Congressional Hearings on IRS to Begin Tomorrow

Get ready for non-stop hearings on the IRS using selective search criteria to single out Tea Party groups applying for 501(c)(4) tax-exempt status. It starts tomorrow when the House Ways and Means Committee hears testimony from freshly-ousted acting commissioner Steven Miller. Then on Tuesday the Senate Finance Committee will hold its first hearing. The next day, according to Jonathan Weisman's story, "I.R.S. Chief Out After Protest Over Scrutiny of Groups," 

the House Oversight and Government Reform Committee will hear the testimony of Lois Lerner, who heads the I.R.S.'s division on tax-exempt organizations and was aware of the issue nearly from the beginning, in 2010, yet told reporters on Friday that she had learned of it from news reports in 2012. 

“Lois Lerner lied to me,” said Representative Jim Jordan, Republican of Ohio, who helped initiate the Congressional investigation of the I.R.S.

Republicans are going to turn this into a search for false statements; they'll construct timelines and talk of smoking guns and grand conspiracies. Democrats, if they're smart, will bring it back to the elephant in the room -- abuse of the tax code. The 501(c)(4) classification is sought after because it doesn't require disclosure of donors. Many well-heeled political money-men like to remain in the shadows. The whole thing could be cleared up by Congress requiring any organization engaged in political spending (which would have to be defined legislatively) to file as a 527 group; 527 status is tax exempt but it requires disclosure of contributions.

And possibly, the hope here is with the Senate since this is where Democrats maintain control, the role of the nefarious Koch brothers can be revealed. Check out the last paragraph from Weisman's story:

The I.R.S. released a list of 176 groups that have been granted tax-exempt status through the review process, which centralized operations in Cincinnati in order to deal with a crush of applications that began in 2010 with the Tea Party movement. That list included organizations with names like American Patriots Against Government Excess; Rebellious Truths; the Coalition for a Conservative Majority; and Friends of the Constitution; as well as dozens of Tea Party chapters.

I know from having been a treasurer for a local chapter of a political party in a state and a city with strict disclosure laws that IRS filings can be the trickiest and most confusing. For there to have been a sudden "crush" of groups applying for social welfare tax exemptions as opposed to exemptions as political organizations tells me that some sort of central counsel was being provided. Who was supplying that counsel? This is where Democrats should push back.

SEC Considering Disclosure Requirement

A good indication of just how moribund our democracy is will be whether the Securities and Exchange Commission issues a new rule requiring publicly traded corporations to disclose their political donations. The story, "S.E.C. Gets Plea: Force Companies to Disclose Donations," by Nicholas Confessore can be found today on the frontpage of the New York Times.

A petition to the S.E.C. asking it to issue the rule has already garnered close to half a million comments, far more than any petition or rule in the agency’s history, with the vast majority in favor of it. While relatively few petitions result in action by the S.E.C., the commission staff filed a notice late last year indicating that it was considering recommending a rule.

In response to the growing pressure, House Republicans introduced legislation last Thursday that would make it illegal for the commission to issue any political disclosure regulations applying to companies under its jurisdiction. Earlier this month, the leaders of three of Washington’s most powerful trade associations — the U.S. Chamber of Commerce, the National Association of Manufacturers and the Business Roundtable — issued a rare joint letter to the chief executives of Fortune 200 companies, encouraging them to stand against proxy resolutions and other proposals from shareholder activists demanding more disclosure of political spending. 

Tax-exempt groups and trade associations spent hundreds of millions of dollars on political advertising during 2012 elections, but they are not required to disclose their donors. Evidence has mounted that a significant portion of the money came from companies seeking to intervene in campaigns without fear of offending their customers, their shareholders — or the lawmakers they target for defeat.

In 2010 the Citizens United ruling lifted independent expenditure restrictions in political campaigns, but it did require disclosure. In order to avoid disclosure a system of secret campaign spending has sprung up in the form of 501(c)(4) issue advocacy groups like Karl Rove's Crossroads GPS that favor Republicans. That's why Republicans are trying to block the S.E.C. disclosure rule. Confessore summarizes the main argument against the new rule as follows:

Opponents argue that the agency does not have the authority or expertise to issue regulations about political spending, and that a disclosure rule would infringe on companies’ free speech rights — and damage shareholder value — by exposing them to criticism and attack from political opponents. 

“The Chamber believes that the funds expended by publicly traded companies for political and trade association engagement are immaterial to the company’s bottom line,” said Blair Holmes, a spokeswoman for the business group, who added that the advocates’ “apparent goal is to silence the business community by creating an atmosphere of intimidation under the cover of investor protection.”

For the Chamber to argue against disclosure because of a fear of intimidation is absurd. In disclosure law there is an exemption for minor parties, such as socialists or communists, who can prove that retaliation or harassment would result from revealing donor information. So it seems that the threshold should be the same for publicly traded corporations. If they can prove harassment or retaliation -- not the vague "intimidation" -- fine; give them an exemption. Otherwise, they should disclose their political donations.

Interestingly, Citizens United provided disclosure as a justification for lifting restrictions on independent expenditure campaigns. As Confessore points out:

In seeking greater disclosure to shareholders, many of the advocates are citing an unlikely source: the Supreme Court’s decision in Citizens United, written by Justice Anthony M. Kennedy. In clearing the way for unlimited corporate expenditures in campaigns, Justice Kennedy suggested that “shareholder objections raised through the procedures of corporate democracy” could provide accountability for the new political powers. 

“I think the S.E.C. staff is very sympathetic to the petition itself, and a lot of the comments have referenced Justice Kennedy’s opinion in Citizens United,” said Karl J. Sandstrom, counsel to the Center for Political Accountability, which advocates transparency in corporate political spending. “But they have so much on their plate, they have to decide what’s going to come first,” he added.

But don't count on the Securities and Exchange Commission doing the right thing. The system is captured.

A video of Confessore discussing his article can be found here.