It’s a Scandal, It’s an Outrage

userpic=obama-supermanReading the papers over lunch, I’m seeing all sort of scandals and outrage over the behavior of the White House. But are they really scandals? Is the noise and froth directed at the right place? Read on, McDuff…

  • The IRS Scandal. Lots of heat and noise on this one, including calls for firing and jail time. But is the outrage really correct? The scandal really isn’t what you think it is. What happened was this: the tax code permits social welfare groups to hide their donors and get tax deductability (these are 501c(4) organizations; most of the charities you know are 501c(3)) [Clarification: What 501c(4) organizations permit is hiding the source of funds, which can then be used as funds for a third organization, hiding the origin. They can also accept donations, without having to then declare those donations as income (and thus, presumably pay taxes on that income).]. After the Citizens United decision, a number of groups decided to go after 501c(4) status — so many, in fact, that they overwhelmed the capacity of the IRS to ensure they were social welfare and not political groups.  The “scandal” is really an approach the IRS took to try and get a handle on ensuring the law was met, as the bulk of the organizations applying for the status were tea-party-ish. Was that IRS office wrong in doing this? Yes. It should look at all organizations. Should Obama fire people over this? Yes, but he can’t, because he can only fire appointees and none of his appointees have been approved — perhaps Congress should approve the acting person just so they can fire him. Where is the “scandal”? The real scandal here — and the one that is not being reported — is that these quasi-political organization get tax deductability in the first place social welfare organizations can get tax free income, hide the donors, and then use that money for political purposes. How do we advance the goals of doing good for society (for which tax deductability exempting donated income from tax may be reasonable) without permitting influence in the political arena (which is increasingly hard in this day where advocacy on social positions is polarized on political lines)?
  • The Benghazi Scandal. This is something that seems to be a problem solely for the GOP, who want to use it for political purposes to hurt Hilary. I don’t believe there was anything criminal (in the sense of prosecution) here — there were lapses of intelligence and lapses of judgement, but that is part of politics. I don’t think we’ve had a recent President who hasn’t had to deal with intelligence lapses and making bad judgement calls. Do we need to investigate this? Yes, but solely to identify what the process problems were and how to fix them for the future. Anything else is a waste of money.
  • The DOJ Phone Records Scandal. Of all the scandals, perhaps this is the most scandalous. The problem was that the DOJ had a serious leak, but the method they used to investigate the leak simply was inappropriate. Again, this doesn’t look like something the President directed, so there simply needs to be an investigate to figure out who made the bad judgement calls, and to get that person looking for a new job.

What’s sad is that all of this “scandal and outrage” (does anyone recall the source of that line) is diverting attention from some significant news: The Federal Deficit is shrinking. This is what people have been pushing for since Obama was elected. Specifically, the federal deficit is shrinking more quickly than expected, and the government’s long-term debt has largely stabilized for the next decade, according to the CBO. The deficit projection for this year — $642 billion — is almost 25% less than the deficit the CBO had forecast as recently as February. At the new level, the annual deficit would be back to where it was before President Obama took office. It would continue to fall for the rest of Obama’s tenure, the budget office now projects. By contrast, the deficit for fiscal year 2012 came in at just over $1 trillion. The federal government’s annual deficit this year amounts to about 7% of the gross domestic product. By 2015, the budget office forecasts, the deficit will fall to just over 2% of GDP, a level that most economists would consider relatively insignificant. At that point, the deficit would begin to climb slowly again, reaching about 3.5% of GDP by the end of the decade.

The articles talk about the deficit, not the debt, so this means the debt is still increasing. Yes, folks, this is where calculus comes into play in real life, for the deficit is (essentially) a measure of the rate of change of the debt (it’s actually the amount of change, but you can easily convert that to a rate). Aren’t you glad you paid attention in Math 31A?


3 Replies to “It’s a Scandal, It’s an Outrage”

  1. the tax code permits social welfare groups to hide their donors and get tax deductability

    This is less clear than I’d like to see propagate. The tax code permits 501(c)(4) groups to accept donations without having to declare them as income. It does not permit the donors to deduct the donations from the donors’ income and thereby reduce the donors’ taxable income.

    However, I think it is the ability to not declare the donors’ names that motivated the growth in 501(c)(4) organizations, because it meant that organizations could hide their backers (and perhaps hide inferences about their true intent). If a famous conservative financially backed a group titled “Save the Whales,” we might reasonably ask, “save them for what? dog food?” instead of just donating to what surely must be a good cause (since we didn’t know the name of the donor).

    Also, there has been a civil RICO case in Oregon which found improper use of funding donated to nonprofits, imposed an injunction, and so far there have been four successful contempt actions against persons or entities violating the injunction.

    1. Thanks for the clarification. I’ll edit the post to add it in, after one more question: What does it mean to “accept donations without having to declare them as income”. In other words, the donor gets the ability to hide their name as a donor. What benefit does this provide to the organization, other than to have hidden donors?

      1. The organizations don’t have to file particular reports, and it’s possible to hide how they use the money they’ve received. For example, a donor might give funds with a direction that the funds be used to support some other cause, that is, given to yet another organization. Because the second organization records the funds as coming from the first organization, not the original donor, there is still no trail of evidence back to the original donor.

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