An American Gestapo

"From its creation in 1933 until its death in May 1945, anyone living in Nazi controlled territory lived in fear of a visit from the Gestapo..."
-- Gestapo: A History of Hitler's Secret Police

In its day the Gestapo was the enforcement arm of German political power. It could investigate anyone for any reason unfettered by democratic restraints. Not even a general’s uniform provided protection from its reach.

As its reputation for heavy-handed enforcement grew, Gestapo power also grew. Beginning as a small group of 300 career and supposedly legitimate policemen in 1933, which operated out of a small office and relied on index cards to keep track of suspicious people, the Gestapo grew in number and “legitimacy” that allowed it to snoop unrestricted on an entire nation. In less than a decade the German people became so intimidated by this government agency that they relinquished asserting their rights as free citizens in order to avoid attracting attention that could bring a knock on their door in the middle of the night.

Does this description sound similar to any agency of American government? Which federal agency is feared by Americans as the Germans came to fear the Gestapo? The Defense Department? CIA? FBI? The IRS?

As I’ve noted in many previous blog posts, the central purpose on which our Republic was founded was a mistrust of a central government. Law-abiding citizens in the 18th century were willing to fight a war against the most powerful military in the world in order to throw off the shackles of government abuse. Were those patriots to come back from the grave today, they would be shocked to see the extent to which government routinely abridges the freedom of its citizens. They would be more shocked that it’s tolerated. Among the multiplicity of agencies we’ve grown to tolerate as our federal government metastasizes to every corner of our lives, none is more feared, none more powerful, and none more flagrant in its abuse of the rights of citizens than the IRS. Of all the other things it does, at its core the IRS is a police function. And with the passage of ObamaCare, which agency was assigned its enforcement? The IRS!

No agency of government can be given the power possessed by the IRS without abusing it. PERIOD. No matter how restrictively it is regulated by law, no matter how conscientiously its operation is managed, no matter how closely overseen by Congress, there is too much power centralized in the IRS. Its history provides the proof. In the years following the 16th Amendment, the IRS has been stained by scandal after scandal. But instead of being weakened by scandal, each outrage seemed to embolden it even more to withstand reform attempts.

Today, once again we find IRS misbehavior at the center of a controversy. As news about it dribbles out, this one seems to have been underway at least since 2010 if not from the first year of the Obama administration. And just so I’m on record in this debate as an equal opportunity critic of the IRS, members of both political parties in both the White House and Congress have abused the public trust by using the IRS to punish and intimidate their enemies. Even Presidents have unleashed the IRS dogs on members of Congress, although I know of no case where the reverse was true.

It is illegal for the federal government to target specific groups or people for tax enforcement, but the President and Congress have done so with impunity. Moreover, there is ample evidence that the IRS has exercised power on its own volition. While the media present the current scandal as a small rogue initiative in the Cincinnati office, the evidence paints a national campaign directed at tea party conservatives whose harassment may have tipped the outcome of the 2012 election. No smoking gun has been found in the White House – yet – but Jeffrey Lord writing for American Spectator this past Monday may be on to a trail that leads to Obama. If so, Watergate II may in in the making.

First, a bit of background.

James Bovard has made a career out of exposing government shenanigans that infringe on the rights of citizens by publishing a string of books. These books have been denounced by a veritable Who’s Who of past administration cabinet secretaries and government agency executives who found themselves on the wrong end of Bovard’s pen. Last week the Wall Street Journal published an excellent article by him entitled “A Brief History of IRS Political Targeting” which can be found at the link in this sentence. It’s well worth reading but allow me to hit the highlights so that I can thoroughly infuriate you before concluding this week’s blog.

Bovard, calling upon David Burnham’s book, A Law Unto Itself: The IRS and the Abuse of Power, cites "In almost every administration since the IRS's inception the information and power of the tax agency have been mobilized for explicitly political purposes." FDR used the IRS to make life miserable for his political opponents and the critics of his New Deal. JFK used news conferences to announce that he expected the IRS to police “the discordant voices of extremism” (i.e. people who distrusted political leaders) and investigate their tax-exempt status.

Had Kennedy signed an Executive Order it couldn’t have been more effective in mobilizing the IRS to suppress conservative groups. Within days the IRS targeted the American Enterprise Institute, the Christian Anti-Communist Crusade, and other right-leaning organizations. Oh, and how well I remember Kennedy unleashing the IRS dogs of war on the executives of steel companies who refused to go along with his price controls in the 1960s. All found themselves targets of tax audits.

Tricky Dick Nixon was infamous for his paranoia and the enemies list that grew out of it. He wasn’t shy about using the IRS Gestapo to spy and snoop on over 10,000 people on his list. When Watergate brought him down, John Dean, his personal lawyer, revealed that Nixon "use[d] the available federal machinery to screw our political enemies." In this case “federal machinery” was a euphemism for the IRS.

The Clinton White House employed the IRS to conduct more than 20 audits of conservative organizations – the Heritage Foundation and American Spectator among them – which were critical of his policies, and IRS audits fell also on those critical of his libido, among them Gennifer Flowers and Paula Jones.

Toward the end of the Clinton era, the Associated Press (itself the subject of government intimidation at the moment) reported that "officials in the Democratic White House and members of both parties in Congress have prompted hundreds of audits of political opponents in the 1990s." There were "personal demands for audits from members of Congress" that gave the IRS only 15 days to do its dirty work if requests were marked "expedite" or "hot politically." Of course, requests to audit an enemy were appropriately camouflaged to prevent identifying the congressman who wanted to harass a citizen who’d “dissed” him. Since both parties engaged in these practices there was no hoots or howls calling for investigation like today.

Over 40 years ago, Sen. Joe Montoya of New Mexico announced plans to hold hearings looking into IRS abuses. The IRS responded by putting his name on a list of tax protesters capable of violence against agents. Over 22 years ago the nonprofit Josephson Institute of Ethics conducted a survey of 800 IRS executives and managers which revealed that three out of four felt no compunction about lying to a Congressional committee. About 15 years ago a client of my accountant wrote a critical letter to the IRS and two gun-packing agents showed up on his doorstep. The IRS is beyond criticism, beyond scrutiny, and beyond governance. It answers to no one except superficially.

