IRS Scandal and the Future of America's Least Favorite Institution

After the recent breaking news that the Internal Revenue Service was giving additional scrutiny to the tax exempt status of Tea Party Groups based on having words such as "Patriot" or "Tea Party" in their name, there was massive political outcry on both sides of the aisle, most of which was well warranted.  Groups should not be targeted purely based on the name of their group.  But to make the assumption that the IRS was completely uncalled for in it's extra scrutiny and purely based on targeting conservative groups is not.

According to a recent NPR report, many liberal groups with had missions or names having to do with "progressive" tendencies  were also targeted to a significant extent by this IRS oversight.  This means that the IRS blanket of these groups is not a mechanism of the party in the White House trying to delegitimize groups that should have non profit status.

IRS Building in Washington (Washington Post)

But the larger issue that this scandal raises is the fallout and effect on the IRS's future policy.  The political posturing that is taking place in Washington takes away from the fact that investigation and scrutiny is what the IRS was set up to provide.  Rhetoric like that of John Boehner, who insisted that he was concerned with "who was going to jail" rather than who would resign in the wake of the scandal makes the situation even worse.

The result of this controversy will unfortunately make the IRS less likely to provide scrutiny where there should be, instead making them gun shy of political backlash. This spells bad news for rooting out organizations that really should have a little extra scrutiny in order to get non-profit status.  The IRS clearly states that in order for organizations to receive a 501(c)4 charitable tax exemption, they need to have their activities be focused "exclusively to charitable, educational, or recreational purposes." (irs.gov) This means that in order for a group to get such an exemption, they cannot be focused primarily on political actions. Instead of giving these groups a rubber stamp, the IRS should be providing extra scrutiny to groups that have dubious charitable actions.

Fiscal Conservatism

Its quite true that the United States government and indeed many governments are spending simply too much money these days.  What both parties do not understand is that they are both to blame.

We need serious entitlement reform.  We also need to make sure that we aren't spending so much money on foreign wars.  A huge amount of money could be saved by engaging in serious entitlement reform and increasing the efficiency of how the military-industrial complex uses its money.

Debt vs. Deficit

Debt and deficit.  People often confuse the two.  Republican pundits attack Democratic policies on both.

A deficit occurs when all government incomes, called receipts, are less than the amount of government expenditures, called outlays.  Revenues come from income and other forms of taxes.  Expenditures result from a variety of purchases and entitlements. Since a deficit involves only a year's receipts and outlays, it applies to just one year. If the government took in $14 trillion and spent $15 trillion, the deficit would be $1 trillion.

When the government runs a deficit for a certain year, they need to borrow money in order to pay their bills.  To do so, the Federal Reserve can print some or all of the shortfall, but this typically leads to inflation.  How much inflation occurs depends on the amount printed.  If everyone has more money, and there are the same number of products, then those products will become more expensive.

Usually, instead of printing money, the government operates in credit markets, issuing bonds, like private companies can.  A bond is a form of a loan.  when the US Treasury issues its bonds, it means it is promising to pay that money, which it needs now, in the future.  When governments issue bonds, investors buy them up, selling them on secondary markets.

Debt, on the other hand, is basically accumulated deficits.  If the government has to keep issuing bonds, borrowing money each year to pay its outlays, then the debt will continue to grow.

Debt typically grows each year.  With each successive deficit, the debt, or at least the gross debt, will continue to grow.  A misconception is that if the government takes in more than it spends, that its receipts are greater than its outlays, that there is no debt.  This just means that the government has managed to run a surplus, but all debt that was accumulated previous years is still there.

It is accepted by most economists that some debt, sometimes, is a good thing for the nation and the economy.  When in a recession, tax revenue falls because of the lack of business and personal growth.  If tax rates are slashed, the revenues will fall even more.  The government also spends more on its social  programs such as unemployment insurance/benefits, so the government should run a deficit in order to pay for all that.  Conservatives argue that deficits in bad times need to be offset by surpluses in good times.  However, this does not need to be the case, when we consider debt in relation to our nations economic productivity, the GDP.

If the debt remains at a steady percentage of our GDP, the government can sustain that level of debt, even if they run deficits forever.  Consider the following: if the government has debt of 30% of its GDP at the start of a year, and it ran a balanced budget, even though the gross debt stayed the same, the percent with respect to GDP will go down.  The GDP almost always goes up.

