Monthly Archives: May 2016

Lobbyists Are Behind the Rise in Corporate Profits

Profits are up. Operating margins for firms publicly listed in the US show a substantial and sustained rise. Corporate valuations are up as well. That is good news for managers and investors. But is it good news for society?

Economists such as Joseph Stiglitz and Luigi Zingales find the rise potentially troubling for two reasons. First, higher profits create greater economic inequality. Rising aggregate profits correspond to a decline in labor’s share of output, contributing to stagnant wages. Also, greater profits for some corporations but not others may create greater wage inequality.

Second, the rise in profits might represent a decline in competition and, with that, a decline in economic dynamism. While a dynamic, competitive economy rewards innovative firms with high profits and punishes poor performers with low profits, sustained aggregate profits suggest, instead, that firms are able to get away with higher prices because competition is limited. Firms engage in political “rent seeking”—lobbying for regulations that provide them sheltered markets—rather than competing on innovation. If so, then high profits portend diminished productivity growth.

But there is a more optimistic narrative about the rise of profits. Perhaps profits are rising because firms are increasingly making profitable investments in new technology, in IT, or in their organizational capabilities. In this account, high profits represent increased economic dynamism.

So which is it — political rent seeking or cutting-edge investments? In a new research paper, I tease apart the factors associated with the growth in corporate valuations relative to assets (Tobin’s Q) and the growth in operating margins. I account for the roles of R&D, spending on advertising and marketing, and on administrative costs, including IT. I also consider investments in lobbying, political campaign spending, and regulation; and I look for links between rising profits and industry concentration and stock volatility.

I find that investments in conventional capital assets like machinery and spending on R&D together account for a substantial part of the rise in valuations and profits, especially during the 1990s. However, since 2000, political activity and regulation account for a surprisingly large share of the increase.W160518_BESSEN_WHATSDRIVING-1200x805

Much of this result is driven by the role of regulation, so it is important to understand the link between regulation and profits. Lobbying and political campaign spending can result in favorable regulatory changes, and several studies find the returns to these investments can be quite large. For example, one study finds that for each dollar spent lobbying for a tax break, firms received returns in excess of $220.

It is less obvious, however, that regulation, in general, should be associated with higher profits. Indeed, critics of the regulatory state regularly decry the costs imposed by regulations. Yet even regulations that impose costs might raise profits indirectly, since costs to incumbents are also entry barriers for prospective entrants. For example, one study found that pollution regulations served to reduce entry of new firms into some manufacturing industries.

Even when regulators try to reduce prices, firms can benefit. For example, in 1992 Congress passed the Cable Television Consumer Protection and Competition Act in response to high cable TV rates. Regulators expected cable prices to fall by 10%. Instead, however, cable companies changed their programming bundles, prices did not fall, and corporate valuations increased. The chart below shows that the aggregate market value of cable companies relative to assets (Tobin’s Q) rose following the Act, compared to valuations of other firms.W160518_BESSEN_EVENWHEN-1200x846

The pattern around the 1992 Cable Act is representative: I find that firms experiencing major regulatory change see their valuations rise 12% compared to closely matched control groups. Smaller regulatory changes are also associated with a subsequent rise in firm market values and profits.

This research supports the view that political rent seeking is responsible for a significant portion of the rise in profits. Firms influence the legislative and regulatory process and they engage in a wide range of activity to profit from regulatory changes, with significant success. Without further research, we cannot say for sure whether this activity is making the economy less dynamic and more unequal, but the magnitude of this effect certainly heightens those concerns.

Two characteristics make these changes particularly worrisome. First, the link between regulation and profits is highly concentrated in a small number of politically influential industries. Among non-financial corporations, most of the effect is accounted for by just five industries: pharmaceuticals/chemicals, petroleum refining, transportation equipment/defense, utilities, and communications. These industries comprise, in effect, a “rent-seeking sector.” Concentration of political influence among a narrow group of firms means that those firms may skew policy for the entire economy. For example, the pharmaceutical industry has actively stymied efforts to address problems of patent trolls that affect many other industries.

