Commentary Magazine


Topic: Internal Revenue Service

The IRS Targets Conservative Groups—As It Once Targeted COMMENTARY

This morning, an IRS official named Lois Lerner apologized for inappropriately targeting non-profit groups for scrutiny in 2012 based on the fact that they had the words “Tea Party” or “Patriot” in their names. There are many things that need to be said about this. First, and simplest, is to ask how seriously the Obama administration is going to take this outrageous effort at political suppression by an agency under its charge. Has the IRS inspector general gotten involved? Has a U.S. attorney been apprised of this matter, which can only be considered an act of political intimidation and therefore would fall under the aegis of various federal criminal statutes? If not, why not?

Second, this is a test for the mainstream media. If the fact that the targeted groups are conservative means that the story is soft-pedaled and not subject to major investigative scrutiny, any argument against liberal bias evaporates now and forever. Will this be brought up at today’s press briefing at the White House with Jay Carney? You can bet that had any such thing happened in reverse during the Bush administration, Tony Snow would have been bombarded with questions for weeks if not months.

As it happens, I know something about the chilling effect of an IRS investigation into a non-profit’s 501 (c)-3 status because in 2009, COMMENTARY (a non-profit) received a letter from the Internal Revenue Service threatening the revocation of the institution’s standing as a non-profit due to a claim that on our website we had crossed the line in the 2008 election from analysis to explicit advocacy of the candidacy of John McCain for president. (Non-profits are not permitted to endorse candidates.) The charge was false—all we had done was reprint a speech delivered at a COMMENTARY event by then-Sen. Joseph Lieberman in which he had endorsed McCain.

Taking away a non-profit’s ability to receive tax-exempt charitable contributions is equivalent to a death sentence.

We were told by counsel that, should the IRS rule against us, we would have almost no recourse. You might think free speech rights would trump any such effort, but of course no one is challenging your speech rights, merely finding that what you say runs afoul of laws dealing with non-profits. You have no constitutional right to non-profit status, after all.

Disproving the false charge, which we did eventually in part by literally printing out the 2 million words that had appeared on this site in 2008 and sending them in many boxes to the IRS to show that the words in which Lieberman said he was supporting McCain were essentially a part per million, cost us tens of thousands of dollars and dozens upon dozens of hours of lost work time. The inquiry, which never should have been brought, was closed. But talking to lawyers and strategizing and the like in such a circumstance make the experience an ordeal that leaves you a bit shell-shocked—which is, of course, the point.

Now, I had assumed that a hostile reader or hostile liberal group was responsible for the IRS inquiry into COMMENTARY, but there is a salient detail in today’s story that makes me think something else might have been at work. IRS official Lerner said the effort against the conservative groups in 2012 came from “low-level” officials in the Cincinnati office. The investigation into COMMENTARY came out of the Columbus office. Is there something going on inside the IRS offices in Ohio?

Who will find out?

Human Rights Watch Now Openly Endorsing BDS

Human Rights Watch doesn’t like Israel. No surprise there. But since the advocacy group still does important work on human rights issues in other countries, it continues to get taken seriously by the media and government officials. This legitimacy should end immediately in light of HRW’s latest report, which tacitly endorses the beyond-fringe Boycott, Divestment, and Sanctions movement. From the text of the study:

The report is based on case studies comparing Israel’s starkly different treatment of settlements and next-door Palestinian communities in these areas. It calls on the US and EU member states and on businesses with operations in settlement areas to avoid supporting Israeli settlement policies that are inherently discriminatory and that violate international law.

The report also asks the U.S. to avoid “offsetting the costs of Israeli expenditures on settlements by withholding U.S. funding from the Israeli government in an amount equivalent to its expenditures on settlements and related infrastructure in the West Bank.”

That’s bad enough. But there was one recommendation that really caught my eye:

Congress should request a report from the General Accounting Office on the subject of tax-exempt organizations that support settlements and settlement-related activities. Such a study should include specific assessments of the amounts and types of donations involved and the actual end-uses of such donations in the settlements. The report should also address whether current laws and regulations regarding charitable organizations ensure that tax-exempt status is not granted to organizations that facilitate human rights violations or violations of international humanitarian law, are adequately enforced, and whether they are adequate or require revision.

Hmm. As we know from the Z Street case, the IRS has already been giving some pro-Israel groups a hard time on their tax-exemption applications — ostensibly because Israel has a “higher risk of terrorism.” But could the IRS also be concerned about tax-exempt groups giving support to Israeli settlements? And if not, will this be the next rallying cry picked up by the BDS movement?

In addition to those suggestions, HRW also recommended the following quasi-BDS tactics:

• The international community should tack on extra tariffs to products imported from Israeli settlements: “Ensure that policies do not promote settlement activity, such as the discriminatory violations of Palestinian human rights documented in this report, by enforcing tariff agreements in accordance with international law, such that Israeli settlement goods are not given preferential treatment, including by requiring and enforcing clear origin labeling.”

• Businesses operating from the settlements should cease involvement in any activity that HRW deems to be a violation of international law, “including where necessary ending such [business] operations altogether.”

The NGO Monitor has also denounced the report. In an e-mail, it called it evidence that HRW “endorses boycott, divestment, and sanctions (BDS), disguised as opposition to settlements, but in reality seeking the destruction of Israel.”

“This is further proof of HRW founder Robert Bernstein’s conclusion that the organization has turned Israel into a pariah state,” NGO Monitor president Gerald Steinberg added, in a statement on Sunday.

Is the IRS Investigating Pro-Israel Groups for Terrorism Ties?

Court affidavits filed by the IRS indicate that the agency has been giving extra scrutiny to Jewish organizations that provide material or financial support to Israel, out of concerns that these resources may be going to “terrorist” activities.

The court documents came to light during an ongoing legal battle between the pro-Israel group Z Street and the IRS. Z Street filed a lawsuit against the agency in August, alleging that its request for tax-exempt status was delayed because of its support for the Jewish state.

IRS officials now say that Z Street’s application was referred to a special task force that deals with groups that support countries with a “higher risk of terrorism.”

