Wonkbook: What we’re learning about the IRS’s Cincinnati office

May 20, 2013

Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

(Photo by Bill O'Leary/The Washington Post)
(Photo by Bill O'Leary/The Washington Post)

“I was not a happy camper leaving that organization,” Bonnie Esrig, a senior manager who retired from the IRS's Cincinnati office in June, told the New York Times, “and I can still say that I don’t think there was malice behind it at all.”

We're getting more reporting out of the IRS's Cincinnati office. The reports all paint a similar picture: An overworked, overwhelmed, understaffed agency outpost that wasn't prepared for the rise in political 501(c)(4)s, was confused about how to manage them, was unable to get proper direction from higher-ups, and responded in ways that were both inappropriate (targeting tea party-related groups for extra scrutiny) and incompetent (taking forever to conduct that extra scrutiny).

There continues to be no evidence that the targeting was directed by agency higher-ups, much less anyone related to the Obama campaign. In fact, there's still not much evidence that the targeting was politically biased in intent, even as it was clearly politically biased in effect.

One clear implication of these stories, though, is that the employees of the Cincinnati Determinations Unit are not the employees you want to trust with a task of this delicacy. “I don’t believe there’s any such thing as rogue agents — there are some that aren’t as competent as others, just like in any workplace,” Esrig said.

Jack Reilly, a former lawyer in the Washington office that oversaw exempt organizations, was even more blunt to the New York Times. “Nobody wants to be a determination agent. It’s a job that just about everybody would be anxious to get out of it.” This was not an office that was appropriately staffed and prepared for the rise of political 501(c)(4)s, much less the improvisational, politically explosive, highly diplomatic work of vetting them.

This gets to a larger truth, though. We don't want IRS agents deciding who is and who is not a primarily political group. That is not their core competency. Worse, it necessarily involves the IRS in politics, and the IRS is an agency we want kept far from politics. We either need extremely bright lines that govern the IRS's judgments on these groups and removes the need for significant discretion or, as tax professor John Colombo argues, we should consider getting rid of the 401(c)(4) designation altogether.

Wonkbook's Number of the Day: 70,000. That's roughly the number of applications for tax-exempt status the Cincinnati IRS office processes in a year. Most are easy calls, with no political questions whatsoever.

Wonkblog's Graph of the Day: The High Plains Aquifer is drying up.

Wonkbook's Top 5 Stories: 1) much more about the IRS; 2) the challenges of the Affordable Care Act;  3) fast-tracking trade agreements; 4) running out of water; and 5) immigration reform's chances.

1) Top story: Confusion in the IRS

How the IRS seeded the clouds in 2010 for a political deluge three years later. "In early 2010, an Internal Revenue Service team in Cincinnati began noticing a stream of applications from groups with ­political-sounding names, setting in motion a dragnet aimed at ­separating legitimate tax-exempt groups from those working to get candidates elected. The IRS officials decided to single out one type of political group for particular scrutiny. “These cases involve various local organizations in the Tea Party movement,” read one internal IRS e-mail sent at the time." Zachary A. Goldfarb and Kimberly Kindy in The Washington Post.

On the ground in Cinicinnati. "While there are still many gaps in the story of how the I.R.S. scandal happened, interviews with current and former employees and with lawyers who dealt with them, along with a review of I.R.S. documents, paint a more muddled picture of an understaffed Cincinnati outpost that was alienated from the broader I.R.S. culture and given little direction. Overseen by a revolving cast of midlevel managers, stalled by miscommunication with I.R.S. lawyers and executives in Washington and confused about the rules they were enforcing, the Cincinnati specialists flagged virtually every application with Tea Party in its name. But their review went beyond conservative groups: more than 400 organizations came under scrutiny, including at least two dozen liberal-leaning ones and some that were seemingly apolitical." Nicholas Confessore, David Kociniewski, and Michael Luo in the New York Times.

The White House has known about the IRS inquiry since April. "The chief White House lawyer, Kathryn Ruemmler, learned last month that a Treasury inspector general had concluded an audit of the Internal Revenue Service’s targeting of conservative groups, weeks before the matter became public, according to a senior White House official." Jonathan Weisman and Brian Knowlton in The New York Times.

CNN poll: Obama unharmed by controversies. "Fifty-three percent of Americans said they approve of the job the president is doing, while 45 percent said they disapprove. That’s virtually unchanged from an early April survey in which Obama’s approval/disapproval split was 51 percent to 47 percent...More than seven in 10 Americans said the IRS actions were unacceptable; 55 percent said they believe the agency acted on it own, while 37 percent said it acted under the order of White House officials." Sean Sullivan in The Washington Post.