Taking a cue from JFK’s tactics, Obama’s 2012 campaign singled out a number of Romney supporters by name. Among them was Idaho businessman and longtime Republican donor Frank VanderSloot whom Obama called a "wealthy individual" with a "less-than-reputable record." Other Romney supporters were characterized by Obama as "on the wrong side of the law." Republican PACs and Tea Party 501(c)(4) organizations were targeted by Obama by questioning whether their funding was coming from overseas. Obama used "tea baggers" as a pejorative and Biden called them "terrorists."

The IRS didn’t need a memo from the White House. It got the clue and it got to work sandbagging the enemies of The Boss. VanderSloot's divorce records were investigated. The IRS audited the VanderSloot’s tax returns for the past two years. The Department of Labor conducted an audit of the guest workers on his Idaho cattle ranch. Then he got notice of yet another tax audit. The harassment continues. His tax refunds have been held up and his legal bills have passed the $80,000 mark.

Tea Party organizations applied for tax exempt status during the 2012 election cycle. Exemptions would allow them to raise funds and advance their candidate preferences. Their applications were stonewalled by the IRS review process and many folded, unable to stay in operation until their exemptions came through. The IRS asked applicants for outrageous information – the mission of the organization and the people involved with it, including board members, donors and speakers at its events. An Ohio group was asked to write a synopsis of a 350-page book its members had studied. They were given two weeks to comply.

None other than Franklin Graham, son of the evangelical icon, suffered the consequences of voicing his beliefs which ran counter to White House ideology. Two of Graham’s non-profits were audited during the 2012 election campaign after the organizations took out ads urging people to support biblical principles in their choice of political candidates. Graham sent a blistering letter to Obama about the audits after learning that conservative groups with “tea party” and “patriot” in their name were being disproportionately audited or investigated by the IRS. "This is morally wrong and unethical – indeed some would call it 'un-American'" Graham said. He may as well have saved the postage.

How is this possible in “the land of the free?”

It’s no secret that Obama is a friend of labor unions, among them the National Treasury Employees Union (NTEU.) It represents 150,000 government employees in the IRS and 30 other agencies, making it the most powerful government union in operation. Visitor logs show that one of the first “low level” visitors to the White House in Obama’s first term was Colleen Kelley, a 14-year veteran of the IRS and president of the NTEU. Kelley is recorded as visiting the White House on December 3, 2009 at 6:30 pm to attend the White House Christmas party, the first of the new Obama administration. Kelley was one of four labor activists invited. Heady stuff.

Six days after the party, Obama issued Executive Order 13522, “Creating Labor-Management Forums to Improve Delivery of Government Services,” whose purpose was to “allow employees and unions to have pre-decisional involvement in all workplace matters….” The EO gave the NTEU the clout to determine IRS employee policies, right down to who was given a government-paid Blackberry and what office size an IRS employee was allowed.

In other words, the EO let the inmates run the asylum.

Since the NTEU is the most active anti-Tea Party union in government, Obama’s EO was his Christmas gift. On March 31, 2010 Kelley again visited the White House according to visitor logs. The Inspector General auditing the IRS scandal says in its report that the day following this meeting the IRS ratcheted up its schemes to target Tea Party and conservative groups.

The NTEU raised $613,633 in the 2010 cycle, 98% of which went to anti-Tea Party Democrat candidates. Nevertheless, Democrats suffered massive political losses in the mid-term elections including the loss of the House majority and six seats in the Senate. State government gains went to the Republicans on a large scale.

Therefore, payday came again for the boss of the IRS union. One week after Obama and Democrats suffered their historic midterm losses, Obama appointed Kelley to the Federal Salary Council whose job is to recommend pay raises for IRS and other federal employees. The NTEU PAC thanked Obama by raising $729,708 in the 2012 cycle, of which 94% went to anti-Tea Party candidates.

The Treasury Inspector General of Tax Administration completed his audit of the IRS targeting in September 2012. (An audit is not an investigation.) Someone decided its findings should not be released until May 2013 – after the election. When the 54-page audit report was released last Tuesday, it was clear that the IRS was involved in a crime – the use of government power to suppress anti-Democrat political speech. Obama acted outraged and fired Steven Miller, the acting IRS Commissioner. Big deal! Miller was scheduled to retire in weeks. He will be receiving a taxpayer-funded pension, notwithstanding his firing.

Darrell Issa’s House Oversight and Government Reform Committee has its hands full lately keeping up with all of the Obama scandals. It is presently investigating three of them – the IRS, Benghazi, and the revelation that the Department of Justice secretly subpoenaed the private phone records of several Associated Press reporters and editors in the wake of a terrorist plot leak. Despite his newly-unemployed status, Miller was subpoenaed by the Issa committee.

Miller’s testimony before the House Committee was little more than a replay of the Abbott and Costello baseball parody, “Who’s On First.” Representative Kevin Brady (R-TX) asked Miller, “Who is responsible for targeting these individuals?”

Miller: “I don’t have names for you.”

After several rounds of “I used to know but now I’ve forgotten,” Representative Dave Reichert (R-WA) confronted Miller: “I’m disappointed. I’m hearing, ‘I don’t know. I don’t remember. I don’t recall. I don’t believe.’ Who knew? You don’t even know who investigated the case, but yet you say it was investigated … You’re not instilling a lot of confidence.” Reichert continued the questioning of Miller, asking who did IRS adviser Nancy Marks identify as the person responsible for the IRS targeting policy. Miller’s response: “I don’t remember.”

It’s unfathomable that the most illegal order given by the IRS, one that is likely to send one or more people to prison, can’t be recalled by the person in charge of the agency! Maybe Miller’s memory will clear if he is implicated as a candidate for prison time.

The Democrats are facing some serious losses in the 2014 midterm elections. Their cause was not helped, however, by Lois Lerner, the person in charge of granting IRS tax exemptions. She appeared before Issa’s Committee Wednesday. Her lawyer had warned she would plead the 5th Amendment if she was called before the committee, and that’s what she did. What’s noteworthy about Lerner’s appearance, however, is that she brought a lawyer. The presence of a lawyer in a congressional hearing is a clue that the client could be facing criminal charges. After making an opening statement (which may have voided her 5th Amendment rights) Lerner “took the 5th” on every question put to her. A furious Democrat, Representative Stephen Lynch (D-MA), warned Lerner that there’d be “hell to pay” for her obfuscation, possibly in the form of a special prosecutor, if she and other IRS officials maintained their code of silence to Congress’ questions.

