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FEATURE

IRS Tar getin g: As Pr edictable as Poli ticsJUNE06, 2013 by BRUCEYANDLE

On May 14, 2013, Washington wasmuch astir over the news that the IRShad deliberately targeted Tea Party groups for deeper

investigation and justification prior t o approving applications for non-tax status.

Feeling pressure to make a statement about the matt er, President Obama had this to say:

If in fact IRSpersonnel engaged in the kind of practices that have been reported on and were intentionally targeting

conservative groups, then that's outrageous. And there'sno place for it. And they have to be held fully accountable. Because the

IRSas an independent agency requiresabsolute integrity, and people have to have confidence that they're ... applying the lawsin a nonpartisan way.

The President said w hat most people were thinking, but his comment about IRSindependence came as a shock to Washington

insiders.

Shortly thereafter, the talk shows were buzzing over Obama giving the

IRSindependent agency status, when in fact the IRSis a part of the U.S.

Treasury, an executive-branch agency headed by a member of the

Obama Cabinet. Editorial cartoonist Robert Ariail captured t he essence of

the situation that left many Americansw ondering who is in charge, and if

no one is in charge of this independent agency, what might be a

taxpayer s fate when doing lonely battle against the IRS. (Ariail also

included a hit on the Department of Justice investigation of Associated

Press report ers private conversations and communications, but t hat is

another story.)

Even more disturbing news surfaced after Congress entered the fray and

held multiple hearings on the matt er. On June 2, 2013, House Oversight

and Government Reform Commit tee Chairman Darrell Issa (R-Calif.),

speaking on the talk show "State of the Union," revealed the following exchange between his committ ee and an IRSwitness:

Q: In early 2010, wast here a time when you became aware of applications that referenced Tea Party or other conservative groups?

A: In March of 2010, I was made aware.

******

Q: Okay. Now, was there a point around t hist ime period when [your supervisor] asked you to do a search for similar

applications?

A: Yes.

Q: To the best of your recollection, when was this request made?

A: Sometime in early March of 2010.

******

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Q: Did [your supervisor] give you any indication of the need for the search, any more context?

A: He told me that Washington, D.C., wanted some cases.

President Obama expressed shock that government agencies would ever operate systematically to punish the enemies or reward th

friends of sitt ing presidents.

But students of Public Choice, that discipline that uses economic logic to explain political action, were not surprised at all. And whyshould t hey be?Public Choice studies tell us that all government action is best seen as political. All of it. Special-interest influence

seeps through in unusual but systematic ways. And it doesn t t ake writt en orders from the top or telephone calls from the Oval Office

to make these things happen. People in politics understand the game; they know which side of the bread receives butter.

On the IRSspecifically, Jim Couch and colleaguesat the Universit y of Nort h Alabama published research in 1999 that focused on

statistical treatment of IRSaudit activities as conditioned by political variables. The 1995 audit data were part of annual summaries fo

IRSdistricts reported in the Transactional Records Access Clearinghouse (TRAC) at Syracuse Universit y.

The Couch statistical model explained t he frequency of t hose audits across states. Their explanatory variable included whether or not

a state senator sat on the IRSsenate oversight committ ee or a representative sat on the house oversight group, the share of votes

cast for President Clinton in 1992, and other variables that are thought t o be positively associated w ith audit activity, such as higher

levelsof earned income tax credits as proxied by the state poverty rate and gambling income.

A direct quote from and summary of t he work and findings are shown below. As indicated by the plus and minus signs over t he

variables, audit rates fell when senators or congressmen sat on IRSoversight committ ees. They fell when a larger share of a state

population voted for Bill Clinton and rose for those statesw ith a poor Clinton record. More agents in a state and more gambling mean

more audits, as does a higher share of poverty.

In short, politics seem to matt er in explaining IRSaudit behavior.

These statisti cal results parallel others that have focused on federal

antit rust activit y, presidential declarations of national disasters (actions

that t rigger a flood of federal support ), decisions to send combat tr oops

to the front lines in the Vietnam War, and even where Chryslerdealerships would most likely be canceled when the federal government

called t he shots during Chrysler s 2009 reorganization.

The antit rust study shows that, all else equal, actions are taken less

frequently against firms headquartered in the states and distr icts of

congressmen who sit on antit rust agency oversight committ ees. The

national disaster study examined FEMA activity, adjusted for severity of

disasters, state population, and other variables. The researchers found

greater frequency of disaster declarations for politically import ant states

than for others. The authors reported t hat some 45 percent of FEMA actions were motivated by politics instead of by disaster

severity. The Vietnam study showed the seniority of astate s House and Senate delegation matt ers. Higher seniority meant lowertroop death rates. The study also found that the stronger a state s linkage to defense industry contracts, the less likely it was that

troop units from that state would experience casualties. And t he Chrysler study found t hat the state share of dealerships closed was

smaller in states that provided stronger support for Obama s election, but larger otherwise.

These Public Choice statistical findings suggest tw o things. First, all human beings, even politicians, respond t o incentives, whether

they are supplying houses, food, or politically determined actions. Second, since this is common knowledge, we must take action to

reduce occurrences that corrupt the political process. But how?First, by limiting the domain of government action. Then, when the

domain is limited, by requiring transparency and regular agency reports that demonstrate choice neutrality, by encouraging

competit ion from the loyal opposition, and by showing constant vigilance.

SHARETHIS

ASSOCIATEDISSUE

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July/August 2013

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ABOUT

BRUCE YANDLE

Bruce Yandle is dean emeritus of Clemson Universit y's College of Business & Behavioral Science and alumni distinguished professor of

economics emeritus at Clemson. He is a distinguished adjunct professor of economics at the Mercatus Center, a faculty member with

George Mason Universit y's Capit ol Hill Campus, and asenior fellow emerit us wit h the Propert y and Environment Research Center

(PERC).

Copyright 2013 Foundation for Economic

Education. All RightsReserved.