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A Few Lessons From the IRS Scandal

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Just back from a rousing debate on CNBC on the IRS scandal (a tough way to start the day but always a pleasure to mix it up with the the Squawk team and the smart and balanced Tony Fratto). Key points, as I see them:

-- While the pugilistic Joe Kernen was disappointed to hear it, I stand second to no one in condemnation of the IRS's alleged targeting the applications of particular groups. The president's obvious anger on this point in his statement yesterday was completely appropriate.

-- But woe betide us if we stop there. IE, if we make this scandal only about rogue actors in the agency and whether it reached the administration, we will miss the glaring impossibility of what we're asking the IRS to do in these cases, which is to implement completely incoherent tax law.

On this point, all you need to know is that organizations with this status (501(c)(4)'s) that spend 50.1 percent of their time on political activities vs. "educational" ones are in violation of the law; those that spend 49.9 percent are not. We're asking the IRS to use a razor blade to slice a completely fuzzy line.

In that sense, the agency was and remains wholly justified in carefully scrutinizing these applicants. But they must do so without a fat thumb on the ideological scale, and that's where they appear to have gone badly wrong.

-- Note the question I posed to the panel: can anyone here justify tax exempt status for any of these political organizations? How does that tax break, which includes suppression of donor's names, make America a better place? Not only did no one have an answer, but Michelle Caruso-Cabrera agreed with me, and that's rare!

Update: The New York Times editorial page very effectively elaborates points I made above.

This post originally appeared at Jared Bernstein's On The Economy blog.

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