Lerner was placed on administrative leave Thursday when newly-appointed Acting Commissioner Daniel Werfel asked her to resign and she refused. Concerning Werfel’s “acting” status, Jay Leno quipped, "They're called 'acting commissioner' because you have to act like the scandal doesn't involve the White House."

In her essay on government, Ayn Rand wrote:

We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.

The latest IRS scandal is the legacy of this 100-year old agency writ large – another example that too much power is concentrated in this single agency.  If we are to escape the fulfillment of Rand’s prophecy, the IRS must be broken up and reconstituted as multiple independent, non-collaborative agencies.

The break-up of the IRS could defang the current model but it would only be a band aid. The underlying problem – the way government is funded – would remain unchanged: i.e. the century-old decision to tax income. Once that Pandora’s Box was opened it unleashed a flurry of imponderables: what is income, when is it taxable, and when is it exempt?

Unlike absolutes such as the case for gravity, there is no absolute to define income. That must be decided by arbitrary judgment, which inevitably conveys power upon the judge. However guileless the judge may be, arbitrariness in any form is despotic. It grants fiat power to one party while withholding it from another party. This is the antithesis of a free society.

The power to enforce tax compliance and the power to abuse are first cousins. We will continue to struggle with the flaws of the current system until we cease to tax income.

The Case of the Disappearing Taxpayer

Throughout most of the first century of the Republic, there was no income tax. Government was paid for by taxes on whiskey, tobacco, corporate bonds, carriages, and property sold at auction – including, unfortunately, slaves.

The first sales taxes appeared with “Madison’s” War of 1812 when gold, jewelry, and watches. But in the years following that war, Congress abolished all taxes but tariffs on imports.

The Civil War brought the first income taxes in 1862. In the year following the war’s end, tax receipts were $300 million – the highest since the founding of the Republic. Congress wisely abolished the income tax in 1872 and relied on whiskey and tobacco taxes once again to fund government operations.

The 16th Amendment made the income tax the law of the land in 1913 giving Congress the authority to tax both individual and corporate income. Federal tax receipts surpassed a billion dollars in 1918, the last year of WW I. Then in 1943, the withholding tax on wages was instituted. Income taxes were broad-based and 60 million taxpayers – virtually the entire US workforce – paid $43 billion in taxes in 1945, the last year of WW II.

Federal spending in the 60 years following the war – from 1948 to 2008 – tracked a remarkably stable 20% of the GDP. Tax receipts were likewise stable at 18%. The country was prosperous and, with the collapse of the Soviet Union, the US was the world’s only superpower.

In 2008 Barack Obama was elected president and given bullet-proof majorities in both the Senate and House. Both the White House and Congress had the most left-leaning governing ideology in the history of the country. Spending as a percentage of GDP increased to almost 26%. The recession beginning in 2008 caused unemployment to rise and tax receipts to fall. And yet the Obama administration continued spending, borrowing 40% of every dollar it spent.

To provide political cover for the fiscal deficit and growing national debt, Obama launched a class warfare campaign to overturn the Bush 43 tax cuts, relying on the theme that the rich were not paying their fair share of taxes. While the White House kept up the pressure on Congress to raise taxes despite the recession, “low information” voters ignored a trend that had been underway since Lyndon Johnson’s landslide election of 1964: the growing number of wage earners who paid no taxes. This was the legacy of Johnson’s Great Society. Readers may click on the link here to see how the percentage has grown since the launch of Johnson’s welfare scheme in 1968.

The number of people who paid no taxes has grown from 12% in 1968 to 50% of the workforce in 2009. And with fewer people paying federal income taxes, those who pay the cost of government have to shoulder not only their share but also the non-paying half’s share. This has resulted in a very progressive tax system – one that is unsustainable.

No longer is the income tax broad-based because 58 million in the workforce pay no tax. Under current law, deductions and credits exempt most of this number from taxes. A family of four earning $45,000 would pay no tax and could receive a payment from the government of $300 after taking the standard deduction, personal exemption, credit for two children, and an Earned Income Tax Credit. The latter operates like a negative tax when the EITC exceeds the taxes owed.  Some non-payers aren’t even required to file returns.

In recent years the federal government has reduced the number of taxpayers by providing them tax credits. Unlike deductions, which reduce taxable income (like charitable contributions and mortgage interest) tax credits reduce the taxes owed dollar for dollar. So a taxpayer who owes $1,000 in taxes and has a $200 credit will pay $800. A taxpayer who owes $100 and has a $200 credit will receive $100 – a negative tax. In the last two decades the cost of these credits has increased from $20 billion to over $230 billion. Since the government has no money to pay out these credits, they are paid in additional taxes on taxpayers.

In fact, the fastest growing segment of government spending is transfer payments rather than spending on government operations. Transfer payments, as the name implies, takes money from one group and grants it to another group. Social Security and Medicare/Medicaid are examples of transfer payments. Current beneficiaries of these programs pay nothing close to the actual cost of these payments. Even their historic payments, if they had been retained and compounded, would still require subsidies by current taxpayers because services have become more generous. But the fact is historic payments into the “system” were not retained and compounded. The government spent them in exchange for an IOU, leaving the current generation of workers to pick up the tab with their payments into the “system.” Transfer payments for some government services are not dollars paid over to the beneficiary, but in-kind transfers of goods and services, such as healthcare.

Anyone who understands basic economics knows that when the price of a good goes down, the demand for it increases. People are aware of the “price” of government through their taxes. When they pay no taxes, their perception is that government is “free” and thus they demand more services and payments. Of course, government is not free, and when half of the workforce does not pay for it, the cost of increased demand is shifted to taxpayers further exacerbating the demand for more government services and payments.

The shrinking size of the taxpayer class, as well as their income which is subject to tax, cannot sustain the current level of government spending on operations and transfer payments. Predictably, government borrows the balance – currently 40 cents per dollar spent. That problem will only get worse as the number of taxpayers shrink because more workers pay no tax as a consequence of deductions, exemptions, and credits. It has been estimated that for every 1% increase in non-payers, the debt-to-GDP ratio increases seven-tenths of one percent.

