in American politics, however, inconvenient facts cannot derail a train that has quickly built up a head of outraged steam.  By the weekend, Republicans were making all kinds of absurd claims about how the White House had been auditing its conservative enemies.  (Given that this was a specific dirty trick of the Nixon Administration, John Dean’s opinion that the current situation is completely different really ought to dispose of such claims.)

This manufactured outrage was not, moreover, limited to the talk show hosts and tricorner-hat-wearing conspiracy theorists.  Governor Bobby Jindal of Louisiana, who has (at least in his own mind) some possibility of becoming the next Republican nominee for President, brought a convention of conservatives to its enraged feet over the weekend, saying: “By being here today, every one of you has just signed up for an audit by the IRS.  You are officially now on the White House enemies list.”

Other top-level Republicans have piled on, adding supposition upon supposition, until one would think that the facts might actually have supported anything other than the what they actually revealed: findings of low-level mistakes and mid-level crisis mismanagement at the IRS.  This, however, is not surprising.  The national Republican Party is now even more completely subservient to its most extreme elements, who punish officeholders who do not say exactly what they want to hear.

If this were merely a passing storm, then maybe it would not be so bad.  Perhaps it would be an opportunity for the self-styled victims of big government to vent their crazed superstitions, before sanity regained traction and the facts forced people in positions of responsibility to move forward with only the minor changes that the situation requires.

Unfortunately, I suspect that this current tempest will not be limited to its teapot.  It will, instead, very likely become yet another moment that American arch-conservatives will use to make matters worse, adopting policies that will not only harm the country but that will also contradict the central dogma of the anti-government forces: that they want the government to stop being wasteful.

The Chickens Have Come Home to Roost: The Inevitability of the IRS’s Problems, in the Face of Unrelenting Hostility From Republicans

As investigative journalists quickly discovered (as published in The New York Times, The Houston Chronicle, and The Los Angeles Times), the low-level mistakes that have now caused such outrage have their roots in years of Republican hostility to the IRS.  Even though Republicans claim to be dedicated to law and order, their hatred of taxes extends so far that they are willing to make it easier for people to cheat on their taxes.  Reducing the IRS’s budget is a deliberate tactic on their part: No tax cops, no taxes.

When Republicans regained the majority in the House of Representatives in 1995, as part of the Gingrich Revolution, they quickly set about trying to prove that the IRS was out of control.  After holding hearings in which all manner of claims were made against the IRS, the Republicans ended up finding only a tiny handful of examples of true overreaching.

Even so, the Republicans quickly created an atmosphere in which IRS employees feared for their jobs, with Republicans’ rhetoric (and some of their actions) suggesting that it would be a firing offense simply for any taxpayer to lodge a complaint against an IRS employee.  Although some semblance of balance was ultimately restored within a few years, the message was clear: The Republicans are out to get the IRS, and the Democrats are playing weak defense, at best.

This dynamic, in turn, led directly to the budget cuts and low morale that created such unfortunate results in the Cincinnati office of the Exempt Organizations division of the IRS.  Nearly every aspect of the non-scandal is infused with the results of budget cuts: operations being “streamlined” to save money, which resulted in understaffed and under-qualified employees being given too much to do, with no supervision to prevent mistakes.  Senior staff left the IRS in droves, having received the clear message that their hard work and expertise were no longer valued.

As a result of the Republicans’ current group primal scream, we can be sure that this trend will be made immeasurably worse.  The most experienced people at the IRS, who possess knowledge and skills that tax-minimizing companies would love to exploit, will be ever more tempted to leave the agency.

Moreover, there is simply no way that the Republicans will now do anything but cut the agency’s budget.  Even though the fundamental problem is that the IRS is under-funded, the Republicans’ response to suggestions for restoring the IRS’s budget and staffing will surely be, “We do not reward misbehavior.”

In short, Republicans will demonstrate yet again that they do not understand the truth behind even the most well understood aphorisms, like “You get what you pay for,” preferring instead to be penny-wise and pound-foolish.

The IRS’s Role in American Life, and the Reasons That Its Reach Has Expanded

The problem, however, is actually even worse than the looming budget cuts the IRS will face.  We will not merely see the IRS forced to do more with even less money and support, but we will also see the IRS’s uniquely central role in efficient governance destroyed by the Republicans’ retribution against the agency.

What do I mean when I say that the IRS has a “uniquely central role in efficient governance”?  Three years ago, I wrote a column in which I pointed out that the IRS for decades has been asked—by Republicans and Democrats alike—to administer ever more of our federal programs.

Why?  Because politicians in both parties have learned to love “tax expenditures”: the indirect spending in which the federal government engages when it allows citizens and corporations to pay reduced taxes by engaging in favored activities.  Here is an example of direct versus indirect government spending:  We could simply send people checks to subsidize their ownership of houses.  Instead, we allow homeowners to deduct the interest on their mortgages, as well as their property tax payments, indirectly making it less expensive to buy a house.  Whether the spending is direct or indirect, the Treasury ends up with less money, just as if it had sent checks to homeowners.