Second, while political rent seeking is nothing new, the outsize effect of political rent seeking on profits and firm values is a recent development, largely occurring since 2000. Over the last 15 years, political campaign spending by firm PACs has increased more than thirtyfold and the Regdata index of regulation has increased by nearly 50% for public firms. However much political rent seeking has affected economic dynamism and inequality so far, the effect is likely to be greater in the near future.

IRS Returns Bakery’s Money After 3 Years. Now It Wants To Put The Owners In Prison.

In May 2013, David Vocatura watched $68,000 disappear.

He was at his family’s bakery in Norwich, Connecticut, when a squad of armed IRS agents filed into the store. The agents wanted to know if Vocatura and his brother Larry were trafficking drugs or running a prostitution ring. The brothers had no idea what they were talking about.

Vocatura’s Bakery has been doing business for nearly a century. The brothers operate a restaurant that serves up pizza and sandwiches — which, until a few years back, only accepted cash — as well as a commercial bakery that delivers fresh Italian bread throughout the region.

Their grandfather Frank founded Vocatura’s in Rhode Island in 1919, before the family moved it to Norwich in the 1950s. They’re probably best known for their Italian grinder — a sandwich packed with salami, capicola, ham, cheese, lettuce and tomato, on a soft, slightly chewy sub roll that’s “as big as your forearm.”

But the IRS refused to believe Vocatura’s Bakery was operating on the up and up. Agents said the business raised red flags because of a series of cash deposits in sums under $10,000, the amount at which banks are required to report transactions to the federal government. They said this behavior was consistent with a crime known as structuring, which the IRS defines as making calculated financial transactions in order to skirt reporting requirements. The agents had no evidence of other wrongdoing, but thanks to a controversial law enforcement tool known as civil asset forfeiture, they didn’t need any to seize every penny in the Vocaturas’ bank account: $68,382.22.

Under the practice of civil forfeiture, authorities can move to permanently take property they suspect of being linked to criminal activity, without obtaining a conviction — and, in cases like the Vocaturas’, without even charging the owner with a crime.

For the past three years, the brothers have been fighting to get their money back, maintaining they’d done nothing wrong. The IRS has responded by subjecting David, 53, and his brother Larry, 69, to a series of increasingly aggressive legal maneuvers — including threats of significant prison time and additional fines — in an attempt to strong-arm them into permanently forfeiting their assets.

On Tuesday, the Institute for Justice, a libertarian public interest law firm, filed a lawsuit in U.S. District Court for the District of Connecticut on behalf of Vocatura’s Bakery, demanding that the IRS promptly return their money. The suit argued that the Vocaturas were just the latest example of the government hastily seizing property, and then going to extreme and even unconstitutional lengths to justify it after the fact.

Hours after the suit was filed, the IRS said it would finally give the Vocaturas their money back. But the prosecutor didn’t drop the case. Instead, he now plans to mount an expansive investigation into the bakery’s finances, looking for a reason to bring criminal charges against the brothers.

It was just the latest twist in a protracted legal battle that has called into question some of the government’s favorite — and most problematic —methods of taking people’s money.

David Vocatura stands in front of his family business, Vocatura’s Bakery. For over three years, he fought with the IRS to recover assets the agency seized over allegations that he’d been making illegally structured bank deposits. Now they want to put him in jail.

Structuring laws were initially designed to keep drug kingpins, terrorists and money launderers from evading detection, but the IRS expanded their enforcement efforts in the past decade, and ensnared small business owners along the way.

At issue in the Vocaturas’ case are hundreds of deposits between March 2007 and April 2013 that ranged from $7,000 to $9,900 — a total of around $2.8 million. The Vocaturas say the deposited money was from the bakery’s sales, as they were doing mainly cash business at the time, and they have a less suspicious explanation for why the deposits were so close to the reporting limit. David Vocatura says a representative from their local bank told him that an employee had to fill out forms each time they brought in more than $10,000, so he decided to make life easier for the bank attendants by making smaller, more frequent deposits.

“I didn’t know what structuring was that day, until the agent explained to me what it was,” he told The Huffington Post. “We’re good, hardworking people and we run a clean, legitimate business.”

If the IRS has proof that the Vocaturas were deliberately structuring payments or hiding illicit proceeds, it hasn’t provided it.

“We gave them all kinds of records, we’ve cooperated with them since Day One, personal and business information, anything they’ve wanted,” said David Vocatura. “They checked us out.”