The more our GDP grows, the more debt we can afford to take on.  GDP is basically an equivalent of the nation's tax base.  The more growth in the country, the more profits and salaries will rise, and the more tax revenue for the government.

There are negatives to government debt.  When the government has to continually issue bonds, these bonds compete with private ones on the investor's market, pushing up interest rates.  The more money the government takes from this market, the less money there is for the private sector.

Debt does have many positives though.  Families, for example, go into debt and borrow money in order to buy a house or pay for college.  The accumulated deficit of paying for one of these lasts for many years, but people still manage to pay it off.  Debt makes the benefits of owning a house and higher education reachable for more people.  Companies operate the same way, obtaining loans in order to expand, hoping for more profit later on.  In the same way, government can go into manageable debt in order to pay for items that its citizens deem important.

We Need Fair Elections

With the Citizen's United v. Federal Election Commission, Corporations can give unlimited money to Super PACs.  In this election year, we are now seeing that this means a future of auctioning of elected positions.  Money wins elections, and with the unlimited spending of special interests groups, the people have much less of a say now in elections.  Those who run the most commercials and get the most press coverage are those with the most money, and they are more likely to win.  We need spending caps on elections to ensure that all candidates have a chance to compete for a spot in government.  We need the people's representatives in government, not the special interests' representatives.

Balanced Budget Amendment

The idea behind a balanced budget is great, but limiting ourselves to a balanced budget with a constitutional amendment limits the flexibility government has with its money.
Many states, such as California, have had crippling debt problems, often because they are required to have a balanced budget.  While this is good for states and localities, national governments need the flexibility that comes with a temporarily unbalanced budget.
We need to cut spending gradually, not all at once.  While the Republicans are correct that we need extreme change to the spending in our nation, a balanced budget amendment is not the best way to do it.

Debt Ceiling Political Shenanigans Are Ridiculous

It is time for the politicians to stop trying to gain leverage over each other politically and form a lasting deal that will save this country from financial ruin.  A deal that could help in the long run and not hurt as much in the short turn could look like this:

*Cuts to Entitlements--Entitlements are a severe drain on the budget.  They will soon become unaffordable.  A reasonable deal to limit the cost of these programs is necessary.  The Ryan plan may be unreasonable, but it does bring up the issue that we need to change what is broken.  We cannot afford to spend loads of money on entitlements down the road.

*Cuts to Defense--We spend WAY too much money on foreign wars, foreign bases, and expensive military technology.  We're not saying get rid of all of this, but surely some dough could be had from limiting foreign involvement and doing without a few new ships, tanks, or joint strike fighters.  These projects do bring money to several special congressmen's districts, so it may be hard, but limiting the expenditures of the state will surely help us down the road

*Cuts to make government more efficient--Lots of businesses are saving money simply by the way they operate.  The government could take a lesson from SOME private sector companies (HINT: NOT BANKS) in order to lower operation costs of some departments.  Trimming some here and some there may not seem like much, but applied to the whole government, one can have real and significant change.  People might not like it, but hey, we've got to trip money, and that's one way to do it.  Trim from the first and second bullets first though.

*Increase in revenue--Notice we didn't say "increase in taxes".  While others debate of what the exact meaning of not raising taxes is, there is no denying this: the governmental needs money.  In order to temper what will likely be harsh cuts, revenue must come to the government.  Taxes are how the government gets its money.  So, in order to ensure the severity does not fall to America's industrious middle class, who are fighting for their lives in the recession, we must turn to those who can stomach it, the rich.  We have tried trickle down economics, and it has not worked.  We need a strong middle class in America, so they shouldn't have to bear the burden of the recession and debt. Another note:  if the rich are taxed more, they're still rich, just as if the middle class are taxed less, they are also still in the middle class.


There are doubtless other ideas at how we can cut, trim, increase, decrease, or whatnot.  If we come up with any more, we'll definitely post them.  Feel free to tell us your own opinions.  We shouldn't throw out ideas just because of where they come from.  The citizens of this country must have their voice too.

Debt Ceiling Vote

We agree with many that comprehensive budget reform must be made before increasing the debt ceiling.  This, however, must be done swiftly in order to avoid breakdown.  We need a comprehensive plan to stop the wasteful spending.

There are some areas where the government should invest in, but we must invest the money wisely.  The government must have a sense of accountability to the people, because it is their money that government is spending.  We need to make programs more efficient and evaluate each and every aspect of our government to see if we can cut costs.  We should aim not to leach the government dry, but to ensure that we can do an effective job managing the nation on a budget, without going into debt.