“The application indicated that Z Street could be providing resources to organizations within Israel or facilitating the provision of resources to organizations within the state of Israel,” wrote IRS official Jon Waddell in a Dec. 12 affidavit. “Israel is one of many Middle Eastern countries that have a ‘higher risk of terrorism’”

He said that referring organizations to the IRS’s investigative task force is “appropriate whenever an application mentions providing resources to organizations in a country with a higher risk of terrorism.”

But Z Street founder Lori Lowenthal Marcus denied that the group provided assistance to Israel. “We have never, ever given any money or resources to anybody, or any organization, in Israel at all,” Lowenthal Marcus told me during an interview. “We don’t give money to anything. Even if this ridiculous [IRS] policy exists, Z Street still doesn’t fall within it, so what are they doing?”

She added that the incoming Republican House leadership has expressed interest in potentially launching an investigation into the matter.

Z Street asserts that it isn’t the only pro-Israel group the IRS has targeted. At the end of November, Z Street introduced a letter in court that appeared to show an IRS agent giving unusual scrutiny to another Jewish group that had also applied for 501(c)3 status.

In the letter, the agent asked the group, “Does your organization support the existence of the land of Israel?” At the time, some tax attorneys told Politico’s Ben Smith that they found the IRS’s inquiries to be inappropriate.

Lowenthal Marcus says Z Street will keep moving ahead with its lawsuit, and of course we’ll be following the developments here at CONTENTIONS.

The Tax Deal: Politics and Principles

Reaction to the tax deal is all over the lot, on both sides of the political spectrum. Paul Mirengoff thinks it is a very good deal for Republicans (John Hinderaker would go further and label it a great deal). Grover Norquist says it is a much bigger victory for Republicans than recognized. Mark Levin thinks it is a bad deal, and Hugh Hewitt is deeply dispirited.

Jonathan Chait thinks Obama got more from the Republicans than Chait thought he would. Jonathan Bernstein thinks it is actually a win for the Democrats. The New York Times thinks it is a disappointing retreat by the White House. Obama himself did not sound very happy.

We’ll find out who was right in two years, when all the issues will resurface in the middle of a presidential election.

But it is not too soon to note the intellectual collapse of one of Obama’s principal arguments. For the past two years, he castigated the Bush tax cuts as breaks for “millionaires and billionaires,” even though the across-the-board cuts primarily benefited people in the lower brackets (the proportion of millionaires and billionaires among taxpayers is one-third of 1 percent, according to the latest IRS statistics). In order to raise any real money from “millionaires and billionaires,” Obama had to define them as individuals making one-fifth of a million dollars (one-fourth in the case of couples) – because there were 10 times as many people in that group as real millionaires, and therefore (applying the Willy Sutton principle of public policy) that was the place to go.

The White House ended up opposing a “compromise” under which taxes would be raised only on real millionaires, since there was not enough money in that group to make that resolution sufficiently remunerative for the government. More than taxing millionaires and billionaires, the White House really wanted to tax the non-millionaires. When that proved impossible, the White House went in a different direction.

In contrast, the Republicans were unified around a set of principles easier to explain and defend: don’t raise taxes in a recession; don’t increase taxes on employers if you want more employment; don’t ask the public, which is fairly crying out for you to cut spending, to send you $700 billion more to spend. These principles are unlikely to be proved wrong in two years.

Are You Now or Have You Ever Been a Zionist?

We know that the Obama administration has been far from friendly to Israel — but is this sentiment now influencing policy at the IRS?

The Jewish group Z Street, which claims that its request for tax-exempt status was delayed by the IRS because of its support Israel, has been engulfed in a legal battle with the government agency for months. The case heated up last week after the organization introduced a letter that appeared to show an IRS agent giving unusual scrutiny to another Jewish group that had also applied for 501(c)3 status. Among the questions asked by the agent: “Does your organization support the existence of the land of Israel?”

Z Street said that this is further evidence that the IRS has started targeting pro-Israel groups. Ben Smith at Politico has the details of the letter:

A Pennsylvania Jewish group that has claimed the Internal Revenue Service is targeting pro-Israel groups introduced in federal court today a letter from an IRS agent to another,  unnamed organization that tax experts said was likely outside the usual or appropriate scope of an IRS inquiry.

“Does your organization support the existence of the land of Israel?” IRS agent Tracy Dornette wrote the organization, according to this week’s court filing, as part of its consideration of the organizations application for tax exempt status. “Describe your organization’s religious belief system toward the land of Israel.”

But are these inquiries simply inappropriate, or are they evidence of an official campaign against Zionist organizations? A couple of tax attorneys consulted by Smith said they found the questions to be out of line:

“The claims go far beyond what should be the IRS’s role,” said Paul Caron a University of Cincinnati law professor and the author of TaxProf Blog.

Ellen Aprill, a law professor at Loyola University in Los Angeles said the second question was “appropriate” in the context of an application seeking a tax exemption on religious grounds.

“The first one is not the way I would want any of my agents to do it,” she said.

Some have wondered why Z Street is waging a public fight against the IRS instead of handling the tax issue privately. But Z Street founder Lori Lowenthal Marcus told me that her main worry here isn’t her own group’s tax-exempt status — it’s whether the government is holding pro-Israel groups to an unfair standard.

“My concern is that people are sort of veering off into tax world instead of Constitutional law,” said Lowenthal Marcus, a former constitutional lawyer, who added that she believes the actions of the IRS could constitute a First Amendment violation.

But apart from Z Street and the unnamed Jewish group mentioned in the letter, other organizations have yet to step up with claims that they were treated unfairly by the IRS.

Lowenthal Marcus said this doesn’t surprise her and noted that taking on the IRS can be an intimidating task. “Who’s going to challenge them?” she asked.

The current evidence is hardly enough to prove that there has been an official change in IRS policy toward pro-Israel groups, but the letter produced by Z Street shows that the case definitely deserves further inquiry. There is precedent for the IRS denying tax-exempt status to groups that clash with the government’s official policy — the Bob Jones University case is the most prominent example. But while the Obama administration has certainly taken an unfriendly stance toward Israel, this position could hardly be characterized as “official” government policy.

