Chief Justice John Marshall’s famous dictum that “the power to tax involves the power to destroy” seems not to have been a warning but a mandate for the Bush administration.
The Internal Revenue Service is returning to its halcyon days under Richard Nixon, when its audit power was used against scores of critics in the media and politics. The tax-collection agency became the blunt instrument of the White House political operation. People and organizations that were deemed enemies of the president found teams of auditors poring through their records, sometimes year after year.
There are signs of that again despite efforts over the years to professionalize and insulate the agency from congressional and executive politics. Worse, some parts of the agency have embraced the Republican philosophy of penalizing the poor and giving a leg up to the rich and big corporations.
Let’s look at specifics. A little nonprofit outfit in Austin named Texans for Public Justice has been giving political bigwigs in both parties fits for nine years by tracking the heavy influence of money on Texas politics. But it went too far in 2003 when it detailed the illegal spending by corporations on U.S. House Speaker Tom DeLay’s successful effort to engineer a Republican takeover of the Texas legislature. Its work led last year to the indictment of DeLay and two aides for money laundering and conspiracy to hide corporate donations.
When two IRS agents turned up shortly afterward to go through the outfit’s records and 2003 tax returns along with those of an affiliated foundation, its director filed a freedom-of-information request at the IRS. Eventually, he got a file of documents, heavily redacted. But they showed that a lawyer and DeLay pal whose firm represented DeLay’s major political action committee had written a letter to Congressman Sam Johnson, R-Texas. The investigation of DeLay, the lawyer said, had become “a national problem” and he figured that the Texas prosecutor had help from Texans for Public Justice and its foundation. He suggested that Johnson, a member of the House Ways and Means Committee, get the IRS to audit and investigate the groups because they could be engaged in activities outside the law.
Congressman Johnson obligingly but vaguely wrote the IRS that he had “uncovered” some “disturbing information” about the Texas groups. He asked for an IRS investigation of the groups and that the IRS report back directly to him. The IRS wasted no time. The audits, however, turned up not a hint of anything illegal. An IRS spokesman last week gave essentially the same answer that Nixon’s IRS always gave: “political considerations do not play a role” in deciding who is audited and when.
Thanks to David Cay Johnston of The New York Times, who deserves another Pulitzer Prize for his coverage of federal tax policy, we know a little more about the IRS’s attitude toward taxpayers in the George W. Bush era. It embraces the idea that government is the tribune of the nation’s finest corporations and the rich and its first obligation is to sweat as many dollars as it can from the brow of the working stiff. A couple of developments last month:
A taxpayer advocate at the IRS, a sort of official whistleblower whose office was created in the Clinton administration, reported that the agency had frozen the refunds of hundreds of thousands of poor workers, labeled their tax returns fraudulent and blocked their refunds in future years although the taxpayers did nothing wrong. The average family income was $13,000. Nina Olson, the advocate, said her staff examined samples of the tax returns and found that only one in five was questionable at all. But their refunds remained frozen and future refunds blocked because of the fraud suspicion.
Here’s why: Most of them were claiming the Earned Income Tax Credit, Bill Clinton’s way of getting more money into the overall pockets of the working poor. Without the EITC, people would have no incentive to get off welfare and go to work because they would have less money and lose health benefits.
Olson said the IRS devoted far more resources to chasing tiny refunds for poor workers, which did not total more than $9 billion, than to a $100 billion problem with unreported incomes from small businesses that deal only in cash and often do not file tax returns.
Meantime, the IRS has stopped supplying records showing how lightly it audits big corporations and how much it discounts the additional taxes they owe. A federal court order in 1976 made the IRS supply the records free to a Syracuse professor, who made it available for others doing tax research.
“No more,” the IRS said in 2004. As Johnston reported, much of what the public knows of the IRS’s evenhandedness or lack of it in tax audits comes from the professor’s records (they are at trac.syr.edu). She is suing again to force the IRS comply with the 1976 order.
Last April, President Bush told newspaper editors that he expected his government to give the public as much information about its doings as possible. Its tax favors for the rich? That information is not possible.