Entitlement Reform is Needed

Paul Ryan has recenlty proposed an overhaul of Medicare that would significantly change the program.  While his version of the solution is not ideal, it certainly is bold and brings up the issue of entitlement reform.

Medicare and other programs will soon get too expensive for the government to keep paying for.  As a result, the debt will continue to go up if spending is not slashed.  We must now open a debate on the programs that we hold dear.  It feels so good to have so many programs, but at the same time, government cannot always sustain it.  We must look to ways we can streamline cost for entitlements, cutting out waste, then discussing alternative cutting measures.

Paul Ryan's budget is only the first step towards the process.  His solution is not the best, nor should it be adopted, but a discussion must ensue on what we really want from our healthcare and what we really want from or entitlement programs.

Reform Needed to Spur Economy

The middle class is reeling after a long recession, which is still not over.  In order to facilitate recovery, we must have a middle class tax break in order to help families cope with the economic downturn.  Seeing as the middle class is often hurt he most in a recession like this, they should get the tax break, not the wealthiest Americans, who can afford it.  Cutting taxes for the rich in a time where we have extreme debt is not prudent or logical.

In addition, we need to make it easier for people to start small businesses.  Encourage lending and venture capital, as well as tax breaks for America's smallest companies, which help drive struggling local economies forward as large corporations are sending jobs overseas.  renewed economic reform is critical as we aim to rid ourselves of the bonds of this recession.

Energy Independence is Needed to Free Ourselves From Foreign Energy

We must pursue alternative energy resources in order to achieve energy independence.  We must reduce our consumption of oil and coal and turn to renewable.  We can structure our economy on this, for if the US is not a producer of green energy, it will have to be a buyer.  That would be very harmful to our economy in the future.  We can build a powerful energy economy on green energy.  Large producers of oil can control prices and reap the benefits.  We can do the same, with green energy, right here in the US.

Also, regarding biofuels:  we should not use our precious corn supplies to make biofuels.  Instead, we should try to expand cellulosic and other types of ethanol.  It is much more efficient and it is not food, so we will not run the risk of shortages.  It can even be made using the husks of the corn, something that would normally be thrown out.  That way, food prices will be low for farmers can get money for their garbage.  We can use that garbage as part of our energy future.  

Investing in energy will require an upfront cost, spending cuts can cover that, but we can get it back in the future by selling energy and technology to other nations. We must pursue solar, hydrogen-fuel cell, and wind energy futures as well. 

It is time to phase out oil and coal and usher in new, more efficient forms of energy.  One method could be a tax break for people who own cars that have over 35 miles to the gallon.  This way, along with the tax hikes, there will be some tax cuts.  Hopefully, more people will take advantage of this and get a car with a tax break and therefore save money by going green.

Oil Companies must also pay their fair share in taxes.  We must not let oil companies go off free when they do not produce fuel that is sustainable or beneficial to the environment.  We need to push energy companies to reform their practices, encouraging investment in clean and sustainable technologies.  

Basic Finances

In order to remain fiscally responsible and free of debt, many American families and businesses adopt a simple principle: don't spend more than you take in.  It's simple finances.  School groups do it.  Lemonade stands do it. Lots of people do this.  The question remains: why doesn't the federal government do this?

The feds have been lax on what kind of debt they will allow, and both parties are to blame for this is some way or another.  Yes, Democrats traditionally win the yearly overspending contest, but Republicans insistence on only cutting spending while at the same time cutting taxes, often for the rich, wins no prize for its responsibility.  Both parties spend huge amounts on foreign wars.

It makes little sense to only cut spending or only raise taxes in order to cut the deficit.  Using only one of these methods ends up with a tougher strain on the middle class and/or Government with to little funding too effectively complete its job.  Exercising both options tempers the harshness.  Cutting taxes on the wealthiest Americans makes the most sense, since they are the ones that can afford it.  One thing that politicians must realize is that these taxes are never really going to redistribute the wealth.  When the rich are taxed more, they will still be rich.  When the middle class is taxed less, they are still in the middle class.

All this, though, does not take away the responsibility of the Federal Government to spend its money wisely.  Its our money.  Fiscal responsibility is imperative.  Cut programs that don't work and aren't effective, and reward programs that do more with less.  There are ways to do the same job with less money, and it still doesn't mean less workers.

Spending money wisely is basic economics; its about time Washington learned its lessons.