From a 10,000-foot view we can see a catastrophe in the making. In order to buy more votes to sustain themselves in power, politicians remove more of the workforce from paying taxes. Because government costs them nothing, they demand more of its “goodies,” and because their number is growing, they become more powerful as a voting bloc. In contrast the taxpayers who are paying more of the cost of government operations and transfer payments are shrinking in number and thus becoming less of a voting bloc. This makes their voices less heard in Washington.

Moreover, within the taxpaying workforce, the tax take is highly progressive. The highest income earners – the top 1% – pay almost 40% of the taxes. The top five percent pay over 60% of the taxes and the top 10% pay over 73% of the taxes. When the top 10% pay almost three-quarters of the taxes, the welfare state which current and past administrations and congresses have created simply isn’t sustainable.

Morally, more people must have skin in the taxpaying game. More people must feel the cost of government and carry that feeling to the ballot box. And morally, no one should be exempted from taxes. Everyone ought to pay something – i.e. everyone should be denied keeping some share of their hard won income however small so that they pay attention to government excesses.

A nation’s tax code should be the voice of the people not the voice of the politicians. It should encourage current thrift for future consumption, reducing the amount of welfare a society requires. The tax pain rather than the tax liability should be equally distributed – e.g. pain for a family earning $45,000 per year requires fewer dollars than the same degree of pain for a family earning $450,000 per year. Taxes should never be used for social engineering or to favor the well-connected and political cronies. Green energy comes to mind.

Most important: the tax system should be easily understood and unimpeachably equitable.

None of these qualities exist in the current tax system. Personal and business decisions are influenced as much by their tax consequences as by their motive. Saving and investment are discouraged; consumption is not. Charitable contributions are currently a deduction. Arguably they should be a tax credit, minimizing government involvement in charitable activities that can be demonstrably delivered more efficiently by private organizations and individuals than government. Votes and political influence is curried with one group that is paid for by another. Loopholes are engineered for interest groups that aren’t available to others. The current tax system is arcane and easily manipulable by politicians.

My friend, Willis Cook, Tax Partner for the CPA firm of Brooks, Cook & Associates, and I have had many discussions about the inequities of the current tax system – usually around April 15 when I am protesting that the government’s take is too much. We have bandied about the merits of the flat tax, the alternative maximum tax, recently put forward in a Wall Street Journal op-ed, and other tax schemes that would achieve the social fairness the Founders intended, not the class warfare Obama provokes.

It seems unlikely that the pygmies in Washington have the courage to create a system with the attributes above, because they would have to abandon the current one and start over. Even then, one wonders if they can be trusted. Ronald Reagan’s 1986 Tax Reform Act promised to forever lower rates if Americans would give up certain deductions and loopholes. We gave them up. The tax rates were raised before he left office. His successor – George “No New Taxes” Bush – broke his pledge and voters rewarded him with permanent retirement.

If the proposal Willis has in mind could be enacted, it would be simple, fair, and favorable to saving and investment. The questions that must be answered are what is income, when is it taxed, what is expense, and when is it deducted?

For example, is income money that is received or money that is owed when title transfers? In the first case you have the cash. In the second case you own an obligation but not the cash. On which is the tax computed?

Personal taxes are calculated differently than business taxes. Should personal taxes be paid on gross income or income net after allowable expenses (deductions) as in our present system? Should taxes be calculated differently for different types of income – wages, interest income, capital gain income, and passive income from a business in which you are not employed but it pays you a share of the profits?

In business a sale can be made and it may be months before the cash is received. A purchase may be made, which is considered an expense, but it too may not be paid for months. When is it income? What is income – the gross amount or net after expense?

The American taxpaying public spends billions of dollars in tax compliance dealing with these questions. Those that compute their own taxes spend millions of hours preparing them. The tax code is so byzantine that it requires accountants like Willis to prepare all but the simplest returns. This becomes a frustrating dance between client and accountant. Willis asks for the required information to prepare the return. The client has no clue what or why that piece of information is needed unless the taxpayer is quite sophisticated. “Did you sell any stocks this year?” asks Willis. “Yes,” answers the client. “Well?” asks Willis. “Huh?” answers the client. “What was your sale price and what was the cost basis?” asks Willis. “What’s a cost basis?” asks the client. This goes on for about an hour until one of them surrenders.

Perhaps I’ve exaggerated a bit. But not much.

In a desperate act of self-preservation, if not the retention of sanity, Willis has proposed a new model. This one permits a relatively unsophisticated taxpayer to escape the hand to hand combat with his accountant each year in a reenactment of Wily Coyote and the Road Runner. Currently clients have neither the interest nor understanding of the records to keep, especially if an extraordinary event occurs during the year, like an inheritance, property sale, or business transaction in another state.  

Willis’ solution is a national sales tax, but a progressive national sales tax, not the flat, or nearly flat, sales tax that funds a great deal of our government at the state and local level.  A progressive sales tax would be one whose rate is increased as the size of the sale increases.  For example, a $10 sale could be taxed at zero, a $100 sale, 5%, a $1 million sale, 20%, etc.  The major decisions would consist of what not to tax, for example medicine, and when to tax a transaction.  The “when to tax” decision addresses primarily the issue of whether an item is taxed when title changes hands, or when it is paid for.  For example, would the tax on a $100 million building be collected upon closing the sale or taxed as money changes hands, e.g. the down payment and debt payments.

If Congress had any interest in true tax reform, it could create a committee to answer the questions posed above. The objective would be to produce the structure of a progressive sales tax law that would fund the treasury at current levels and distribute the tax burden in roughly the same proportion as now distributed.  Their challenge would be to determine what would be taxed, when it would be taxed, and the appropriate tax rate scale. 

The intent in replacing the current tax law would not be to increase or decrease the tax receipts or to increase or decrease the burden on any particular group.  The objective is a simpler system not a political one. A simpler system would encourage thrift, reduce welfare (because people have incentives to prepare for their future retirement,) it would distribute equitably the pain of supporting a central government so everyone pays attention to its efficiency, and it would avoid social engineering and cronyism for special interests. It would collect the money government needs to operate but it could not be manipulated by politicians.

For all of these reasons, true tax reform will never happen.

A License to Kill

It’s quite possible that you, like most Americans, have not been paying attention to the shenanigans that went on in the Senate this week with the passage of an Internet sales tax, laughably named The Marketplace Fairness Act. I guess a more accurate name like The Internet Sales Tax and Small Online Vendor Unemployment Act would not garner too many votes in either congressional chamber or from either political party. The fact is this bill is a license to kill small Internet e-businesses.

