From Ted Truman (former director of Int’l Finance at the Fed, former Ass’t Sec. Treasury), at Peterson Institute’s Real Time Economic Issues Watch, yesterday:
The impending congressional adoption this week of a $1.1 trillion appropriations bill has been hailed far and wide as a victory for sorely needed bipartisanship cooperation in Washington. Left out of the legislation, however, was an important but little understood and underappreciated proposal to implement reform at the International Monetary Fund (IMF). …
…The proposal would fulfill an agreement pressed energetically by President Barack Obama at the G-20 leaders’ meeting in Seoul in November 2010. The omission, which has gotten too little attention, is a major blow to US credibility around the world, with ominous consequences for the future of international economic, financial, and political cooperation.
…
The short-term and longer-term implications of this failure for the United States are severe. The United States has scored an “own goal,” as soccer fans would say—a self-inflicted wound in other words. US status as a leader of IMF institutional reform is seriously tarnished. In the future, the United States will be less trusted to implement international agreements in this and other areas. Moreover, the IMF is weakened because, after more than three years, the package of reforms remains in limbo, and prospects for future reform are diminished if not postponed indefinitely.
The IMF may not be popular. The countries that provide funding are not happy about rescuing countries they believe have engaged in irresponsible behavior, and the countries that need to be rescued never like the strict policy measures they must undertake to get IMF financial help. But like it or not, the Fund is the premier forum for international monetary cooperation and guardian of and advocate for international economic and financial stability. Because the United States has balked at approving the IMF reforms to reflect changes in the global economic and financial environment, the IMF’s status and legitimacy is diminished. Not only will the rest of the world suffer as a consequence but the United States will as well.
…
More on the the issue by J. Weisman at the NY Times, and R. Harding at the FT.
I am baffled why such a major voting change had a price tag tied to it. If the $315 million is chump change, then the IMF should be able to do without it. The two items should have been de-linked. How did they pitch this to the Republicans? “Hey, you can have your voting power reduced and it will only cost you $315 million!”
The NY Times article Menzie references contains a tantalizing passage that you’d think an enquiring reporter would want to follow up on. The article states: “Republicans did hint that they could include the changes, but the price they were asking was too high for the administration to meet.”
“The administration pushed very hard, but the other side pushed hard right back,” Ms. Mikulski said.
Hmmmmm. I wonder what that price could have been that was too high? And why did Republicans “hint?” Why wouldn’t they make the price clear? Why is the NY Times reporter tiptoeing around this question?
Well of course the Republicans made the price clear, although the NY Times reporter seems too embarrassed to discuss what really happened.
Kimberly Strassel provides the answer in her WSJ column today. People know doubt know that the Administration investigated itself on the IRS targeting of conservative groups, and, without interviewing anyone who claimed to have been targeted, pronounced itself innocent of any wrongdoing. What’s not commonly known is that in late November the IRS published a rule in the Federal Register that gave them clearer and more powerful tools to shutdown the sorts of activities conservative organizations are engaged in. As Ms. Strassel reports, the price that Republicans wanted was language that would nullify that rule. But that was the price that was too high for the Administration to pay.
The Administration is understandably terrified at the prospect of conservative groups reminding voters of the Obamacare disaster during the 2014 election and is determined to muzzle debate. The Administration and Democrats in Congress decided to throw the IMF under the bus rather than nullify the IRS rule.
Rick Stryker: For a less breathless interpretation, see Weigel/Salon:
Well, it could be Strassel is correct…and the ACA death panel teams are just waiting to strike!
Menzie,
In the Salon article you linked to, David Weigel agrees with the following points:
1) The price that was too high for the Administration to pay was the nullifcation of the proposed IRS rule. To quote Weigel, “Strassel’s reporting is solid—she just follows it to conclusions that escape everyone else” and “Alerted by Strassel, Republicans spent the month between the introduction of the budget and the passage of an attendant spending bill trying to block this rule.” Republicans weren’t “hinting” as the NY Times reporter tried to claim.
2) The rule confers political advantages to Democrats. As Weigel put it: “I’m not naive. Right now, the change to the IRS’s rule on “social welfare” would weaken, mostly, groups set up to spend big against Democrats. This rule would be good for the Obama administration.”
So, although Weigel is disputing whether the rule would in fact “muzzle” conservative groups, he is not denying that the price the Administration refused to pay was to nullify a rule that the Administration made up to give itself a political advantage in the upcoming election.
