IRS Fallout: The Real Scandal Is Secret Money Influencing US Elections

The IRS is under siege for investigating conservative political groups applying for tax-exempt status. But the real problem wasn't that the IRS was too aggressive. It was that the agency focused on the wrong people--"none of those groups were big spenders on political advertising; most were local Tea Party organizations with shoestring budgets," writes The New York Times--and wasn't aggressive enough. The outrage that Washington should be talking about--what my colleague Chris Hayes calls "the scandal behind the scandal"--is how the Citizens United decision has unleashed a flood of secret spending in US elections that the IRS and other regulatory agencies in Washington, like the Federal Election Commission, have been unwilling or unable to stem.

501c4 "social welfare" groups like Karl Rove's Crossroads GPS, the Koch brothers' Americans for Prosperity and Grover Norquist's Americans for Tax Reform--which don't have to disclose their donors--spent more than $250 million during the last election. "Of outside spending reported to the FEC, 31 percent was 'secret spending,' coming from organizations that are not required to disclose the original sources of their funds," writes Demos. "Further analysis shows that dark money groups accounted for 58 percent of funds spent by outside groups on presidential television ads [$328 million in total]."

IRS guidelines for 501c4 groups state that "the promotion of social welfare does not include direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office...a section 501(c)(4) social welfare organization may engage in some political activities, so long as that is not its primary activity." It's ludicrous for groups like Crossroads GPS--which spent at least $70 million during the last election--to claim that its primary purpose is not political activity. Only the likes of Karl Rove would believe that running attack ads against President Obama qualifies as social welfare.

So what did the IRS do about this blatant abuse of the tax code by some of the country's top corporations and richest individuals? Virtually nothing. "When it comes to political spending, the IRS is more like a toothless tiger," wrote Ken Vogel and Tarini Parti last year in a story headlined, "The IRS's 'feeble' grip on big political cash."

It's obvious that our Wild West campaign-finance system needs more, not less, scrutiny and much tighter, not looser, regulation. Yet conservative groups are exploiting the IRS scandal to further dilute regulatory agencies that are already on life support. Writes Andy Kroll of Mother Jones:

The IRS's tea party scandal, however, could hinder the agency's willingness to ensure politically active nonprofits obey the law. The IRS will likely operate on this front with even more caution, taking pains not to appear biased or too aggressive. That in turn could cause the agency to shy away from uncovering 501(c)(4) organizations that do in fact abuse their tax-exempt status by focusing primarily on politics.

The Rove's of the world would like nothing more than for the public to believe that conservative groups had too few opportunities to influence the 2012 election and were wrongly persecuted by evil Washington bureaucrats. Yet the 2012 election should have taught us precisely the opposite lesson--that our patchwork regulatory system is far from equipped to deal with the new Gilded Age unleashed by Citizens United. As Rep. Keith Ellison told Hayes last night: "We need to redouble our efforts to bring real campaign-finance reform forward."