Tax Expenditures

When I worked as Executive Director for the Erie County Commission on Homelessness, I often began a presentation about homelessness with a request that people who ad ever lived in housing that was subsidized raise their hands. Usually only one or two people in the audience raised a hand. I would then ask the rest of the people if any of them took a tax deduction for property taxes and mortgage interest. Most people got the point.  There are activities which the Congress has decided to encourage through the tax code, the most obvious one being home ownership. These "tax expenditures" are subsidies and some of the fiercest battles in Congress are over which activities should be subsidized in this way. 

A lot of the discussion of the "IRS Scandal" seems to ignore the fact that granting an organization tax-exempt status costs us money. Having been on the boards of two not-for-profit organizations that applied for 501(c)3 status, I have some sympathy with those who complain about the way their applications for 501(c)4 status were handled. We submit such applications believing that our organization's work is so important to society that it should be subsidized. We believe that, but it's the IRS's responsibility to determine if that belief is justified. 

I will grant that there is evidence that IRS employees made a lot of mistakes in handling the 501(c)4 applications of some organizations, but they were not the kind of mistakes that would trouble me most. What troubles me, and there is some evidence of this, is the granting of 501(c)4 status to organizations whose primary purpose is political. Excessive scrutiny of applications is a much less costly mistake than not enough scrutiny.