DREW: Enough with comparing everything to Watergate. "The atmosphere in Washington was unlike anything that had gone before or has happened since. We lived in fear. Knowing that the telephones of some of the presidents’ 'enemies' were being tapped, we joked in our telephone conversations about our phones being bugged. (No Internet then, but just think of the Nixon people’s probable temptation to trace emails.) One Sunday morning when the newspaper delivery was late, a perfectly sane woman I knew said, 'They’ve stopped the papers.' It got to the point where, near the end, Secretary of Defense James Schlesinger felt compelled to send a memo to military commanders to obey no command that came from the White House to dispatch the troops to restore order." Elizabeth Drew in the New York Review of Books.

Ryan: IRS scandal reveals 'big government cronyism.' "Rep. Paul Ryan (R-Wis.) on Sunday called the Internal Revenue Service scandal a defining example of “big-government cronyism.” “This is rotten to the core. This is arrogance. This is big-government cronyism,” said Ryan on “Fox News Sunday.” “We're seeing big government in practice. Now, we're seeing the arrogance. We're seeing the cronyism in practice in this second term. And that is even uglier than big government in theory,” he added." Jordy Yager in The Hill.

Portman: IRS needs a special counsel. "“I also think that special counsel is going to end up being necessary here, because it has to be independent of the White House,” said Portman of the ongoing investigation. “What we do know is that politics was put ahead of the public interest. And it was done in two of the most sensitive areas of our government." " Meghashyam Mali in The Hill.

Daniel Dennett is a national treasure interlude: Teaching you to think better.

Top op-eds

NOAH: Looking beyond the 1 percent. "Since 1979 the income gap between people with college or graduate degrees and people whose education ended in high school has grown. Broadly speaking, this is a gap between working-class families in the middle 20 percent (with incomes roughly between $39,000 and $62,000) and affluent-to-rich families (say, the top 10 percent, with incomes exceeding $111,000). This skills-based gap is the inequality most Americans see in their everyday lives." Timothy Noah in The New York Times.

SPENCE: What we can learn about growth from austerity. "All countries – and policymakers – face difficult choices concerning the timing of austerity, perceived sovereign-credit risk, growth-oriented reforms, and equitable sharing of the costs of restoring growth. So far, the burden-sharing challenge, along with naive and incomplete growth models, may have contributed to gridlock and inaction. Experience can be a harsh, though necessary, teacher. Growth will not be restored easily or quickly. Perhaps we needed the preoccupation with austerity to teach us the value of a balanced growth agenda." Michael Spence in Project Syndicate.

KELLER: How to legalize pot. "What Kleiman and his colleagues (speaking for themselves, not Washington State) imagine as the likely best model is something resembling the wine industry — a fragmented market, many producers, none dominant. This could be done by limiting the size of licensed purveyors. It would help, too, to let individuals grow a few plants at home — something Colorado’s new law permits but Washington’s does not, because polling showed Washingtonians didn’t want that." Bill Keller in The New York Times.

SMITH: Cooling down climate rhetoric. "Contrary to the claims of those who want to strictly regulate carbon dioxide emissions and increase the cost of energy for all Americans, there is a great amount of uncertainty associated with climate science. These uncertainties undermine our ability to accurately determine how carbon dioxide has affected the climate in the past. They also limit our understanding of how anthropogenic emissions will affect future warming trends. Further confusing the policy debate, the models that scientists have come to rely on to make climate predictions have greatly overestimated warming." Lamar Smith in The Washington Post.

DOUTHAT: All the lonely people. "As the University of Virginia sociologist Brad Wilcox pointed out recently, there’s a strong link between suicide and weakened social ties: people — and especially men — become more likely to kill themselves “when they get disconnected from society’s core institutions (e.g., marriage, religion) or when their economic prospects take a dive (e.g., unemployment).” That’s exactly what we’ve seen happen lately among the middle-aged male population...The hard question facing 21st-century America is whether this retreat from community can reverse itself, or whether an aging society dealing with structural unemployment and declining birth and marriage rates is simply destined to leave more people disconnected, anxious and alone." Ross Douthat in The New York Times.

GOODMAN: The Obamacare maze. "[H]ere is a question that is being increasingly asked by people in the insurance industry: What happens if the exchanges aren't ready on time? Already, the Department of Health and Human Services has thrown in the towel on small-business exchanges that were supposed to allow employees to choose among competing health plans." John C. Goodman in The Wall Street Journal.

DIONNE: Political dysfunction and the trouble for democracies. "Still, while it may not be much of a comfort, the democratic distemper is not a peculiarly American phenomenon. Across most of the democratic world, there is an impatience bordering on exhaustion with electoral systems and political classes...The report does include some useful suggestions for reviving the democratic spirit and improving democratic practice. But it is not alarmist to be uneasy about democracy’s prospects." E.J. Dionne in The Washington Post.