Ron Radosh at Pajamas Media also argues that this issue warrants a public investigation and suggests that this might be the task for a Republican-chaired House Oversight Committee: “What must now be publicly investigated — more work, perhaps, for Rep. Darrell Issa,  likely the new chairman of the House Oversight and Government Reform Committee — is, as Z Street put it, whether or not the IRS is  ‘improperly considering the political viewpoint of applicants’ and engaging in ‘clear viewpoint discrimination.’”

Flotsam and Jetsam

More European nations in trouble. “The debt crisis in Europe escalated sharply Friday as investors dumped Spanish and Portuguese bonds in panicked selling, substantially heightening the prospect that one or both countries may need to join troubled Ireland and Greece in soliciting international bailouts.”

More evidence that the IRS is targeting the hawkish pro-Israel group Z Street. Wouldn’t it be front-page news if J Street were asked if it supported Iran sanctions?

More reason to doubt that the Obami have a clue about what to do about North Korea. The State Department’s PJ Crowley tweets “SecClinton talked with Chinese FM Yang today and encouraged Beijing to make clear that North Korea’s behavior is unacceptable.” Is “unacceptable” really the strongest they can do? Or is “unacceptable” (as in “A nuclear-armed Iran is unacceptable”) just diplomat-speak for “We’re sorry to see X happen.”

More criticism of Obama’s approach to Egypt. “The president and his secretary of state have brought up democracy and human rights in private conversations with Egyptian leaders but shied away from them in public. They have failed to make any connection between Mr. Mubarak’s domestic repression and the more than $1 billion in U.S. aid Egypt receives every year, much of it directed to the military. They have not supported efforts in Congress to pass legislation or even nonbinding resolutions linking bilateral relations to political reform.”

More defensiveness from Sarah Palin. Not helpful for a presidential contender. Dead-on for a conservative community organizer.

More nonsense from Tom Friedman. No, Tom, too much texting by American kids is not a bigger problem than North Korean nukes. Another example of not-very-smart liberal punditry.

More problems for Rahm Emanuel. “Through an odd chain of events, Mr. Halpin, a 59-year-old industrial real-estate developer here, has become the face of a movement to force Mr. Emanuel out of the race to become Chicago’s next mayor. A lawsuit filed with the Chicago Board of Election Commissions Friday by a Chicago attorney on behalf of two city residents charges that Mr. Emanuel, the former chief of staff to President Barack Obama, is ineligible to run because he lost his Chicago residency when he rented his home to Mr. Halpin in 2009.” Really, wasn’t the entire race an excuse to get off the sinking White House ship?

More evidence that the GM bailout was no success for the taxpayers. The union? Well, that’s another story. “General Motors Co.’s recent stock offering was staged to start paying back the government for its $50 billion bailout, but one group made out much better than the taxpayers or other investors: the company’s union. Thanks to a generous share of GM stock obtained in the company’s 2009 bankruptcy settlement, the United Auto Workers is well on its way to recouping the billions of dollars GM owed it — putting it far ahead of taxpayers who have recouped only about 30 percent of their investment and further still ahead of investors in the old GM who have received nothing.”

Flotsam and Jetsam

Don’t be president, then. “Obama miffed by questions on U.S.”

Don’t think Dems fail to grasp how toxic ObamaCare is. “A leading Senate Democrat vowed Friday to introduce legislation killing a part of the new healthcare reform law that imposes new tax-filing requirements on small businesses. Sen. Max Baucus (D-Mont.), chairman of the Finance Committee and a leading architect of the reform law, said a provision requiring businesses to report more purchases to the IRS will impose undue paperwork burdens on companies amid an economic downturn when they can least afford it.”

Don’t get your hopes up. “All the president has to do is abandon some foolish ideological presuppositions, get down to work, and stop fishing for compliments. If he did so, he’d end up getting genuine compliments—from us and, we dare say, from the American people. And then his self-respect would have a firmer ground than vanity.”

Don’t underestimate your impact, Nancy. “‘We didn’t lose the election because of me,’ Ms. Pelosi told National Public Radio in an interview that aired Friday morning.” No wonder Republicans are “giddy.”

Don’t believe that Obama learned anything from his rebuffs in Copenhagen (on global warming and the Olympics). Charles Krauthammer nails it: “Whenever a president walks into a room with another head of state and he walks out empty-handed — he’s got a failure on his hands. And this was self-inflicted. With Obama it’s now becoming a ritual. It’s a combination of incompetence,  inexperience, and arrogance. He was handed a treaty by the Bush administration. It was done. But he wanted to improve on it. And instead, so far, he’s got nothing. … And this is a pattern with Obama. He thinks he can reinvent the world. With Iran, he decides he has a silver tongue, he’ll sweet-talk ’em into a deal. He gets humiliated over and over again. With the Russians he does a reset, he gives up missile defense, he gets nothing.”

Don’t you wish the Obami would stop giving excuses that make them sound even more incompetent? “The U.S. position on settlements has not officially changed, [National Security Council's Dan] Shapiro said. The United States still believes that the Israeli settlement moratorium should be extended, but that Palestinians should stay in peace talks even if it is not. He said that President Obama — who said Monday that Israeli settlement construction was ‘never helpful’ to peace talks Israel announced further construction plans in East Jerusalem — wasn’t trying to publicly criticize Netanyahu with his remarks. He simply answered a question put to him in a direct way, said Shapiro.” But not publicly criticize Bibi? They are frightfully inept — or disingenuous.

Don’t you miss smart diplomacy? “President Obama’s failure to conclude the Korea-United States Free Trade Agreement (KORUS) is a disaster. It reveals a stunning level of ineptitude and seriously undermines America’s leadership in the global economy. The implications extend far beyond selling Buicks in Busan. … The debacle in Seoul is a slap in the face of a critical U.S. ally in a critical region, and it will cast doubt on U.S. trade promises in other negotiations elsewhere. But if an American president loses his credibility, the damage spreads beyond the narrow confines of economic deals and Northeast Asia.”