Earlier this month, Peter S. Jongbloed, assistant U.S. attorney for the District of Connecticut, served the Vocaturas a grand jury subpoena calling for them to turn over every financial record from the six years between March 2007 and April 2013, so the agency could finally begin investigating the business’s tax and regulatory compliance. At the time, it was the latest reminder that the government was intent on taking the brothers’ assets, even if it had to change its approach three years after the fact.

On Tuesday, Jongbloed said he was proceeding with the probe ahead of possible criminal prosecution for structuring. A spokesman for the U.S. attorney’s office declined further comment. The IRS did not respond to a request for comment on the case.

The Institute for Justice argues that the subpoena is an attempt to retroactively justify an improper seizure and punish the Vocaturas for not rolling over.

“At this point, the government is in so deep, they’ve put these guys through three years of hell — and held onto their money for three years — and so they feel like they need to justify it,” said Robert Everett Johnson, an attorney for the Institute for Justice who is representing the Vocaturas. “So now they’re going to conduct this investigation into the bakery in some effort to try to find something that will make it look like they were doing the right thing all along.”

A photo of Vocatura’s Bakery, shortly after it moved from Rhode Island to its current home in Norwich, Connecticut.

The government’s seizure of the Vocaturas’ account is part of a broader pattern of concerns about the use of civil asset forfeiture, a practice that brings in billions of dollars each year to federal, state and local law enforcement agencies.

Critics say each step of the process is ripe for abuse. Authorities frequently base seizures on weak circumstantial evidence. In some of the most publicized civil asset forfeiture cases, the mere presence of cash has constituted enough probable cause to justify a seizure. In cases like the Vocaturas’, the act of depositing cash isn’t necessarily illegal on its own, but authorities are quick to treat anyone who does it like a criminal.

Once the government seizes property, it’s difficult to get back. Unlike in criminal trials, where suspects are considered innocent until proven guilty, property owners must often prove their innocence in civil forfeiture cases.

And those legal proceedings often become a battle of pocketbooks and willpower. Many people can’t afford representation — especially if they’re small business owners who are unable to tap into the very finances seized by the agency they’re fighting. Many people choose not to contest the seizures. Others eventually give up, worn down by well-equipped prosecutors.

Once someone’s assets are forfeited, those proceeds go to the agency that made the seizure — and there is very little oversight of how that money can be used. Critics of civil asset forfeiture say this dynamic incentivizes law enforcement officials to bring in as much money as possible, creating a motive to “police for profit” rather than for public interest or safety.

The IRS has used structuring allegations to seize hundreds of millions of dollars through civil asset forfeiture in recent years, some of which has been funneled directly into the agency’s coffers. A report from the Institute for Justice put the total value of forfeitures — money the government kept in IRS structuring cases — at nearly $125 million between 2006 and 2013.

Of the more than 2,500 seizures in the report, at least one-third involved no claims of criminal activity beyond the cash transactions themselves. Only 1 in 5 were ultimately prosecuted as a criminal structuring case. The numbers also show that the IRS failed to keep seized money in many cases, which could be a troubling sign of over-prosecution.

The Vocaturas’ home state of Connecticut is a hotbed for structuring-based seizures, according to IRS data provided to the Institute for Justice through a public records request. Among states with a single U.S. attorney, Connecticut ranks third worst for these sorts of seizures. Between 2005 and 2013, federal prosecutors in the state approved 9.2 seizures for suspected structuring for every 10,000 businesses in the state — a rate that the Institute for Justice says is dramatically higher than other states.

The IRS has attracted public scrutiny over its use of structuring laws to target small businesses accused of nothing more than making cash deposits in amounts under $10,000.

Civil forfeiture has long been an issue among activists who see it as a violation of property owners’ rights. But criticism of its use in structuring cases briefly entered mainstream discussion following an October 2014 New York Times story on Carole Hinders, a 67-year-old Iowa restaurateur battling the IRS over $33,000 seized in response to allegations of structured payments. Like the Vocaturas, she said she was unaware of the law, and had been keeping her deposits under $10,000 to save the bank the extra paperwork.