Naming new laws is definitely an art form. No matter how perverse the motives of a new law, it always comes with a sugary name that makes a somnambulistic electorate wonder why anyone would object to a law bearing such a well-meaning name. If the truth be known, I believe Congress subcontracts bill-naming to Comedy Central and Saturday Night Live. The Patient Protection and Affordable Care Act comes to mind.

I’m not shy about calling things by their right name. The Internet sales tax law is another attempt by states to create an additional revenue source. Since the housing bust, property values cratered and the property tax trough dried up for county governments. Unemployment and reduced consumption have reduced the flow of the state income and sales tax revenue stream.

You’d think that state, county, and local governments would say, “Golly gee, we’re not bringing in the bucks we used to. Let’s cut services to get spending in line with the tax haul.” Nawh! That’s what you and I have to do when we run out of money before we run out of month. Government bureaucrats look for more things to tax. And they’ve been salivating over the Internet golden goose since the thing became the new medium for commerce in the early 1990s.

An office supply company, Quill Corporation, was the first case to beat back a state’s attempt to turn a foreign company (i.e. one with no physical presence in the state) into a collection agency. Quill licensed software that allowed customers to check its inventory and order stuff. The North Dakota State Tax Commissioner notified Quill that it was to collect taxes on goods shipped to customers in its state, even though Quill had no presence there and sold by catalogs and telephones from warehouses outside the state. I don’t know the exact words Quill used with the ND Tax Commish but it was something like, “Take a hike. I don’t get paid to do your job. If you want the taxes, you collect them.” The hard part in sales tax collections, of course, is knowing who the customers are and Quill’s sure weren’t raising their hands.

The case went to the Supreme Court and North Dakota lost in a 1992 ruling.

The case set a precedent that states have no jurisdiction over businesses not located in their state. Not to be put off by a mere technicality, state and county tax commissioners around the country have been looking ever since for ways to waddle up to the tax revenue trough as more businesses abandon bricks and sticks for online business models. In 2012, year-over-year e-commerce sales in this country grew 16% to $226 billion, most of which is untaxed. Ten percent of sales now occur online. It would be easier for a drunk to pass up a drink than a tax commissioner to pass up this tempting target.

Under our constitution, however, states can’t pass laws that affect other states. So states that want to raid another state’s merchants have to make it happen at the federal level with the help of their congressional delegation in Washington. To that end, Governors began whining that it was unfair competition when out-of-state online merchants could sell at lower prices because purchases were tax-free. They whined that their bricks and sticks merchants were being used as showrooms by shoppers who unfairly made their purchases online. Baloney! This debate has nothing to do with fairness. It’s about taxes.

Both Republicans and Democrats have been quite willing to help lighten the pockets of people who buy stuff on the Internet. Did I say lighten? How about $23 billion lighter? That’s the estimated new sales taxes that could be pickpocketed from online consumers and transferred into state and county tax coffers. Think about how many new state and county employees could be hired and paid not to work!

The ultimate con in this shell game is the argument for leveling the playing field – i.e. online sellers aren’t paying their fair share of taxes. Isn’t that the same con Obama used last fall to raise tax rates on the rich even though very little tax revenue would be raised? Wyoming Republican Senator Mike Enzi, who introduced the Internet theft bill, defends it by saying "Right now, out-of-state online catalog retailers are operating and they're selling within different states, but they're not having to follow the same laws as other businesses and that . . . is collecting the sales tax on purchases."

If you check Enzi’s bio, you find that he, like most in Congress, has never worked for a living because he’s been in government since age 30. When members of Congress can pass laws affecting business, but they’ve never been in business themselves and struggled with the complexities of making business work, they can say some truly stupid things. And Enzi’s statement is one of them.

Let’s parse it.

Enzi’s argument is that a business located outside of, say, Wyoming that sells to Wyoming residents (and other states) ought to be collecting sales taxes from Wyoming purchases because Wyoming brick and sticks merchants have to collect Wyoming sales taxes. In other words, since A suffers B ought also to suffer. One obvious response to that argument is to get rid of Wyoming sales taxes. Then in-state and out-of-state merchants are on the same footing. Five states have no sales taxes and they aren’t in receivership. Rather than finding more things to tax, our elected officials ought to be working to reduce the number of things that are taxed.

Enzi and his Senate colleagues might then argue (as they have) that the states do so much that benefits their state’s economy (roads, schools, utilities, etc.) and out-of-state merchants are getting a free ride. That dog won’t hunt, however, because merchants that have no in-state presence don’t use state services.

The hole in Enzi’s argument is that it doesn’t level the playing field as he claims. It discriminates against merchants located in other states.

Suppose a Montana company sells something to a Wyoming resident via catalog or online purchase. Montana has no sales tax, but notwithstanding that, Enzi says the Montana merchant should collect a sales tax and send it to the Wyoming tax commissioner.

What happens if the same Wyoming resident is in Montana and makes the same purchase? Nothing. The Montana merchant doesn’t say, “Let me see your driver’s. Oops! You have to pay sales tax and I have to mail it to your tax commish.” In fact, that doesn’t happen in any state, including those with a sales tax. A Wyoming resident who buys something in Colorado pays Colorado sales tax to the Colorado tax authority.

The most damning argument against Enzi’s bill, however, is that it’s a license to kill all but the largest online merchants. This is what happens when voters send business bush leaguers like Enzi to Washington to make laws regulating business.

Let’s say an online merchant is located in Indiana and sells to residents of all 50 states. (Yes, there are only 50, not 58 as Obama believes.)  How many tax transmittals is the merchant required to make? If you said 50 (or 58) you’d be wrong. There are 9,646 different sales tax jurisdictions in the US, each of which can require the Indiana merchant to collect taxes on their behalf and send the collections to them. In the back room monkeyshines that we’ve come to expect from Harry Reid, Reid further added: "any tribal organization" – i.e. Indian nation – which I’ve learned number "566 federally recognized tribes and Alaska Native Corporations." And, oh gee, I left out District of Columbia, Puerto Rico, Guam, American Samoa, the Virgin Islands, the Marianas Islands, and any other protectorates, territories, and US possessions. All can tax online sales.