Don’t be shocked. CNN’s guest roster skews left.

Don’t let your family pet do this at home. “A 150-pound mountain lion was no match for a squirrel-chasing terrier on a farm in eastern South Dakota. Jack the Jack Russell weighs only 17 pounds, and yet he managed to trap the cougar up a tree on Tuesday. Jack’s owner, Chad Strenge, told The Argus Leader that the dog ‘trees cats all the time,’ and that the plucky terrier probably ‘figured it was just a cat.’”

Another Strategy in the War on Free Speech

The war on free speech has taken an ominous turn. It was bad enough when campaign finance “reformers” were imploring the Congress and courts to stifle core political speech. But now they’ve adopted a new tactic:

Since the Supreme Court’s January decision in Citizens United v. FEC, Democrats in Congress have been trying to pass legislation to repeal the First Amendment for business, though not for unions. Having failed on that score, they’re now turning to legal and political threats. Funny how all of this outrage never surfaced when the likes of Peter Lewis of Progressive insurance and George Soros helped to make Democrats financially dominant in 2006 and 2008.

Chairman Max Baucus of the powerful Senate Finance Committee got the threats going last month when he asked Internal Revenue Service Commissioner Douglas Shulman to investigate if certain tax exempt 501(c) groups had violated the law by engaging in too much political campaign activity. Lest there be any confusion about his targets, the Montana Democrat flagged articles focused on GOP-leaning groups, including Americans for Job Security and American Crossroads.

Not since Richard Nixon has the IRS been employed to target political enemies. Where does the IRS commissioner stand on this? Is he going to take auditing directions from politicians seeking partisan advantage? It would be appropriate when Congress convenes in January for the new GOP chairmen to conduct some hearings and make sure the IRS isn’t going to allow itself to be used in this fashion. The surest way, however, to prevent that is for Democratic pols to cease using the tax authority to intimidate and attack their political opponents.

Take Half a Loaf, and Demand the Rest

Obama, eight weeks before the election, has decided to adopt one of many ideas the Republicans put forth in February 2009: a tax break for businesses. As this report explains:

Companies can now deduct new investment expenses, but over a longer period of time—three to 20 years. The proposed change, which would let companies keep more cash now, is meant to give companies who may be hesitant to invest an incentive to expand, acting as a spur to the overall economy. …

Under current law, if a company spends $10 million on a new factory, it gets to deduct the full amount of the cost over a period of between three and 20 years, depending on the investment. So it cuts its stated pre-tax profits by a varying amount each year, thus reducing taxes until the cost of the investment has been written off.

Under the new proposal, the company would get to deduct the full $10 million in the first year. That would give it an immediate cash infusion to offset the costs of investment. It would also give certainty that the full tax benefit would be realized. Companies often don’t get to write off the full cost of an investment over an extended time.

It is not a bad idea, but it simply isn’t as critical as an extension of the Bush tax cuts. Republicans and business leaders were quick to point this out:

“The White House is missing the big picture. These aren’t necessarily bad proposals, but they don’t address the two big problems that are hurting our economy—excessive government spending, and the uncertainty that Washington Democrats’ policies, especially their massive tax hike, are creating for small businesses,” said House Minority Leader John A. Boehner (R, Ohio). …

The best thing to do is to get rid of uncertainty, and that includes the cliff we’re falling off with all these [tax] provisions that are expiring,” said Bill Rys, tax counsel for the National Federation of Independent Business, a small-business group.

Many NFIB members also are concerned about a new requirement for reporting purchases of more than $600 to the Internal Revenue Service, he added. He questioned whether many business owners would choose to buy more equipment, at least until sales pick up.

It is, on the one hand, a giant concession that tax cuts matter. On the other hand, it leaves the Obama team without any reasoned defense for letting the Bush tax cuts expire — or, for that matter, loading up employers with new mandates. (“Many NFIB members also are concerned about a new requirement for reporting purchases of more than $600 to the Internal Revenue Service.”) As one businesswoman put it, “If this will be offered as a tradeoff for raising the top two rates, it’s a non-starter.”

Nor is it even clear that this is all that helpful at this point:

N. Gregory Mankiw, of Harvard University, and another former CEA chairman under President Bush, questioned whether the Obama proposal would have a big impact. Businesses can already take out a bank loan at extremely low interest rates to pay for new investments in plants and equipment, but they are not doing so, he said. It’s unclear why they would make those investments for a tax break.

And it is even less clear why we should be giving with one hand and taking away with the other. (Jay Timmons, executive vice president of the National Association of Manufacturers: ”The good news [is that] the administration recognizes that manufacturing is key to getting the economy back on track and ensuring we are able to sustain economic growth and job creation. But you can’t do that if you’re penalizing one sector of manufacturing while trying to incent another.”)

The most principled position for conservatives is to accept the president’s tax cut (on the Milton Friedman theory that we should support any tax cut, any time) and demand that the Bush tax cuts be retained. Really, if tax cuts are good and the economy is in the tank, why not?

Flotsam and Jetsam

When debating illegal immigration, let’s remember who wants to come here: “those ill-used souls who, having braved coyotes both literal and figurative to get here, are now, with the submissive resignation of the most forbearing lama, slaving away washing dishes in restaurant kitchens, or bent double picking grapes in Napa, or cleaning the toilets of people who look right through them as if they were not flesh and blood, and whose children are serving honorably in the United States military.” Read the whole thing.

When looking for media bias, you can always count on the New York Times. In this hatchet job, it’s pretty obvious that the Humane Society and MADD roped the Gray Lady into going after their antagonist, the libertarian activist Richard Berman, who seems to be doing nothing illegal despite the Times‘s inferences. (Indeed, the IRS investigated a Berman entity and ”found nothing that would warrant a revocation of its tax exemption.”)

When world leaders awoke from their Obama daze, they reacted like many Americans: “They are no longer dazzled by his rock star personality and there is a sense that there is something amateurish and even incompetent about how Obama is managing U.S. power. For example, Obama has asserted that America is not at war with the Muslim world. The problem is that parts of the Muslim world are at war with America and the West. Obama feels, fairly enough, that America must be contrite in its dealings with the Muslim world. … America right now appears to be unreliable to traditional friends, compliant to rivals, and weak to enemies.”