Satellite imagery interlude: NASA takes a 6,000-mile-long photograph.

2) Obamacare works out its kinks

How the federal government is making it easier for the poor to get Medicaid. "On Friday, it informed state officials that they could simplify enrollment in Medicaid, the federal-state program for the poor, to handle the onslaught of millions of anticipated enrollees next year when the health care law expands coverage. The administration said the changes are geared to states that are expanding their programs, but they may also be adopted by others...In a letter to state officials, federal Medicaid Director Cindy Mann laid out several ways states might streamline enrollment for adults, including using data people have already submitted to qualify for foods stamps – a practice that a few states permit for children...States may also allow adults to stay enrolled in the program for up to a year, even if their income changes, she said." Phil Galewitz in Kaiser Health News.

Why do hospitals set high prices that nobody pays? "Charity care is incredibly important to facilities like Bayonne Hospital Center, which needs to demonstrate that it provides a high level of “community benefit” in order to maintain its status as a nonprofit hospital. The higher prices that a hospital charges, the bigger amount of charity care its providing." Sarah Kliff in The Washington Post.

McConnell: Obamacare will be central 2014 voting issue. "“I don’t know what the issues will be next year. If I were predicting what’s likely to be the biggest issue in the 2014 election, I think it would be Obamacare,” Senate Minority Leader Mitch McConnell said on NBC News’s “Meet The Press.” “I think it’s coming back big-time.”" Sean Sullivan in The Washington Post.

@markknoller: Pres trumpets ObamaCare to grads as "a plan that will insure not only your health, but your dreams if you have an accident or get sick."

Employers eyeing bare-bones health insurance plans. "Employers are increasingly recognizing they may be able to avoid certain penalties under the federal health law by offering very limited plans that can lack key benefits such as hospital coverage...Federal officials say this type of plan, in concept, would appear to qualify as acceptable minimum coverage under the law, and let most employers avoid an across-the-workforce $2,000-per-worker penalty for firms that offer nothing. Employers could still face other penalties they anticipate would be far less costly." Christopher Weaver and Anna Wilde Matthews in The Wall Street Journal.

Small businesses see problems ahead. "Small businesses looking for a break from President Obama’s healthcare law aren’t getting any help from Congress...Businesses have to offer coverage to every employee who works more than 30 hours per week. Some businesses have cut their employees’ hours, capping them at 29 hours per week to avoid paying for health insurance. Some Democrats say that’s an unintended consequence of the mandate, and they’re open to fixing it — perhaps by raising the threshold for health benefits to 40 hours per week." Sam Baker in The Hill.

@JeffreyYoungHC: #ff these @latimes health care reporters, who don't have enough followers: @NoamLevey, @annagorman, and @chadterhune.

CDC: 20 percent of American kids have mental health disorders. "Up to one in five American youngsters — about 7 million to 12 million, by one estimate — experience a mental health disorder each year, according to a new report billed as the first comprehensive look at the mental health status of children in the country. And the rate is increasing, said the Centers for Disease Control and Prevention, which produced the study, released last week...They also cost families and society at large an estimated $247 billion a year in treatment, special education, juvenile justice and decreased productivity, it stated." Tony Pugh in The Washington Post.

Music recommendation interlude: Passion Pit, "Swimming in the Flood"

3) Fast-tracking trade

Should we 'fast track' trade agreements? "A political clash looms as US lawmakers debate whether to give Barack Obama authority to pass planned trade deals with the EU and 11 Pacific nations swiftly through Congress. Members and staff of the Senate finance committee and the House ways and means committee have been discussing a bill that would for the first time since 2007 provide so-called “fast track” status to trade agreements reached by the White House." James Politi in The Financial Times.

The U.S. economy is set for at least two years of growth, according to forecasters. "The U.S. economy will continue to recover until at least 2015 without tumbling into a recession, achieving the sustained growth that has eluded it since the last slump ended four years ago, according to a Bloomberg poll. With the economy creating an average of 208,000 jobs a month since November, 69 percent of those surveyed call the recovery “sustainable” while 27 percent anticipate a new recession within two years, according to the global poll of investors, analysts and traders who are Bloomberg subscribers." David J. Lynch in Bloomberg.

Explainer: Key economic data coming this week. Amrita Jayakumar in The Washington Post.

Banks are dragging their feet on mortgage settlements. "Banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, delaying help to the millions of victims of discrimination and shoddy lending that epitomized the housing crisis, according to a Washington Post analysis of government data." Danielle Douglas in The Washington Post.

Interview: Sheila Bair, on why Dodd-Frank really did end taxpayer bailoutsMike Konczal in The Washington Post.