If that sounds like a nightmare in the making, wait! There’s more. Each of the 10,000 tax authorities has different tax rules for taxing. Buckle your seat belt and sail the Internet and you’ll learn that Texas taxes small pretzels but not large ones. Iowa taxes Halloween pumpkins but not the edible kind. Rhode Island taxes soft drinks but not bottled water. It taxes clothing but not fur clothing, dialysis (unless it’s done at home), eye glasses and contacts (unless there is a doctor’s prescription). Products taxed in one state aren’t taxed in another. States have tax-free shopping days – on different days, of course.

If my mythical Indiana merchant’s annual revenues are $1 million or more, every one of the 10,000 taxing authorities has the right to audit the books to confirm they’re getting their pound of flesh. What sort of tax records do you suppose that merchant will have to keep to satisfy 10,000 bureaucrats and their arcane tax rules? What would compliance cost in terms of additional people and time? Our unsuspecting Indiana merchant thought America was the land of opportunity where anybody with a good idea could turn it into a web-based business and now there are 10,000 hands in the company’s cash register and books. And don’t forget ObamaCare. It will force the owner to buy insurance for every employee (if more than 50 are employed for more than 30 hours per week.) Little did the merchant know that his business is just a sideline. The real purpose of his venture is to generate and collect taxes. What a country!

How about the in-state bricks and sticks merchants? What kind of compliance costs do they incur? Almost none. And what kind of records do they have to keep? Very few. The bricks and sticks guys collect sales taxes and remit them only to their state even if every sale they make is to an out of state resident! They don’t have to deal with 10,000 paws in their till or their books. Now, what was that “level the playing field” line again?

Once the way is clear to collect online sales taxes across state lines, what other taxes do you believe state commissioners will dream up? How about taxes on transactions that aren’t traditional sales like out-of-state medical treatments, 401k contributions and stock sales, expert services delivered in the form of recommendations? Any business with an axe to grind because it is losing sales to out-of-state competitors will use their state or county government as a battering ram to “level the playing field.” Colorado state legislators could care less, for example, about the howls any new tax they dream up causes among New Mexico’s merchants. Residents of New Mexico don’t vote for Colorado legislators.

There’s nothing to prevent any of the 10,000 tax bureaucrats from disputing an out-of-state merchant’s tax collections, filing liens on the merchant’s property, and suing him in a friendly home court. That forces the merchant to suffer considerable legal expense or submit to tax blackmail.

You don’t think that would happen? I’ve had a number of run-ins with state taxing authorities because of business ventures in which I’m a partner. Each partner owes taxes in every state in which the venture does business. Believe me, these state tax Neanderthals will spend a thousand dollars to collect five. It isn’t their money they’re spending; they are only judged on collections.

How soon we forget that only as long as Washington bureaucrats kept their hands off of the Internet was it able to grow into the commercial growth engine it is today. The Internet Tax Freedom Act of 1998 was a federal law preventing states from taxing Internet use or access. While the feds could have passed a law allowing states to tax Internet sales, they avoided doing so until now. What changed?

Shocking as it may seem, companies like Amazon – once a fierce opponent of state tax avarice – has now grown to a point where it has a presence in many states and therefore must pay taxes in those states. Predictably, as its tax compliance complexity and cost grew, Amazon developed technology to facilitate compliance. Amazon’s business model has morphed from online bookseller to online technology broker and multi-product merchant. It sells access to its powerful online presence to small merchants who can’t afford to duplicate it. Instead they buy access from Amazon for a fee and a commission on their sales.

Amazon and other online merchants can afford to deal with the byzantine compliance rules of 10,000 sales tax rules. So they’ve switched from opponents to advocates of sales taxes. Smaller merchants who are too large to be exempt under the $1 million rule but are too small to be able to build the compliance infrastructure will have to buy compliance from, you guessed it, Amazon. Wow! Amazon now has another new product to sell.

And who loses thanks to our government’s meddling in Internet transactions? The small merchant which can’t afford compliance even if bought from Amazon – unless Amazon decides to offer a multi-tiered pricing structure that allows even the tiniest merchant to buy compliance. I’m betting they won’t do that because it’s too much of a hassle for the revenue Amazon would earn.

The Senate bill passed late Monday in a 69-27 vote, which means it had a lot of Republican support. Its fate in the House is less certain, and that’s where this monstrosity has to be killed.

One of the 27 votes the Internet tax bill didn’t get was that of the newly-elected, independent-thinking Republican Senator Ted Cruz of Texas. He saw this job-killing bill as a regulatory Godzilla.  “So, how is this fair?” Cruz said. “After all, brick and mortar stores aren’t subjected to all these rules. And, how is it fair for a Texas business to collect taxes to support California Gov. Jerry Brown’s big spending?...Make no mistake: Big business supports this bill because it will drive smaller competitors off the Internet and out of business.”

I think he’s right.

Political Correctness Kills

The biggest impediment to source analysis – to a greater likelihood of connecting the dots – is the human or systemic resistance to sharing information. The U.S. government has access to a vast amount of information. When databases not usually thought of as “intelligence,” such as customs or immigration information, are included, the storehouse is immense. But the U.S. government has a weak system for processing and using what it has.

… information is available, and someone [must ask for it]…  [yet currently] it cannot be shared … a demonstrated “need to know” [must exist] before sharing. This approach assumes it is possible to know, in advance, who will need to use the information. Such a system implicitly assumes that the risk of inadvertent disclosure outweighs the benefits of wider sharing. Those Cold War assumptions are no longer appropriate. The culture of agencies feeling they own the information they gathered at taxpayer expense must be replaced by a culture in which the agencies instead feel they have a duty to share the information – to repay the taxpayers’ investment by making that information available.
--- 9/11 Commission Report

Among the several recommendations made by the 9/11 Commission in its report almost a dozen years ago, this one put its finger on the major intelligence breakdown – petty intelligence turf protection coupled with bureaucratic incompetence. Since the publication of the recommendations, little has changed to keep America safe.

The Boston bombing by the Tsarnaev brothers could have been the plot for an old Mack Sennett Keystone Kops movie starring Janet Napolitano of Homeland Security and Robert Mueller of the FBI with a supporting cast of thousands. Not only was the bombing aided a breakdown in information sharing between the bumbling Napolitano and inadequate Mueller, either of whom could be Inspector Clouseau stand-ins, but this tragedy is only the latest chapter of political correctness gone amok and a flawed immigration policy.