That the Administration threw the IMF under the bus for it own political advantage is an embarrassing little tidbit that the NY Times, in its typical role of carrying water for the Democrats, did not want to disclose to its readers.
It’s not surprising really. Whether it’s the stimulus, Obamacare, or whatever, politics always trumps policy with this Administration.
Rick Stryker: “The rule confers political advantages to Democrats.”
No, the rule doesn’t change anything. It has always been a violation of the law for 501(c)4 groups to be formed primarily for politics. The rule simply clarifies what has always been the law and makes absolutely clear that politics are not allowed — no more of this “educational” BS.
501(c)4 groups are intended for civic social groups like youth athletic clubs, civic leagues and such. The very fact that you think your favorite groups are essential to conservative politics is prima facie admission that they are illegal 501(c)4 groups. A political 501(c)4 group is and has always been illegal, so I don’t know what you are complaining about.
If you want to do politics, all you have to do is form a 527 organization and you can donate all the millions of dollars you want. Your only concession is that you must publicly disclose the donors — no secretive politicking. So you aren’t muzzled in any way. Spend yourself crazy. You just can’t do it from a secretive 501(c)4. What is unfair about that?
Joseph,
No, that’s wrong. 501(c)(4) groups have, since IRS interpretations from the 1950s, been able to and in fact do engage in political advocacy. There is a lot of confusion and misinformation on this topic.
A spectrum of tax exempt organizations is allowed to participate in and influence the political process, with varying degrees of political advocacy allowed. Each corporate form has its costs and benefits.
The most politically restricted tax exempt organization is the 501 (c)(3) group. It can engage in education, which in practice can be very political, and a limited amount of lobbying. For example, the left wing organization Center for American Progress is a 501 (c)(3). Menzie’s favorite think tank, The Heritage Foundation, is also a 501(c)(3). Donations are tax exempt and donors do not have to be disclosed.
Moving up the chain, the 501 (c)(4) is allowed to do political education as well as engage in extensive lobbying, as long as these activities are not the primary purpose of the organization. A 501 (c)(4) can do voter registration drives, put out voter information sheets, conduct debates between candidates, etc. One example of a 501(c)(4) on the left is Moveon.org Civic Action, which is the educational and advocacy arm of Moveon.org. (The other half, Moveon.org Political Action, is a PAC.) Another example is the League of Women Voters. The sister organization of Center for American Progress, Center for American Progress Action Fund, is a 501(c)(4). It engages in all sorts of political advocacy and lobbying and runs the ThinkProgress blog. 501(c)(4)s do not have to disclose their donors like (501)(c)(3)s, but donations are not tax deductible.
The 527 allows even more political activity. 527s can raise unlimited amounts of money and can spend on whatever they want. However, they are allowed to affect elections only indirectly and may not advocate the election or defeat of any particular candidate. In practice, 527s are formed to run attack ads. It’s permissable for a 527 to run an ad attacking a candidate as long as it doesn’t tell anyone to vote against him or for his opponent. Donations are not tax deductible and donors must be disclosed. But these organizations. like 501 (c) (3)s and (4)s, are not regulated by the FEC.
What the proposed regulations from the Administration did was to prohibit many of the activities that 501(c)(4)s traditionally engaged if they occur within 60 days of an election. They can no longer do voter drives, hand out voter information packets, mention any candidates or political parties, invite candidates to participate in debates, etc. within 60 days of an election but would be permitted to do these things at other times as they have in the past. The proposed rules exempt 501(c)(5) organizations from the new restrictions, which, for those who don’t know, are the way labor unions are organized. So, the new rules won’t be applied to these traditionally Democratic organizations.
To understand why the Administration is proposing these rules, you have to go back to 2010 to the Citizen’s United Supreme Court Ruling. Conservative organization Citizen’s United complained to the FEC that the showing of Michael Moore’s film, Farenheit 9/11, violated McCain-Feingold, which prohibited corporations and labor unions from funding political advertising within 60 days of an election. The FEC denied the claim and so Citizen’s United decided to get into the movie business itself, ultimately producing “Hilary: The Movie” which the DC court, with the typical double standard, ruled to be a violation of McCain Feingold. Ultimately the Supreme Court ruled that it is unconstitutional to deny corporations, unions, and other associations of persons their free speech rights. In practice, that meant that corporations could contribute to 501(c)(4)s.