When will Jewish non-leaders start demanding that we withdraw from the UN Human Rights Council? “The United States and its allies suffered a series of setbacks at the United Nations on Friday as the Human Rights Council flirted with media censorship and was poised to elevate an anti-American politician and a Cuban to key positions. Concerns about censorship were raised after the 56-nation Organization of the Islamic Conference (OIC), which has tremendous sway in the United Nations, successfully pushed through a resolution that creates a watchdog to monitor how religion is portrayed in the media.” (And for this, we needed a new ambassador to the OIC? Doesn’t seem like the ambassador is persuading the OIC of anything — or is the point to demonstrate that we don’t care to oppose its totalitarian impulses?)

When you see evidence like this, you also see just how lacking in goodwill toward Israel Obama is, such that he would insist the Jewish state be the subject of an inquest: “New footage from the Mavi Marmara was released by the Foreign Ministry on Friday afternoon, this time showing IHH head Bülent Yildirim inciting to violence against Israeli commandos hours before the encounter that claimed the lives of nine Turkish passengers. ‘We follow in the footsteps of the martyrs,’ Yildirim could be seen declaring to a large crowd of activists. ‘You shall see, we will definitely claim one or two victories. … If you send the commandos, we will throw you down from here and you will be humiliated in front of the whole world. … If they board our ship, we will throw them into the sea, Allah willing!’”

When Obama can’t decide whether to send an aircraft carrier to take part in South Korean naval exercises because it might upset North Korea and China – after promising our ally unequivocal support — you get an idea of how much trouble we and our allies are in.

When you return a terrorist to the heart of Wahhabism, guess what happens? “The United States have sent back around 120 Saudis from the detention camp at the U.S. naval base in Cuba, set up after the U.S. launched a ‘war on terror’ following the September 11 attacks by mostly Saudi suicide hijackers sent by al Qaeda.” The Saudi running the fake rehab operation (“religious re-education by clerics and financial help to start a new life”) blames “strong personal ties among former prisoners but also tough U.S. tactics as the reason why some 20 percent of the returned Saudis relapsed into militancy compared to 9.5 percent overall in the rehabilitation program.” The Saudis consider the plan such a smashing success that they are building five new centers. Yes, it is madness for us to facilitate this.

The Taxman Cometh — Not!

Andrew Ross Sorkin of the New York Times has a piece on the proposal to tax the “carried interest” of hedge-fund partners at the rate of ordinary income (right now, 35 percent) instead of at the rate of capital gains (15 percent). I haven’t studied the issue, so I don’t know where I come down on it, but Sorkin, inadvertently, reveals exactly why the current tax system is irretrievably broken. He writes:

Of course, even if the measure passes, Wall Street executives are ready: They’ve already begun devising clever new “structures” to skirt the tax change.

The moment the bill is signed, “the games will begin,” said Francois Hechinger, a tax partner at BDO Seidman who advises venture capital firms. “That’s when people will try to figure out how to get around this.”

If we’ve learned anything from the financial crisis, it seems that new regulations on Wall Street always have a way of breeding another generation of “financial innovation” meant to circumvent them.

Ever since the modern income tax was born in 1913 with an act of Congress 14 pages long, there has been an ongoing evolutionary arms race between the tax collectors and the taxpayers. Every new provision in the tax code begets new means of legally avoiding taxes, which beget new provisions that outlaw the new means, regulate it, or — influenced by lobbyists — even encourage it. The Tax Act of 1942 was 208 pages long. Of those 208 pages, 162 dealt with closing or defining loopholes in earlier acts.

As of 2006, the number of densely printed pages in the tax code was 3,387. The U.S. Code of Federal Regulations dealing with taxes and written by the IRS — in effect, the Talmud to the Torah of the tax code — is 20 volumes, totaling 13,458 pages.

The very, very rich (such as hedge-fund partners) have far more influence in Washington, of course, than the average citizen and are paid attention to by Democrats and Republicans alike. As long as we have a democracy, it will be ever thus. If the taxes on carried interest go up, something else will get them the very rich the hook, just as the nominal 90 percent tax rates of the 1950s were largely negated by a vast number of deductions.

The gathering fiscal problems of the United States will not be solved as long as the current tax code is in place. Unfortunately, among the prime beneficiaries of the current code are the 535 members of Congress, who reap rich harvests of campaign contributions from it.

Tax Day

“Can I deduct the cost of marijuana if it’s for medical use?”

“Only if you’re filing a joint return.”

The Cato Institute has an excellent short film on all that is wrong with the federal tax system. In short, that system violates all four principles of taxation described by Adam Smith:

1. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state.

As Warren Buffett complained, his effective tax rate is half that of his secretary.

2. The tax which each individual is bound to pay ought to be certain, and not arbitrary.

The system is so complex that not even professionals can be sure what people owe. Send out the tax information of a middle-class couple with children to six tax accountants and they will come up with six different sums owed. That experiment has been run numerous times. The advice the IRS itself gives out is frequently wrong.

3. Every tax ought to be levied at the time, or in the manner, in which it is most likely to be convenient for the contributor to pay it.

Most people never see the money, as it never gets into their paychecks. Those with incomes not subject to withholding must estimate in January, April, July, and October, regardless of whether those months are convenient.

4. Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state.

Well over 50 percent of filers hire people to fill out the forms because they can’t understand them. The corporate income tax is even worse. As the Wall Street Journal explains today, the cost of complying with the corporate income tax this year will equal 89 percent of the revenues received by the government. General Electric’s tax return, filed electronically, will be the equivalent of 24,000 pages long.

The current tax system benefits two groups: the rich and powerful, who are able to lobby Congress for loopholes, subsidies, tax credits, etc. etc., and the 535 members of Congress, who sell those loopholes, subsidies, tax credits, etc. etc. Yes, sell. They are traded for campaign contributions. It’s as legal as it is disgraceful.

