Mises Daily Articles
The Tollkeepers on the Road to Serfdom
Elected Federal officials can be voted out of office. But the entrenched army of empowered, unelected Federal bureaucrats remains to wield its power, and the Internal Revenue Service bureaucrats are some of the worst. Six years ago I published an article in The Freeman on the incompatibility of the tax code and liberty, and the threat to liberty continues unabated.
Friedrich Hayek described the process by which bureaucratic empowerment and discretion extirpates personal liberty and democracy as “the road to serfdom.” He warned us all that socialism requires bureaucratization. In the socialist state bureaucrats would become the new aristocracy and its citizens would take on the role of serf. My article argued that similar dangers existed with increasing the powers of the IRS bureaucracy, and that democracy could not be relied upon to hold it in check. Recent abuses validate this fear. Any agency without restraint and accountability is a threat to personal freedom and should be abolished.
I have published critiques of the US government and politicians without IRS reprisal, including some that targeted tax policy and the IRS specifically. The types of concerns I raised regarding IRS authority were spelled out by Hayek in his classic The Road to Serfdom. Scholars from Jeff Sachs to Gordon Tullock have claimed that Hayek’s warnings about abuse in social democracy were overstated. After all, many Western nations have large public budgets and extensive regulations without suffering the dire results that Hayek predicted.
The current IRS scandal has renewed concerns regarding abuse of IRS power. One flagrant example from the last election was the partisan use of the IRS as a political weapon. The IRS has a history of political abuse. Hoover, FDR, JFK, and Richard Nixon all used the IRS against enemies, long before Clinton or Obama. In the wake of recent scandals, some politicians are now investigating the IRS. IRS officials, like Douglas Shulman, Lois Lerner, and Holly Paz, in their appearances before Congress, have exhibited the arrogance of an entitled aristocrat instead of the public servants that they are.
Politicians see the IRS and its tax code as a means of fixing perceived political problems. Republicans want to use tax code to promote family values. Democrats want to use taxes to alleviate poverty and reduce pollution. Yet, regardless of the legislative agenda, it is largely unelected bureaucrats who decide where tax money goes.
Hayek pointed out that neither voters nor Congress can watch or manage modern Federal bureaucracies. Consequently, most bureaucratic actions are unseen. Agencies come under scrutiny only when a non-government entity, or the media finds their actions objectionable enough to sell papers or improve ratings. Last year’s GSA spending scandal took front page headlines away from a different IRS abuse scandal, and before that it was a different agency on the hot seat. The agencies of the Medusa-like Leviathan are too numerous to scrutinize all at once, so it is one agency and one scandal at a time, allowing hundreds of other agencies to function unabated.
The potential for bureaucratic abuse is pervasive. The worst rise to the top of bureaucracies in part because the people who want power most are, as Hayek put it, single-minded idealists. Single-minded idealists are intolerant, by definition, believing that their plans for society are objectively superior to any competing plans. Those who have a comparative advantage at acquiring and wielding power are the most ruthless and insensitive people in society. Obama once said “We're going to punish our enemies and we're going to reward our friends who stand with us.” Some characterize Obama’s remark as “Chicago.” This is not just Chicago politics; all politics works this way because intervention always favors some people over others.
The New Scandal
IRS officials admitted to political bias during the last election. They deliberately delayed hundreds of applications for tax-exempt status, and used inappropriate criteria to select the groups it targeted. The IRS asked inappropriate questions of applicant groups, and targeted Obamas opponents with audits. Romney donor Frank Vandersloot was hit with multiple audits by the IRS (with seven other donors) and also by the Department of Labor, at a cost of $80,000. Katherine Engelbrecht was harassed by the IRS, FBI, BATF, and OSHA.
The Justice Department has moved against the Associated Press and Fox News journalist James Rosen, in particular, over privacy issues. It appears that the EPA has been charging fees according to political bias. Obama most likely did not directly order Lois Lerner or Holly Paz to “punish enemies” in the Tea Party movement, but Tea Party members were singled out. Since Tea Party groups oppose the current Federal tax/spending system, the single-minded idealists at the IRS thought these targeting actions to be justifiable.
The fact that some bureaucrats might now be penalized for their transgressions is good news, but the heart of the problem runs deeper. Hayek pointed out that people complete the path from citizenship to servitude only after a psychological (or sociological) change occurs. Today’s change is from a free people believing in the primacy of individuals to make their own choices to dependence and acceptance of government as the entitled class.
Once people accept bureaucrats as authorities, as persons who should direct the actions of others, and reject dissenting views as illegitimate or illegal, they have taken up the mantle of serf. A recent poll found that 36 percent of self-described liberals thought that the IRS acted appropriately; that it should have singled out Tea Party groups for special investigations and delayed approval of their tax exempt status. In other words, they don’t think that there is a scandal—they believe that the IRS should be used to suppress dissent. Even 26 percent of “Independents” and 15 percent of Republicans found IRS abuses acceptable. One-in-four Americans currently embraces bureaucratic abuse and this is frightening for our future. Passage of The Affordable Care Act and The Dodd-Frank Bill, along with Obama’s reelection, indicate solid voter support for a bureaucratic state.
House Majority Leader Eric Cantor has declared his intention to prevent IRS abuses from ever happening again, but can he? Conviction of a few IRS or DOJ officials won’t prevent future abuses. Nixon resigned because of abuses that included misuse of IRS power, but the misuse of power didn’t stop. The prospects of reforming the IRS are poor. Fifteen years ago Congress passed The Internal Revenue Service Reform and Restructuring Act of 1998, but here we are again embroiled in yet another wave of IRS scandal.
It is obvious that we cannot rely on political processes to regulate the IRS. Obama’s defenders initially thought that the IRS scandal would increase his approval rating, as it did for Bill Clinton’s, because many Americans sympathized with Clinton during the public inquiries into his misdeeds during the 1990’s. Obama is in a weaker position, but it is still unlikely that the Senate would begin proceedings to remove Obama from office. FDR also misused the IRS, but most Americans see FDR as a great president—despite his corruption and the failures of his policies.
As long as unelected, empowered bureaucrats with tenure run the IRS, there is no solution but to abolish it and the Federal Tax Code along with it. Total abolition of the IRS will not happen immediately, but Congress should pass a sunset provision on both the IRS and the Federal Tax Code. Strong feelings of discontent with Obama and the IRS create a temporary opportunity to enact real solutions to recurring IRS abuses. Americans should move against the IRS quickly before these feelings of discontent fade.