How pervasive are tax expenditures?  So much so that the Treasury Department’s annual estimates of them extend for pages and pages, adding up to over one trillion dollars per year in indirect spending.  Tax expenditures, in fact, are so much a part of the government’s role in the economy that the failed Romney/Ryan campaign staked its entire budgetary plan on the idea that it could reduce tax rates but still close out the deficit—by eliminating tax expenditures!  (Their claims were debunked, but not because the tax expenditure budget is small.  It just is not big enough to finance the huge regressive giveaways that Romney and Ryan advocated.)

There is, in short, a surprisingly large amount of money being funneled to recipients of the government’s “largesse,” but politicians insist on calling these giveaways “tax cuts” rather than spending increases.  Indeed, earlier this year, the senior Republican on the Senate Finance Committee huffily insisted that tax expenditures are not expenditures at all.  Why?  Because he did not want to think of it that way—even though both conservative and liberal economists have agreed for years that tax expenditures are the logical equivalent of direct spending.

In short, Republicans and Democrats alike have created a system in which the IRS is the essential government agency that is in charge of the governance of a wide array of spending programs—even though those programs are really not fundamentally related to collecting taxes.  Politicians might say that they hate the IRS, but they certainly act as if they trust it implicitly.

What We Will Gain by Moving the IRS Out of Its Important Role: Only Duplication, Waste, and Errors

As I noted in my column in 2010, we could end the practice of tax expenditures, forcing the government to spend money directly.  Doing so, however, would have an unfortunate side effect.  The IRS is actually staffed by competent and dedicated civil servants, and it is in many ways the natural agency to administer the programs that reflect many of our spending priorities.

For example, there are many health-related tax expenditures, the existence of which puts the IRS in the position of determining the legitimacy of, for example, claims for deductions for medical expenses.  If we wanted to, we could move all of those determinations over to the Department of Health and Human Services (HHS), which might intuitively seem to be the natural place to house such a program.

This, however, would end up being wasteful—or worse.  Many of the benefits that Congress has enacted are sensibly tied to recipients’ incomes, with benefits phased out for those whose incomes rise to the point where a public subsidy is no longer needed.  So if HHS were indeed to administer the programs from now on, it would need to have a database containing sensitive information concerning the incomes of all Americans.

Where would that information come from?  One possibility would be to have HHS collect the information itself.  That, however, would be a classic case of wasteful duplication.  We already collect that information, and the IRS possesses it (by the very nature of administering an income tax).  Thus, if the IRS is cut out of administering health-related programs, we will soon see government waste increase, at the very least with HHS employees wasting time and money coordinating with IRS employees to exchange sensitive information about citizens’ incomes.  (And if Republicans are outraged about government divulging information about its citizens, then adopting an anti-IRS rule would make matters worse, not better.  Every information exchange across agencies carries a risk of erroneous leaks of such information.)

That problem, moreover, is made all the worse by the reality that many other government agencies have been made completely toothless, at Republicans’ insistence.  Consider the issue at the heart of the current non-scandal, which is the question of whether various tax-exempt groups are engaging in “excessive politicking” under the law.  Which agency would be the most obvious alternative to the IRS, to enforce such rules?  The Federal Election Commission would seem to be the natural fit.  But the FEC has been turned into a national joke—so much so that the comedian Stephen Colbert was able to win awards for exposing the ridiculousness of the FEC and the laws that it fails to enforce.

Sadly, It Is Too Late: At This Point, We Are Going to Have to Endure the Waste That Will Inevitably Flow From Shrinking the IRS

In my column from three years ago, after I described how the IRS’s role in administering tax expenditures actually saves money and protects privacy, I argued that we should simply admit that we secretly love the IRS, and let it do the many jobs that Congress has foisted upon it.

Now, I fear, we have reached the point where that is no longer possible.  The IRS is barely going to have enough money to try to carry out its basic role of collecting tax revenue.  Every other activity will have to be spun off—even though the IRS could perform these activities better and cheaper than other agencies could.

Those who have any doubts about this prediction need only notice the Republicans’ opportunistic tying of the IRS non-scandal to the Affordable Care Act (ACA).  Their complaint is now that the IRS is going to collect the tax that the Supreme Court recognized in its decision last year, allowing the ACA to stand.  Republicans are even pointing absurdly to the coincidence that the administrator in charge of setting up the 2014 launch of the ACA had at some point worked on issues that (they claim) are somehow connected to the non-scandal.

Therefore, in an exceptionally perverse version of the “heckler’s veto,” I think we have reached the point where it is no longer reasonable for those of us who believe in good government to imagine that we can maintain the advantages of having tax expenditures run through one highly diligent agency.  The IRS will, for an unknown number of years, be on the defensive, and any functions of government that can be moved elsewhere, should be.

This means, of course, that believers in good government will be defending a position that is very much a second-best outcome.  Republicans will do everything possible to argue that the tax expenditures that help everyone except the wealthiest Americans should be eliminated entirely, rather than moved within the Executive Branch.

In arguing to maintain those programs, the Republicans’ opponents will find themselves saying that, yes, there is a better and less expensive way to administer these essential programs, but Republicans’ blind hatred of the IRS has made it impossible for the government to be as efficient as possible.

Republicans will, therefore, confront the country with a very unappealing choice:  Either discontinue our efforts to make this a more humane country, or continue those efforts with our hands tied behind our backs.  It did not have to be this way, but Republicans might finally have truly made things that bad.