...And risky corporate loan-making spurs concern. "US banks are making riskier corporate loans as they seek to boost their flatlining profits and fight off tough competition from other lenders and the booming bond market, regulators, analysts and banking executives have warned. The amount of business loans made by US banks jumped to $1.55tn at the start of May, up 10 per cent compared with the same period last year, according to data from the Federal Reserve." Tracy Alloway and Nicole Bullock in The Financial Times.

Journalism interlude: The New Yorker's new "Strongbox" disclosure tool.

4) Running out of water

The High Plains Aquifer is drying up. "Vast stretches of Texas farmland lying over the aquifer no longer support irrigation. In west-central Kansas, up to a fifth of the irrigated farmland along a 100-mile swath of the aquifer has already gone dry. In many other places, there no longer is enough water to supply farmers’ peak needs during Kansas’ scorching summers. And when the groundwater runs out, it is gone for good. Refilling the aquifer would require hundreds, if not thousands, of years of rains. This is in many ways a slow-motion crisis — decades in the making, imminent for some, years or decades away for others, hitting one farm but leaving an adjacent one untouched" Michael Wines in The New York Times.

Energy Department approves expanded LNG. "The Energy Department gave a terminal near Freeport, Tex., permission Friday to ship liquefied natural gas to Japan, providing a new outlet for rising U.S. production of shale gas despite qualms of environmentalists and many domestic manufacturers...It was the second permit given by the Energy Department for LNG exports to a country that does not have a free trade agreement with the United States. The department said it weighed economic, energy security and environmental considerations as well as nearly 200,000 public comments." Steven Mufson in The Washington Post.

Scientists agree on climate change. So why don't the non-scientists? "Here’s a finding that shouldn’t be all that surprising: Since 1991, roughly 97 percent of all published scientific papers that take a position on the question agree that humans are warming the planet...A recent Pew poll asked Americans whether “scientists agree the earth is getting warmer because of human activity.” Only 45 percent said yes, while 43 percent said no." Brad Plumer in The Washington Post.

Local interlude: There exists a Dr. Unk, and she just had her license suspended.

5) Can immigration reform really happen?

What the tech industry wants from immigration reform. "[I]n the give-and-take of political bargaining, the legislation emerged with some provisions the industry considers unappealing. Now its lobbyists are feverishly working to get rid of them. Whether it gets its way could shape, in part, the fate of the overall package — and with it, the fate of millions of migrants to this country." Somini Sengupta in The New York Times.

Immigration reform: It's no sure bet. "[I]n this case, looks are deceiving. There are still major hurdles before immigration reform can reach President Barack Obama’s desk. The biggest one is the GOP-controlled House. Right now, the Senate bill has no chance of making it to the House floor. Key senators such as Chuck Schumer (D-N.Y.) and John McCain (R-Ariz.) have stressed that their bill would need upwards of 70 Senate votes in order to enact pressure on the House. But House GOP negotiators flatly say the margin of votes in the Senate — no matter how big — won’t matter." Seung Min Kim and Jake Sherman in Politico.

Harvard students petition for investigation into Richwine's thesis. "Over 1,000 Harvard students delivered a petition to Harvard University’s JFK School on Saturday, demanding an investigation into how and why the school approved a 2009 doctoral thesis arguing that Hispanics have lower IQs...Now Harvard students want to know how a thesis built on those views and assumptions was able to make it through the approval process in the first place. “Academic freedom and a reasoned debate are essential to our academic community,’’ the petition read. “However, the Harvard Kennedy School cannot ethically stand behind academic work advocating a national policy of exclusion and advancing an agenda of discrimination.”" Jeff Spross in ThinkProgress.

Reading material interlude: The best sentences Wonkblog read today.

Wonkblog Roundup

Interview: Ezra Klein talks with Bill Gates.

Interview: Sheila Bair, on why Dodd-Frank really did end taxpayer bailoutsMike Konczal.

How foreign voices influence American warsDanny Hayes.

Ben Bernanke's graduation speech to Bard CollegeNeil Irwin.

Here’s why hospitals set high pricesSarah Kliff.

Scientists agree on climate change. So why doesn’t everyone elseBrad Plumer.

5 takeaways from the CBO analysis of Obama's budgetDylan Matthews.

Et Cetera

Obama addresses Morehouse College on race and manhood. Philip Rucker in The Washington Post.

...And on Thursday, Obama will give a major presidential address on counterterrorism policy and the Guantanamo Bay prisonScott Wilson in The Washington Post.

Global warming might be slower than predictedPilita Clark in The Financial Times.

Ahead of Supreme Court decision, gay marriage marches aheadRobert Barnes in The Washington Post.

Got tips, additions, or comments? E-mail me.

Wonkbook is produced with help from Michelle Williams.

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