From CNN Money and Milliman:

On Friday, I wrote a piece for Mother Jones speculating that government spying on press communications may not be “unprecedented,” as Associated Press head Gary Pruitt put it, but simply rarely disclosed. The rules requiring disclosure of such surveillance, after all, only appear to apply to “subpoenas” for “telephone toll records,” not secret tools like National Security Letters. Even outside the shadowy world of intelligence, as federal magistrate judge Stephen Smith has observed, court orders granting government access to electronic communication records routinely remain secret indefinitely. I suggested that there could be quite a few other cases like the AP story that we’ve simply never heard about, even if the Justice Department scrupulously follows its own rules, because they didn’t involve grand jury subpoenas for phone logs.

It is rare for someone who writes about the intelligence community to have a speculation of this sort confirmed almost instantly, but a report in the Washington Post today is already shining a spotlight on another hitherto unreported leak investigation in which the government obtained a warrant to read the e‑mail of Fox News reporter James Rosen. The warrant in that case was sealed for over a year, and appears to have remained unnoticed until today—nearly three years after the search of Rosen’s e‑mail was authorized. Why should anyone believe this is the only such case that hasn’t yet come to light?

The Rosen case is especially unsettling because the warrant affidavit suggests that Rosen himself could be subject to prosecution under the Espionage Act, on the grounds that his alleged encouragement to a source to provide classified information amounts to “conspiracy.” The attempt to redefine as crime what is ultimately a routine and necessary part of national security reporting really is rather unprecedented: As the Congressional Research Service has observed, “we are aware of no case in which a publisher of information obtained through unauthorized disclosure by a government employee has been prosecuted for publishing it,” and there “may be First Amendment implications that would make such a prosecution difficult.”

A successful prosecution, of course, is not necessarily the point. The case against NSA whistleblower Thomas Drake—who revealed massive waste in the Agency’s deals with intelligence contractors—ultimately collapsed: The information he’d revealed was embarrassing to the government, not dangerous to national security. But Drake’s life had still been shattered, and a clear message sent to any others who might seek to embarrass the government. Reporters are already feeling the chilling effects of the AP leak investigation—and presumably that’s the real aim: Not to jail leakers as an end int itself, but to ensure that government sources are too scared to talk to press without approval.

That might sound like a fine idea if we were really only talking about vital national security secrets whose publication would endanger the United States. But as even top intelligence officials have acknowledged, “overclassification” is rampant in government. Much of the most basic information, without which effective national security reporting would be impossible, is reflexively classified whether or not it poses any realistic security risks, and reporters routinely discuss such information. In practice, that means the government can pick and choose which leakers to go after—and which ones to wink at because they’re serving the administration’s interests.

Early in the IRS scandal, the defenders of the Obama administration seemed baffled and unable to defend the agency’s actions. Recently, they have starting putting together a defense of the agency and thereby, the administration, a story to counter recent revelations. This defense comes up short.

The defenders’ account goes this way. Yes, the IRS was inept in enforcing the law, but incompetence does not equal partisan malice. The real scandal, we are told, was the groups posing as charities and spending money on political campaigns. Congress should strictly revise the rules governing tax exemptions to make sure no one can hide their political activities from the government. And, finally, as Nancy Pelosi remarked, Citizens United should be overturned.

This defense has two weak points and a major flaw. First, Citizens United had nothing to do with charitable organizations. The groups freed up by the decision already disclose their spending. Second, the defenders assume disclosure is an unquestioned good. But the IRS was trying to force the target groups to disclose a lot of information about their political activities criticizing the Obama administration. The IRS intimidated those groups. It could be said – and may yet be said- that the Tea Party groups were wrong to feel intimidated. The agency was only trying to enforce the law and so on. Good luck trying to convince most Americans that an IRS grilling is not intimidating.