There is no reforming the current system, as it is permeated with corruption. But Congress is utterly unable to write a new tax code from scratch. If this country is to ever get out from under a tax code that has become a clear and present danger to American prosperity and power, it will have to be done using a means similar to the military base closings after the Cold War: in secret, with Congress voting up or down, no amendments.

Only overwhelming pressure will make that happen. That’s another reason why the 2010 election might turn out to be the most consequential midterm election in American history.

We Still Don’t Know What’s in It

Bill McGurn helps highlight two defects in ObamaCare — its uncertainty and its potential to bully the American people. They come together in the provision for an individual mandate, something Obama ran against during the campaign (when he was also promising not to raise taxes on those making less than $250,000).

How could there be uncertainty about this key feature? Nancy Pelosi promised, after all, that if we passed it, we’d find out what was in it. Well, this is what comes of racing through a largely secretive legislative process. McGurn explains “one of the murkiest bits of this legislation”:

In testimony before a House Ways and Means subcommittee last Thursday, the IRS commissioner deflected questions about the agency’s precise role vis-à-vis health care. Mr. Shulman reassured citizens that this bill does not “fundamentally alter” their relationship with the IRS, and said the IRS would not be snooping into their health records. About the penalties associated with the mandate, he was less clear.

Partly that’s because the law is unclear. The original House bill opened the door for criminal sanctions against Americans who didn’t buy health insurance and pay the penalty. The Senate bill did the same until Sen. John Ensign (R., Nev.) successfully pushed to amend the bill. Even so, the final language begs the question that Mr. Shulman and Mr. Weiner avoided: Who’s going to enforce the mandate, and how?

You might wonder how we can possibly predict costs if we don’t know how many people, if any, are going to herded into the arms of Big Insurance. You might wonder how we are going to achieve compliance with a law that many already resent if it’s not even clear whether the IRS will go after people. Both are good questions, revealing just how uninterested the Democrats were in thinking through and crafting effective legislation. They simply wanted a notch in their belt and to silence the hollering from their base. Getting a coherent, understandable legislative scheme just wasn’t a priority for them.

And then there is the bullying if, in fact, the mandate exists and will be enforced with the full power of the federal government:

Almost by definition, those hit by the mandate will be either young people starting out, or those working for smaller businesses that do not provide employees with health coverage. Back in November, a report by the Congressional Budget Office and Joint Committee on Taxation estimated that nearly half (46%) of the mandate penalties will be paid by Americans under 300% of the poverty line. In today’s dollars, that works out to $32,500 for an individual. For a family of four, it’s $66,150. …

In his appearance before Congress, Mr. Shulman stated he was still working on “the proper resources” the IRS would need to handle the tax provisions of the health-care act. Maybe that won’t mean 16,500 new agents. If the Republicans do manage to take back Congress come November, however, it should mean hearings in which Mr. Shulman provides the American people with specific answers about how much bigger the IRS is going to get because of this bill—and how exactly the IRS will deal with Americans who don’t pay the penalty tax.

So we will, as McGurn points out, either witness the IRS hassling modest-income Americans into buying insurance they don’t want, or the law will be “unenforced.” If it is the latter, all the estimated cost “savings” supposedly achieved by expanding the risk pool of the newly insured can be tossed onto the heap of misrepresentations and fiscal fantasies deployed to pass the bill despite the dire warnings of those like Rep. Paul Ryan. This is the personification of the ever-growing bureaucratic state — incomprehensible, threatening, and very, very expensive.

The GOP in the Wake of ObamaCare

We are now a week out from the passage of ObamaCare, so it’s worth considering what approach the Republican party might take in the months ahead.

The first thing is to understand that, politically speaking, the GOP is in extremely good shape. President Obama succeeded in passing health care legislation — but he has not succeeded in making it popular. If you analyze the different polls that have come out since the passage of ObamaCare, it shows several things: the president received a slight bump, less than usual for a legislative victory of this magnitude, and it is in the process of evaporating. And because both parties are determined to make the midterm elections a referendum on ObamaCare — Democrats because they don’t want to leave it undefended, Republicans because they believe the public’s dislike of this legislation is intense and won’t recede — that is what the elections will largely be about.

Second, Republicans and their allies need to ensure that the president and Democrats now have full ownership of ObamaCare. That means creating benchmarks, such as when we begin to see increases in premiums and taxes, cuts in Medicare Advantage, employers dumping employees into the exchange once it’s up and running, an increase in the oversight activity of the IRS (which is responsible for enforcing this new mandate), and more.

The GOP also needs to highlight the negative, radiating effects of ObamaCare, as companies adjust to the new world they inhabit. For example, Caterpillar said ObamaCare would cost the company at least $100 million more in the first year alone. Medical-device maker Medtronic said that new taxes on its products could force it to lay off a thousand workers. The telecom giant Verizon warned that its costs will increase in the short term. As the Wall Street Journal editorialized last week, “Businesses around the country are making the same calculations as Verizon and no doubt sending out similar messages. It’s only a small measure of the destruction that will be churned out by the rewrite of health, tax, labor and welfare laws that is ObamaCare, and only the vanguard of much worse to come.”

In addition to highlighting the damaging effects of ObamaCare, Republicans need to sear into public consciousness the many false promises and assurances Mr. Obama and Democrats made. Here the stimulus package offers some helpful guidance. In order to pass it, and shortly after he signed it into law, the president and his team made guarantees about how many jobs it would create, including how unemployment would not rise above 8 percent. But a strange thing happened along the way. Unemployment topped 10 percent last year. We have lost rather than gained millions of jobs. The high expectations Obama had created were shattered, and with it the beginning of Obama’s credibility. And this, in turn, begins the downward political slide of the Democratic party under Obama.

The same thing can happen, in spades, with health care. Democrats know it, too. Just a few days ago, for example, Senator Claire McCaskill of Missouri said her party has probably oversold the legislation that just became law. “The side on which I’m on, that voted for the bill, probably is overpromising, [has] not been clear enough about the fact that this is going to be an incremental approach over time, [and] the benefits aren’t going to be felt by most Americans immediately,” McCaskill told MSNBC’s Joe Scarborough.

