The Power to Tax is the Power to Destroy

Late yesterday, Michael McKenney, Acting Inspector General of the Internal Revenue Service (IRS), released his findings in an investigation that the agency has targeted politically conservative groups since mid-2010. The 54-page report focuses on the work of the IRS’s “Determinations Unit,” which among other things assesses the legitimacy of applications for non-profit, tax-exempt status. In the report, McKenney’s office found that “inappropriate criteria were used to identify tax-exempt applications for review.” The report also finds that the IRS demanded information that is well outside the scope of what is required to determine whether an application is legitimate or not.

Specifically, the IRS routed all applications from groups with the terms “Tea Party,” Patriots,” or “9/12” in their names, as well as organizations whose concerns involved “government debt,” “government spending,” or “taxes.” (“9/12” refers to a group founded by radio and TV personality Glenn Beck.) The more than 300 groups identified for special scrutiny were consolidated in a spreadsheet that became known as the “Be On The Lookout” list, or BOLO. Applications on the BOLO list languished for long periods of time while the investigators demanded inappropriate information, such as lists of donors, members, and grantees. The agency also demanded that the groups provided detailed positions on public issues, the work histories of members, and information on other groups not parties to the applications.

There are also suggestions that the IRS may have done more than simply slow down applications and gather data on conservative groups. The progressive media organization Pro Publica revealed yesterday that during last year’s election season, the IRS provided confidential information on nine conservative groups. No other groups have come forward to admit their own receipt of this or similar information, but in a fast-moving story like this, no possibility can be discounted. Attorney General Eric Holder announced yesterday that he has ordered the FBI to open a criminal investigation into the affair. If evidence is uncovered that the BOLO list was known to or approved by the White House, then what is today a relatively isolated story could blossom into a general crisis, possibly leading to the appointment of a special prosecutor and even impeachment. In any case, there is a growing sense that this scandal will be with us for quite a while.

In truth, abuse of the power of the IRS is an old story. President Franklin Roosevelt deployed the IRS against several political opponents, including populist Governor Huey Long of Louisiana and Andrew Mellon, Herbert Hoover’s Secretary of the Treasury. The Kennedy Administration, with the President’s tacit approval, launched something called the “Ideological Organizations Project” that brought the full weight of the IRS to bear on right-wing groups like the John Birch Society. Article II of the Articles of Impeachment handed down by the House of Representatives against President Richard M. Nixon in 1974 included the charge that he had authorized “income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner. And the NAACP, Greenpeace, liberal churches, and other left-leaning groups were subjected to similar special scrutiny during the administration of President George W. Bush.

What has the potential to make this scandal unique is its timing. Just last week, Congress heard testimony from the so-called “Benghazi whistleblowers,” who demonstrated convincingly that the Obama Administration lied through its teeth about the origin and nature of the deadly attack on our consulate in Benghazi, Libya last September. And then yesterday, the Associated Press (AP) revealed that the Justice Department (DOJ) “had secretly obtained telephone records for more than 20 separate telephone lines assigned to AP journalists and offices, including cell and home phone lines.” Media organizations, including the AP itself and the Reporters Committee for Freedom of the Press condemned the seizure and demanded a return of all records. Bracketed by these stories, the IRS scandal may be investigated and reported more diligently, even by the liberal media, than it otherwise might have as a standalone event.

The relationship between the American people and their federal revenue agency has been long and conflicted. The Revenue Act of 1862 established the office of Commissioner of Internal Revenue, a kind of embryonic IRS, for the purpose of administering the first income tax in American history, a levy that scaled from 3% to 10% and was used to pay for the Civil War. Seven years after the war, the tax was allowed to expire, but the office of Commissioner of Internal Revenue never did. In 1913, following passage of the Sixteenth Amendment to the Constitution, which gave Congress the right to impose taxes without regard to state “apportionment” – that is, on individuals – the office became the Bureau of Internal Revenue. And in 1953, the modern Internal Revenue Service was born.

“We try to cooperate fully with the IRS,” said the humorist Dave Barry, “because, as citizens, we feel a strong patriotic duty not to go to jail.” The IRS is both hated and feared by most Americans, who nevertheless take great care to comply with its requirements for reporting and remittance. Central to that docility is the sense that, despite everything, the agency is a necessary evil, and one that does its job in an essentially even-handed manner. A scandal like the one brewing this week threatens that broad public consensus, and as such represents yet another crack in the foundation of legitimacy upon which a democratic republic is built.

The early American statesman Daniel Webster once said, “The power to tax is the power to destroy.” In 2010, someone in the IRS decided to test that truth against the Obama Administration’s political opponents. They may soon discover that such power can lead just as easily to self-destruction.