Understanding the major flaw of the defense requires a brief side trip into campaign finance law. The authors of the apologia – the campaign finance reform community and its media allies — have long supported restricting and regulating campaign spending, restrictions that run counter to freedom of speech. They have insisted – and courts have partially agreed – that an appearance of corruption justifies restrictions on political speech. The reformers argue that an appearance of corruption weakens public confidence in government.

The “appearance of corruption” standard is a weak foundation for restricting political liberties. We ought to be concerned about the reality of corruption, not its appearance. We ought to determine what actually exists rather than what people believe exists. Truth, not opinion, should guide policymaking, not least when First Amendment rights are at stake. But these criticisms of the standard have not found favor, least of all among those who now defend the IRS.

Does the IRS scandal pose an appearance of corruption? A government agency with a long history of being used by incumbent administrations to attack their political opponents admits harassing the opponents of the Obama administration. And they are found to be doing that just at the periods such harassment could make a difference, prior to the 2010 and 2012 elections.

Of course, there may be reasonable explanations for everything that has come out. Such explanations appear highly unlikely. Therein lies the problem for the administration. The IRS scandal stinks to heaven: there is an unmistakable appearance of corruption in all this. Public confidence in government will take another hit.

The authors of the counter-narrative advise us now to look beyond appearances toward the realities of low agency budgets, political innocence, and bungling officials. But it is too late for that. The truth of the matter has long not mattered in campaign finance debates. Those who have spent the last four decades saying the appearance of corruption matters cannot now ask us to look beyond appearances. We must apply their standard to the IRS scandal.

The IRS’s defenders face a dilemma. To succeed, their IRS story must reject the “appearance of corruption” standard they apply to all other campaign finance matters. To win this battle, in other words, the defenders must be inconsistent. However, if they embrace their usual standard, the IRS and the administration appear corrupt and will probably lose the battle. A better path would be to worry about real, not apparent, corruption regarding the IRS and all other campaign finance questions.

Although it did good by taxpayers today, the Supreme Court also issued a divided ruling that unfortunately expands the power of administrative agencies generally. In City of Arlington v. FCC, six justices gave agencies discretion to decide when they have the power to regulate in a given area — which expands on the broad discretion they already have to regulate within the areas in which Congress granted them authority.

But why should courts defer to agency determinations regarding their own authority? Courts review congressional action, so why should theoretically subservient bureaucrats — appointed by the executive branch and empowered by Congress — escape such checks and balances? 

Underneath the legal jargon and competing precedent regarding the line between actions that are “jurisdictional” (assertion of authority) versus “nonjurisdictional” (use of authority) is a very basic question: whether a government body uses its power wisely or not, it cannot possibly be the judge of whether it has that power to begin with. Yet Justice Scalia, writing for the majority, essentially says that there’s no such thing as a dispute over whether an agency has power to regulate in a given area, just clear congressional lines of authority and ambiguous ones, with agencies having free rein in the latter circumstance unless their actions are “arbitrary and capricious” (what lawyers call Chevron deference, after a foundational 1984 case involving the oil company).

That makes no sense. As Cato explained in our brief, since the theory of deference is based on Congress’s affirmative grant of power to an agency over a defined jurisdiction, it’s incoherent to say that the failure to provide such power is an equal justification for deference. Furthermore, granting an agency deference over its own jurisdiction is an open invitation for agencies to aggrandize power that Congress never intended them to have. One doesn’t need a doctorate in public choice economics to recognize that we need checks on those who wield power because it’s in their nature to husband and grow that power.

More broadly, this case should make us question the whole doctrine of Chevron deference: Yes, decisions about the scope of agency power should be made by elected officials, not by bureaucrats insulated from political accountability, but courts should also review with a more skeptical eye agency decisions about the use of power even within the proper scope.

Peter Beinart has a piece at the Daily Beast today – “Don’t Throw the IRS Under the Bus” – that has to be read to be believed. Drawing from a similar page-one story in yesterday’s New York Times, it’s one long apology for the IRS, an effort to explain away the scandal now before the nation as the product of a single, hopelessly overburdened “backwater” IRS unit.