Memo to Ms. McCaskill: It’s a little late, Senator. The president has made, repeatedly and on the record, extravagant claims. He promised the moon and the stars. When those things not only don’t come to pass, but when people see that their lives are worse off thanks to ObamaCare, there will be a very high political price to pay.

Finally, the GOP needs to connect ObamaCare to the broader narrative it plays into: the modern-Democratic party is fiscally irresponsible to the point of recklessness, it is clueless when it comes to creating economic growth, and Democrats are enchanted with the prospect of centralizing power and control. At a time when trust in the federal government is near an all-time low and disgust with the federal government is near an all-time high, Barack Obama and Democrats have become, as never before, the party of big government.

This is something the GOP can work with.

What will matter, when all is said and done, are the real-world effects of ObamaCare. If it succeeds, then Obama and Democrats will have taken important strides to help them retain their majority status in America. If on the other hand you believe, as I do, that ObamaCare is a pernicious piece of legislation, one that will have terribly damaging consequences as its provisions uncoil, then Democrats will have inflicted on themselves enormous damage.

Both parties have waged everything on this fight. The midterm elections will give us an early indication of which one bet the right way.

Flotsam and Jetsam

Jane Hamsher or Bill Kristol? “This bill will mandate that millions of people who are currently uninsured purchase insurance from private companies, or the IRS will collect up to 2% of their annual income in penalties. … The bill was written so that most Wal-Mart employees will qualify for subsidies, and taxpayers will pick up a large portion of the cost of their coverage. … In 2009, health care costs were 17.3% of GDP [but] in 2019 [under the] Senate bill [they'll be] 20.9% of GDP. … This bill does not bring down costs.”

The end of the Blue Dogs: “The party made a concerted effort in 2006 and 2008 to recruit candidates that could win moderate or GOP-leaning districts. That’s a key reason why Democrats won such big congressional majorities. But after forging a big-tent caucus, Speaker Pelosi has not governed that way. Instead, she pushed Blue Dog and other moderate Democrats to vote as if they represented her San Francisco district.” When the Republicans did this, I think the media narrative was that the party was risking majority support for ideological extremism.

Quin Hillyer channels the anti–Bart Stupak anger: “And if he thinks he will be ever live it down or be allowed to forget it, well, maybe he doesn’t think very well.”

How incompetent is NPR to get duped by a fake AIPAC release saying the group favors a settlement freeze? Doesn’t public radio know anything about AIPAC? Your tax dollars at work.

Marco Rubio is crushing potential opponents: “Former Florida House Speaker Marco Rubio for now runs well ahead in a three-way race for the U.S. Senate in Florida, should Governor Charlie Crist decide to run as an independent. The first Rasmussen Repots telephone survey of a potential three-candidate Senate race finds Rubio earning 42% support from likely voters in the state. Democrat Kendrick Meek picks up 25%, and Crist runs third with 22%. Eleven percent (11%) are undecided.”

Gov. Bob McDonnell on ObamaCare: “[T]his massive and complex piece of legislation allows the federal government to exercise control over one-sixth of the United States economy. … Most disconcerting is the provision mandating that every American must purchase health insurance or face a monetary penalty. … Just a few days ago I approved a bill, passed on a bipartisan basis, which prohibits mandatory insurance purchases for Virginians. Virginia’s Attorney General has rightly chosen to challenge the constitutionality of the federal mandate. I anticipate that he will be joined by a number of other states.” It now becomes an issue in every state race.

Yuval Levin on the latest regarding the Cornhusker Kickback: “That kickback was of course offered as an enticement to win the vote of Senator Ben Nelson, and to help him forget about his pro-life principles. Well lo and behold, Nelson has now announced that he opposes the reconciliation bill and will vote against it. Apparently it taxes and spends too much. It really renews your faith in politicians, doesn’t it?”

Not just a headache or fodder but potential grounds for prosecution: “The formidable Patrick Fitzgerald is leading a probe of Guantanamo Bay defense lawyers whom the CIA accused of giving detainees photos of CIA agents in an attempt to identify interrogators. … The investigation could be a headache for the Justice Department, and fodder for the attacks from Liz Cheney and others on the Guantanamo Bay lawyers.”

Perhaps Obama picked a fight on the wrong issue. Most Israelis think Bibi Netanyahu was aware of the decision to approve additional housing units in Jerusalem, but “most of those asked by the survey supported the view that construction in east Jerusalem should be treated like construction in Tel Aviv, despite the harsh criticism launched at the government over the recent diplomatic dispute with the US. Only a quarter of those polled believe the construction project should not have been approved, with 41% saying that only the timing was wrong. The number of people supportive of the construction in Ramat Shlomo neighborhood is twice that of its objectors.”

ABC staffers are grumbling over the hiring of Christiane Amanpour for This Week. Well, if it’s any consolation to the eminently qualified Jake Tapper, the criterion used was apparently “celebrity.” It certainly wasn’t objectivity. Or accuracy. Remember this one.

Flotsam and Jetsam

Another Red State senator with a potential re-election problem: “Incumbent Democratic Senator Byron Dorgan may have a serious problem on his hands if Republicans recruit Governor John Hoeven to run for the U.S. Senate in North Dakota next year. The first Rasmussen Reports Election 2010 telephone survey of likely voters in North Dakota finds the popular Republican governor leading Dorgan by 22 points — 58% to 36%.”

Harry Reid says any senator who didn’t get a “deal” is a sucker. Well, he didn’t quite say it that way — but almost: “I don’t know if there’s a senator who doesn’t have something in this bill that’s important to them. … And if they don’t have something in it that’s important to them, then it’s doesn’t speak well for them.” Next we’ll be hearing that the Cornhusker Kickback is “golden.”

James Pinkerton explains: “It’s not sausage-making, it’s three-card-monte-playing. … But the whole point of three-card-monte is not to build an enduring monument of some kind–the point is to get the money away from the rubes. Or, in this case, the votes away from the voters. We’ll see in 11 months how this game plays out.”