After this ruling, 501(c)(4)s presented 2 problems for Democrats. First, when you consider the costs and benefits of the various legal organizations I discussed above, 501(c)(4)s are a natural fit for grass root organizations that don’t have a lot of funding, like tea party organizations. Second, and more importantly, corporations don’t like to contribute to partisan causes, because they don’t want to be subject to attack campaigns. But if corporations could contribute they probably lean much more right than left. The Citizen’s United ruling means corporations now can make political contributions via 501 (c)(4)s without disclosure. Neither development, the tea party’s use of 501(c)(4)s, nor the Supreme Court ruling, is good for the Democratic party.
The Administration’s proposed rules, which restrict political activity of 501(c)(4)s, is not only an attempt to muzzle the tea party but it’s also designed to overturn the Supreme Court ruling and reinstate McCain Feingold by executive fiat. It’s no accident that the proposed rules restrict political activity within 60 days of an election.
Of course, these rules also affect left wing organizations that are organized as 501(c)(4)s. But the Administration is willing to live with that. Democrats saw what happened in 2010 in the House as a result of tea party activity and don’t want that repeated. Plus, they absolutely don’t want corporations able to influence the political process without disclosure. These rules confer real political benefits to Democrats, which is why they were willing to sacrifice the IMF to keep them.
Rick Stryker: “Second, and more importantly, corporations don’t like to contribute to partisan causes, because they don’t want to be subject to attack campaigns.”
Well, you see, that’s the whole point right there. Secrecy is why 501(c)4 groups aren’t allowed to be involved primarily in politics and the reason for the new rule. If you want to campaign in politics you have to do it in the open.
If an individual citizen wants to contribute to a politician, it is published in a public database if it is over $200. (Let’s see, I look up Rick Stryker and it turns out you did not contribute more than $200 to any candidates in the last election. Interesting.) So this idea that corporations are oh so delicate is hilarious.
Even worse, corporations or billionaires contribute secretly to a 501(c)4 which then forwards the money anonymously to a 527 to circumvent the transparency laws of the 527. Secret money is corrupt money.
Joseph and Menzie,
There is no doubt that the IRS is a political tool of the Obama admistration, one of their most important, because it gives them the power to starve their opposition through abuse of power.
The number of Progressive groups denied non-profit stats is miniscule, but there is clear evidence that groups that promote the constitution, the bill of rights, and libert and freedome were targeted specifically for using those words in their application.
But groups created by President Obama (ACORN offshoots) have been given million and some cases billions from the federal government to engage in political activities for the Democrat party under the guise of promoting the Democrats socialized (Fascist for those who know) medicine plan.
The administration is using the techniques of Hugo Chavez and building from there. Better hoard toilet paper as we move toward the Venezuelan model.
It all comes down to trust.
ricardo, if those conservative groups were applying for nonprofit educational status and then simply lobbying for their political cause, then they absolutely should not have access to 501(c) nondisclosure status. let them identify as a nonprofit political entity such as a 527 and do as their hearts content. why do you advocate these groups breaking the law? they are not educating, they are lobbying and advocating. you are crying foul because these groups are not allowed to break the law-baffling!
Joseph,
You are completely confused about all this.
First, you are confusing contributions to candidates with expenditures on political activities. Citizen’s United vs. FEC had nothing to do with campaign contributions, which are still tightly regulated with disclosure requirements. Citizen’s United was a first amendment case in which the Court held that contributions to political advertising within 60 days of an election could not be prohibited merely because the contributor is a corporation.
However, you are also confused to think that this case was about disclosure. The Court explicitly upheld the disclosure requirements of McCain Feingold. That means these contributions to advertisements would still need to be disclosed. Disclosure is a red herring. The conservative majority believed that there is nothing unconstitutional about requiring disclosure.
Now, if more disclosure is what the Administration thinks should happen with 301(c)(4)s, they should go to Congress and ask that the law be amended. That’s how Democracy works. But that’s not what they do. Look at how the Administration just changes the provisions of the ACA to suit its purposes. Look at how it misused the IRS in its harassment of the tea party. It’s an Imperial Presidency.
In its rule change, the Administration is essentially reversing the Supreme Court ruling by fiat. That should not happen in a nation of laws.
Your last confusion is to think that somehow contributors can circumvent 527 disclosure requirements by contributing to 501(c)(4)s, who then contribute to 527s. No, 501(c)(4)s who make expenditures for 527 exempt functions are taxed on those expenditures, defeating the purpose of being tax exempt.