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The Real IRS scandal

Glenn Hubbard

Should you need a license from the government to exercise free speech? The real scandal at the Internal Revenue Service should be seen not as a left-versus-right issue but instead as infringement on the 1st Amendment. The people targeted were political entrepreneurs with unorthodox political voices. More to the point, IRS discrimination was consistent with 40 years of institutionalized hostility by the federal government to such views.

Elections in a free country are not truly free unless all voices are allowed to enter the marketplace of ideas. That was the principle behind the Supreme Court’s Citizens United decision in 2010, which lifted limits on campaign spending by political entrepreneurs organized as nonprofit corporations. It found that such discrimination — originating in a 1972 lawsuit against an independent group that had called for Richard Nixon’s impeachment — was not only wrong but unconstitutional.

The public sector, like the private sector, needs entrepreneurs to challenge incumbent monopolists and thereby advance innovation. If the discriminatory IRS attitude revealed in this scandal had prevailed in the tech sector since 1970, there would be no Apple iPhones or Facebook apps, just bigger IBM mainframes and faster AT&T land lines. Likewise, if such rules had been in place in 1856, the dominant Whig and Democrat parties, which favored slavery, would have maintained their duopoly power and squelched entrepreneurial Republicans such as Abe Lincoln.

Now those who favor a two-party duopoly are blaming the Citizens United ruling for the IRS scandal. Let’s review the facts.

The harassed groups were not traditional “conservatives” but were explicitly targeted because they used the words “tea party” or “patriot” in their applications to the IRS. These were by definition not establishment Republicans, and that distinction is key to understanding American politics for the last 40 years. The two major political parties were granted exclusive control of campaign finances starting with the passage of the Federal Election Campaign Act in 1971, and entrepreneurs such as the anti-Nixon group were effectively barred from electioneering.

The Citizens United decision ended the duopoly control of campaign money by allowing new groups to make unlimited independent expenditures, a restoration of 1st Amendment rights. The fact is that “super PACs,” which made the majority of the $1 billion in independent expenditures during the 2012 election cycle, are not 501©(4) organizations — “social welfare” groups. Super PACs are legal organizations that are more equivalent to the two national political parties.

True, some social welfare groups did electioneer, but those were larger ones affiliated with the two mainstream parties. Why attack smaller, entrepreneurial groups?

The reason seems to be because 501©(4) donations are anonymous, unlike donations to super PACs, which are disclosed. When the allegedly “rogue” IRS agents asked for lists of 501©(4) donors, they may well have been trying to discover the identities of individuals to harass. We don’t know. But it’s this possibility that makes the audits of big donors so disturbing. Imagine if the anonymous authors of the Federalist Papers had been similarly harassed when ratification of the Constitution was being debated.

Those who think the lesson here is that America needs more campaign finance reform should check their history. When the National Committee for Impeachment was punished for running an anti-Nixon newspaper ad in 1972, monopoly politics won. For the next four decades, politics became increasingly partisan and polarized, which correlates eerily with increasing fiscal deficits.

Reducing political polarization is essential for a way forward on the policy gridlock that hampers economic growth. Harassment of political entrepreneurs discourages progress as much as it abuses power and trust. A free people should never require a government license for free speech.

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