Sen. Ben Nelson is convinced that the backlash against him is “all orchestrated.” Yes, the outrage from the right-to-life community, the governor, and the local branch of Americans for Prosperity is quite “orchestrated,” and they will be equally united when he comes up for re-election.

Three of her top two reasons for opposing ObamaCare: “1. Forces you to pay up to 8% of your income to private insurance corporations — whether you want to or not. 2. If you refuse to buy the insurance, you’ll have to pay penalties of up to 2% of your annual income to the IRS. … 5. Paid for by taxes on the middle class insurance plan you have right now through your employer, causing them to cut back benefits and increase co-pays.” Jane Hamsher or Dana Perino?

CBS headline: “Democrats Worry of Dismal Mid-Term.” Democratic pollster Celinda Lake says, “Our voters are less enthusiastic than Republicans and independents.” And that was before the 1 a.m. Senate health-care vote.

In Virginia, which Obama won in 2008 by 5 percentage points, voters disapprove of his performance by a 54 to 44 percent margin. Only 30 percent of white voters approve of his performance.

Isn’t it delusional to think a bill that more than 60 percent of voters disfavor is going to help the party that passed it on a strict party-line vote? “Slumping in the polls and struggling to pass climate and financial legislation, President Barack Obama and Democratic leaders are counting on an historic health care victory to buoy their electoral prospects in 2010. … Last week’s Wall Street Journal/NBC News poll not only showed a substantial majority opposed to the plan, but for the first time, it showed a plurality favoring the status quo over passage.”

Independents disapprove of Obama’s performance by a lot — more than a dozen points on average.

Many of them may be in agreement with Michael Goodwin: “I now regard his campaign as a sly bait-and-switch operation, promising one thing and delivering another. Shame on me. Equally surprising, he has become an insufferable bore. The grace notes and charm have vanished, with peevishness and petty spite his default emotions. His rhetorical gifts now serve his loathsome habit of fear-mongering.”

Democrats’ Economic Plans

Neither Barack Obama or Hillary Clinton are going to give John McCain a run for his money with fiscal conservatives. Indeed, it may be that in an economic downturn their proposals sound even worse.

Obama in an interview yesterday on CNBC said he would raise the capital gains tax (the exact amount to be determined later), raise the top marginal individual income tax rate to 39%, raise the cap on social security taxes (currently $102,000), raise taxes on “dirty energy” like coal ( Did they know about this in Ohio? Are they listening in West Virginia?), and hike a few others (e.g. death tax, dividends). The only question he wouldn’t answer is whether he is a “liberal,” instead declaring that “My attitude is that I believe in the market, I believe in entrepreneurship, I believe in opportunity, I believe in capitalism and I want to do what works. . . But what I want to make sure of is it works for all America and not just a small sliver of America.” (Perhaps someone should tell him that capitalism requires capital.)

Obama has repeatedly said that he would raise income taxes only on those making more than $75,000. Americans For Tax Reform provided me with this interesting statistical information :

According to the IRS Statistics of Income Bulletin, the top 20% of households earn more than $75,000 in Adjusted Gross Income. This represents about 30 million households. A good guess would be about 100 million affected Americans. (The source for this is also IRS-SO.) The top 20% of income earners (that is, those earning $75,000 or more) pay nearly 90% of all federal income taxes (Source: Tax Foundation).

Interestingly in a debate last November Hillary Clinton took exception with the notion that Obama’s plan to raise the social security tax cap (then $97,500) would only impact the rich. She said that “it is absolutely the case that there are people who would find that burdensome. I represent firefighters. I represent school supervisors. I’m not talking — and, you know, it’s different parts of the country. So you have to look at this across the board and the numbers are staggering.” She also said that she does “not want to fix the problems of Social Security on the backs of middle-class families and seniors. If you lift the cap completely, that is a $1 trillion tax increase. I don’t think we need to do that.” (So if $97,500 isn’t rich then one supposes she agrees with McCain and his advisors today who asserted that $75,000 isn’t rich either.)

But Clinton is no role model for free marketers. The New York Times may kvell over her mastery of health care policy, but she declared in an interview that she’s going to cap health care insurance at 5 to 10% of individuals’ earnings and require all insurers to cover consumers regardless of health status or age. But what if insurers can’t do this ( i.e. suppose it costs more than 10% of the average American’s salary to insure them, especially the sick people)? Ah, not to worry: “Government insurance similar to Medicare would be available to all consumers.” And of course, those taxes increases she would enact to pay for this aren’t tax increases. Rolling back the Bush tax cuts “should not be rightly labeled as a tax increase,” she says, since they will expire in 2011.

Perhaps McCain won’t be disadvantaged on domestic policy after all.

From COMMENTARY: Health Care in Three Acts

As President Bush prepares to address the issue of health care in his State of the Union address, COMMENTARY is fortunate to have a trenchant analysis of the wider problem, “Health Care in Three Acts,” by Eric Cohen and Yuval Levin, coming out in the February issue. Here is an advance look.

Americans say they are very worried about health care: on generic lists of voter concerns, health issues regularly rank just behind terrorism and the Iraq war. And politicians are eager to do something about it. To empower consumers, the White House has advanced the idea of Health Savings Accounts; to help the uninsured, it has explored using Medicaid more creatively. Senator Edward Kennedy of Massachusetts, the Democrats’ leader on this issue, has backed “Medicare for all.” The American Medical Association has called for tax credits to put private coverage within reach of more Americans. A number of recent books have proposed solutions to our health-care problems ranging from socialized medicine on the Left to laissez-faire schemes of cost containment on the Right. In Washington and in the state capitals, pressure is building for serious reforms.

But what exactly are Americans worried about? Untangling that question is harder than it looks. In a 2006 poll, the Kaiser Family Foundation found that while a majority proclaimed themselves dissatisfied with both the quality and the cost of health care in general, fully 89 percent said they were satisfied with the quality of care they themselves receive. Eighty-eight percent of those with health insurance rated their coverage good or excellent—the highest approval rating since the survey began 15 years ago. A modest majority, 57 percent, were satisfied even with its cost.

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