Along the way, Beinart flags the usual suspects, especially the Supreme Court for its Citizens United decision. But his main aim is to encourage the president and his allies to hold firm:

if Obama and his fellow Democrats don’t rebut that narrative and defend the IRS, they’ll be surrendering crucial ground in the battle that has roiled American politics since the financial crisis: the battle over whether Washington regulates too much or too little.

Granting that the situation at the moment is a mess, Beinart avers that “it was a mess born less of overregulation than underregulation.” Indeed,

A right-wing Supreme Court has made it virtually impossible to regulate money in elections. And now Republicans are casting the Tea Party—a movement founded in part by robber barons like the Koch Brothers—as the victim of a mythic, all-powerful IRS in order to further neuter an actually existing IRS that is already too weak to make the rich pay their taxes or respect the rules of democratic fair play. With any luck, the GOP will render it unable to help competently implement Obamacare as well.

One only hopes. But it’s Beinart’s conclusion that brings it all home:

It might seem shrewd for Obama to sit out the IRS scandal while he focuses on bigger fights. But this scandal is about government’s capacity to make private wealth serve the public interest, and for a progressive president, there’s no bigger fight than that.

He’s got that right: for a progressive president, there is indeed no bigger fight than that. But focus on what that says. For the progressive, government’s purpose is “to make private wealth serve the public interest.” Make no mistake, “private wealth” means “private people,” people who must be made to serve not their own but “the public interest” – and not by acts that enrich the lives of others through voluntary association, but through forced association, as with Obamacare, designed by those very progressives.

That is the Obama vision. The president himself made it clear a fortnight ago in his Ohio State commencement address, telling the graduates that “this country cannot accomplish great things if we pursue nothing greater than our own individual ambition.” People must be “harnessed” – his word – and what better agency to do it than the IRS.

An excerpt from an op-ed by Bill Keller in today’s New York Times:

The marijuana debate has entered a new stage. Today the most interesting and important question is no longer whether marijuana will be legalized–eventually, bit by bit, it will be–but how.

Agreed. However, it would have been nice to hear a bit more on the horribly misguided prohibition policy that was supported by so many for so long and a more urgent plea to Obama and others in officialdom to end prohibition sooner, not later.

As if the IRS weren’t reeling enough already, today the unanimous Supreme Court dealt the beleaguered agency another blow, unanimously ruling that companies who paid a British “windfall tax” could get credit for that payment against their U.S. tax liabilities. This should’ve been a simple case, and the federal tax court got it right — the tax code credits foreign income taxes — but the court of appeals found a convoluted way to rule for the IRS.

As Cato’s brief explained, however, taxpayers have the right to be free from double taxation and here the IRS improperly disregarded the substance of the windfall tax. A foreign tax’s form or label can’t mask its substantive character for legal purposes. American businesses operating overseas should be able to rely on a stable, substantive application of U.S. tax law instead of arbitrary interpretations and constructions manipulated to generate payments to the IRS.

The Supreme Court had to invoke and explain complicated equations to reach its decision — I’ve never seen so much math in an opinion — but this ruling ultimately boils down to the longstanding doctrine regarding how to evaluate a tax: (1) A tax’s “predominant character,” or the normal manner in which it applies, controls what kind of tax it is for other legal purposes; and (2) foreign tax creditability depends not on the way a foreign government characterizes its tax but on is economic effect — whether the tax, if enacted in the United States, would be an income tax or something else.

That’s the big takeaway here: The specific since-repealed UK tax at issue in PPL Corp. v. Commissioner of Internal Revenue isn’t likely to come up again, but the IRS is on notice that it doesn’t have discretion to err in favor of the Treasury whenever it feels like it. The tax code provides rules –albeit often overly complicated ones — that courts will enforce.