The Tsarnaev family was allowed to immigrate to the US in 2002 and granted asylum from anti-Muslim persecution in Chechnya. The father spoke English poorly and had modest skills as a mechanic. The mother also had limited English and worked as a cosmetologist. Tamerlan, a son, was about 15. He had been named for the 14th-century Muslim conqueror whose triumph over the infidels was commemorated by their skulls piled in pyramids. The other son, Dkhokhar, was about eight years old.

Around 2004 the father quit his job and the family lived on welfare. The family is dysfunctional. Anzov, the father, and Zubeidat, the mother, divorced. The father returned to Chechnya where he lives in no fear of the “anti-Muslim persecution” that got his family into the US.

Tamerlan, the older brother, was charged with domestic violence for beating up his girlfriend in 2009. He married another woman a year later and fathered a child, both of whom joined him on the welfare dole. Then he abruptly gave up smoking and drinking and became increasingly religious, praying five times a day. He irregularly attended a mosque in suburban Boston and was thrown out on one occasion for disrupting the service. In 2011 the FBI received notice from Russian intelligence that Tamerlan was a radical Islamic. The FBI interviewed him but concluded he wasn’t a threat and failed to keep him under surveillance.

The mother was arrested for shoplifting about $1,600 in clothing from a Boston-area Lord & Taylor in 2012. She left the country for Russia rather than appear in court. Her life too suffered no religious persecution after returning to her homeland.

With both parents gone, the brothers had to fend for themselves, not very well, I might add. Tamerlan, the older brother, had no job. He had a green card but was denied citizenship because of the Russian intelligence warning. The younger brother was still in his teens. His grades turned south with his mother’s departure. He failed two semesters and left school.

Despite receiving public welfare support and having no job, Tamerlan had money to return to Russia and live there for six months. In 2012 he left Dkhokhar in the US and returned for an undisclosed purpose to visit Russia and travel to Chechnya, a hotbed of Islamic radicalism. He too suffered no religious persecution while he is abroad, defying the basis for asylum which admitted the family to the US. Upon his return from Russia, Tamerlan posted a YouTube video with his name which extolled al-Qaeda and terrorism.

On September 11, 2012 Dkhokhar became a naturalized citizen but he too had no job and remained on welfare with his brother’s family. An uncle living in Maryland called the pair “losers.” US immigration authorities didn’t know they existed.

Two weeks ago on April 15 two homemade “pressure cooker” bombs went off near the finish line of the Boston Marathon. That they were homemade gives the misleading impression that they weren’t sophisticated. This is not true. No pair of “losers” could have assembled these two bombs or other bombs used by the Tsarnaev brothers against the police in the ensuing pursuit. In addition to the three people killed at the Marathon finish line, and hundreds maimed and injured, the Tsarnaevs murdered an MIT campus policeman, Sean Collier, as he sat in his cruiser. The apparent motive was to take his pistol because the brothers had only one. Because police side arms have three-way holster locks, the Tsarnaevs were unable to get the pistol out of the holster after shooting Collier in the head multiple times.

Their plan evidently was to hijack a vehicle and drive to NYC where they would set additional bombs in Times Square. Their plan worked to the point of hijacking an SUV and forcing the owner out unharmed. They told him they had bombed the Marathon and killed a police officer so “don’t f--- with us.” The victim’s cell phone was on and remained in the car, allowing police to pinpoint the brothers in the Boston suburb of Watertown.

A shootout with the Watertown police occurred which included tossing the pressure cooker bombs at the police. When Tamerlan ran out of ammunition, the police tackled him and were in the process of handcuffing him when Dkhokhar tried to run over the group with the stolen SUV. The police jumped out of the way and only Tamerlan was hit and his bullet-riddled body was dragged some distance before Dkhokhar abandoned the SUV and escaped in the night. Tamerlan died at the hospital. Dkhokhar was later found severely wounded and hiding in a boat under its tarp.

He was taken to a hospital and placed under guard as care was administered. Treating him as an enemy combatant would have given the FBI 48 hours to question him – not to get a confession – but to learn if he was part of a sleeper cell and how the pair produced the pressure cooker bomb.

It was not to be. After 16 hours of cooperative questioning, Federal Judge Marianne Bowler, a woman with known Middle East sympathies, and several public defenders showed up in Dkhokhar’s room. This could only have happened on Attorney General Holder’s orders. Over the protests of the investigators who wanted to continue their questioning, Bowler held a hearing in the hospital room and read Dkhokhar his Miranda rights. The terrorist ceased cooperating after that.

Holder and Obama could have filed an immediate suit to block Bowler. They didn’t because, as they have in other acts of terror, both consider these as criminal offenses. Dkhokhar’s new lawyers now have access to anything the FBI learned and can effectively neutralize its intelligence value by introducing it in open court. Bowler’s CV can be found on the Internet. Her guest lectures in Middle Eastern countries not hospitable to women, not to mention women in positions of authority over men, is extraordinarily telling.

Against the background of the Boston bombing story, consider the role the Keystone Kops played in facilitating this tragic act of terror. In a hearing before the Senate Judiciary Committee last week Napolitano testified that her department’s "system pinged when [Tamerlan Tsarnaev] was leaving" en route to Russia. Homeland Security didn’t bother to share that information with the FBI and CIA. The FBI had interviewed Tamerlan in 2011 after being told by the Russian intelligence that he was an Islamic radical with ties to underground groups. The FBI decided he wasn’t a terrorist and dropped the matter – something they didn’t bother to tell Homeland Security or the CIA.

It was 9/11 déjà vu all over again. Buildings and thousands of lives had been destroyed in 2001. This time we have the Russians doing our intelligence work and our FBI ignoring their warnings. Russia doesn’t have American scruples about human rights and privacy. They learn what they want to learn. So who’re you going to believe? The FBI or the SVR? And where will the next intelligence tip come from – Iran?

Forgetting the millions who are in this country illegally, let’s focus on just the Tsarnaev family and ask this question: What does it take to get deported from here? The Tsarnaevs came here as refugees from religious persecution. Yet Papa returned home a few years later and faced none. Mama returned home to escape a theft charge and faced none. Tamerlan the older brother left for six months to live there and faced none. Evidently lying about your immigration status isn’t cause for deportation – that awful “D” word so despised by the Obama administration.

How about getting a job and not living off of the good charity of the American taxpayer? If you fail to work and become self-supporting is that cause for deportation? Apparently not.

How about behaving yourself … should an immigrant be expected to follow the law as a condition of remaining in this country? I guess not. Tamerlan’s domestic violence and Mama’s theft didn’t result in deportation. Mama fled a trial that could have had consequences. Had she stayed and faced the music, would she have been deported? Not likely.

One final question. As a guest of this country should you be deported if you threaten to disturb the domestic peace and tranquility? It seems not. The FBI was warned Tamerlan had ties with radical jihadist groups, he posted YouTube videos that were the equivalent of a neon sign flashing “Look at me” in terms of his anti-western sympathies, but he wasn’t deported. He was allowed to stay and kill.

Deportation and illegal immigration is the elephant in the room when it comes to keeping Americans safe as they go about their lives every day. The Boston Marathoners and their cheerleaders along the way thought they were out to have a good time that afternoon. It was just another afternoon. Until the bombs went off and changed lives forever.

And then we come to the biggest threat to the security of every person in the US – political correctness. In the hours following the Boston bombing, Obama couldn’t bring himself to use the “T” word and admit this was an act of terrorists.

On his orders the FBI has expurgated the words “terrorists” and “radical Islam” and “jihad” from its training materials because American Muslims affiliated with the militant Muslim Brotherhood are offended by the use of “terrorist.” The anti-Israel Council on American Islamic Relations (CAIR), the Islamic Society of North America, and advocates for American Muslims say it offends them too. These organizations, which have never taken a formal stand against violent Islamism, have forced us to censor ourselves and our language.

Isn’t it ironic that while all Muslims aren’t terrorists, all terrorists are Muslim? Yet we will wand a blue-haired old granny while a Muslim man (or increasingly woman) passes through airport security without screening. Profiling, you know.

Major Nidal Hasan shouted “God is great in Arabic” and killed 13 people, wounding another 30. The Army brass knew he was a radicalized Islamist – they had read his emails to Anwar al-Awlaki, an American who had fled to Yemen and has since been vaporized. Hasan asked al-Awlaki for guidance in killing Americans. That he was in contact with a member of al-Qaeda should have waved a red flag. It did. The Army however didn’t want to violate his “rights”! Instead of calling his murderous Ft. Hood killing spree an act of terror, Obama called it “workplace violence.” And this is the smartest man ever to be president?

As if that weren’t bad enough, Army Chief of Staff George Casey made the breathtaking statement that, “as horrific as this tragedy was, if our diversity becomes a casualty, I think that’s worse.” I once admired Casey when he was a commander of the war in Iraq. Now I’m glad he’s not wearing an Army uniform.

Even as he was telling investigators that he’d worked with al-Qaeda to explode his underwear on a flight into Detroit, Obama was calling the bomber, Umar Abdulmutallab, an isolated extremist. Months later, Faisal Shalizad attempted to explode a car bomb on Times Square and Keystone Kop Napolitano called it a “one off” attack.

Are these people operating with a full deck? Do they believe we are in a war with Islamic terrorists? No.

The Boston bombing was the most photographed crime scene in history. Could anyone living outside a padded cell look at the bombing photos and mug shots published later and not believe the Tsarnaev brothers were the thugs who did it? Was there any connection between the shootout with the Watertown police, the murder of the MIT police officer, the bombs thrown from the hijacked SUV, the murder of one Tsarnaev by his own brother, and the capture of a shot-up survivor – any connection between all of that and the Marathon bombing? Yet the New York Times started an article shortly afterward with the words, “The alleged involvement of two ethnic Chechen brothers in the deadly attack at the Boston Marathon last week ...” What’s this “alleged” stuff?

Political correctness is going to get a lot of people killed! Why don’t we call things by their right name?

The words we use either engage or suspend our critical thinking. Yet the Associated Press came out with a pronouncement early this month declaring that its stylebook would no longer include the term “illegal immigrant” or use “illegal” to describe a person. No human being is illegal, according to the AP editor’s Sinaitic pronouncements. “Illegal” should describe an action such as living “illegally” in a country. Well, I sure wouldn’t want to damage an illegal immigrant’s self-image by calling him an “illegal immigrant.” 

Moreover, the stylebook continued, no one should hereafter be called “paranoid” or a “schizophrenic.” Instead, they should be described as a person “diagnosed with paranoia or schizophrenia.”

For those of us who believe in the omnipresence  of evil – i.e. that it exists both before it manifests itself and after its full fury is plainly seen in the inexplicable actions of some humans – this kind of word silliness removes the moral anchor that gives words meaning. We can fancify abortion by calling it “pro-choice” but the actions of Kermit Gosnell, the Philadelphia abortionist, were so heinous that I’ve been unable to follow the details of his trial. It sickens me. Can a human soul exist in a person like him or has its light gone out?

I watched the pathetic performance of John Brennan at his Senate hearing for Director of the CIA when he tried to glorify jihadism as a “holy struggle … an effort to purify for a legitimate purpose … not the murder of men, women, and children.” Really? Go tell that to the family of Daniel Pearl, the Wall Street Journal reporter who was decapitated by the jihadist Khalid Sheikh Mohammed.

I am offended by the political correctness that calls religiously motivated killings “workplace violence.” I’m not at all concerned about offending terrorists by characterizing them as such because of what they do. An illegal immigrant does not become less a criminal by separating his act from his label. And does anyone believe a human life is any less unspeakably terminated by benignly calling the act a “choice” instead of the malignant procedure called abortion?

Mark Twain famously said, “The difference between the right word and the almost right word is the difference between lightning and a lightning bug.” The advocates of political correctness are tolerant of everything except an opposing viewpoint. They appeal to high-minded tolerance by sanitizing our words of their moral gravity. This cripples society’s ability to argue the issues that confront it.

Judgment of right and wrong is, after all, what separates us from animals. Blaise Pascal wrote 400 years ago that man is a reed, easily crushed, but he is a thinking reed. Thinking is what gives him dignity. For that reason alone, the philosopher said, we should strive to think well because it is the offspring of morality. I would add that morality equally compels us to argue well with words of unmistakable clarity.

When our words are robbed of meaning, we are no longer able to engage in honest debate because we fear being labeled a hater or racist or homophobe. That path leads to a less tolerant society, not a more tolerant one. If we follow it, how could we possibly hope to make Americans fundamentally different, indeed better, than the fanatical adherents of Islam?