The scrutiny surrounding Hinders’ case and others led the IRS to announce last year that it would limit structuring seizures to individuals believed to be involved in other illegal activity. The agency said the adjustment would not be retroactive — meaning the change wouldn’t necessarily apply to the Vocaturas, whose assets were already in IRS possession.

The Department of Justice followed suit in 2015, saying it would restrict “seizures for structuring until after a defendant has been criminally charged or has been found to have engaged in additional criminal activity, in most cases.”

Months after the Times article, the IRS reluctantly agreed to give Hinders all of her money back. Most victims aren’t so lucky, even in cases in which they successfully challenge a seizure.

Despite that policy change, the IRS continued to pursue forfeiture actions against the Vocaturas and other small business owners — even as the agency lost in court. In 2015, North Carolina convenience store owner Lyndon McLellan and the Institute for Justice triumphed over the federal government, winning back the more than $100,000 the IRS had seized from his bank account over allegations of structuring.

While similar cases played out in the media, David Vocatura says the government kept them in limbo as it waited for the news cycle to blow over.

“We thought with everything going on with structuring in the news that some judge or court would see that this is wrong and they shouldn’t be doing this to us,” he said.

In February, 33 months after the bakery’s bank account was seized, Jongbloed broke his silence. He offered the Vocaturas an opportunity to end their ordeal, while also preventing the public backlash that had impeded recent structuring cases.

Though the federal government had still not filed criminal charges against the brothers, Jongbloed wanted them to plead guilty to structuring, a felony, and admit that they’d “acted with the intent to evade the reporting requirement.” By doing so, the Vocaturas would be subject to a potential four-year prison sentence and would have to agree to forfeit both the initial $68,000 and an additional $160,000 in personal assets between them.

But by getting the Vocaturas to admit guilt, the IRS would also have been able to keep the brothers from speaking out about their case. The plea deal would have served as an admission that the government had some cause to take their money. Nobody could accuse the government of once again abusing civil forfeiture if the victims ultimately handed over the money as punishment for a crime they had copped to.

Jongbloed noted that sanctions could be harsher if the case went to trial, and encouraged the Vocaturas to take the deal. The brothers, who still insist that they’ve done nothing wrong, rejected that offer.

On May 10, Jongbloed responded by demanding more than six years of business records documenting all of the bakery’s dealings. He finally wants to figure out if the Vocaturas had actually broken the law when IRS agents raided their account.

But Johnson questions the timing of the request, and says it amounts to a retributive fishing expedition that will subject the Vocaturas to unfair scrutiny: “If you’re an IRS investigator and you feel like you have to make a case against somebody because you have to justify what you’ve been doing to them, you start looking for any kind of ambiguity in their records, where you can claim, even if it’s not true, that they’re hiding income or not paying all of their taxes.”

The Institute for Justice is now considering a motion to quash the subpoena.

“I didn’t know what structuring was that day, until the agent explained to me what it was,” David Vocatura told The Huffington Post. “We’re good, hardworking people and we run a clean, legitimate business.”

While the government is finally giving the Vocaturas their money back, the fact that they were able to hold it for so long without taking concrete action shows how much leeway they have in these cases.

As long as the current system of civil asset forfeiture remains intact, new federal guidelines or policy are unlikely to be effective, said Steven L. Kessler, a New York attorney who has defended a number of clients in high-profile forfeiture cases. He believes clear legislative action is needed to keep the government from compromising people’s property rights in the hunt for money.

“When the government says they’re going to do that on their own, they’re going to make the change, everyone is very happy and we move on to the next story,” said Kessler. “Rarely does anything change, because we’re dealing with a guideline — we’re dealing with something that is within the full discretion of the government.”

There are some rumblings in Congress for a legal overhaul.

Last week, Rep. Jim Sensenbrenner (R-Wis.) and a bipartisan group of co-sponsors introduced a bill to rein in civil asset forfeiture. Among the most significant measures, the Deterring Undue Enforcement by Protecting Rights of Citizens from Excessive Searches and Seizures Act of 2016, or the DUE PROCESS Act, would shift the burden of proof from the property owner to the government, and raise the standard needed to validate a forfeiture. If passed, the new law would require the government to provide “clear and convincing” evidence that property was substantially connected to criminal activity — still below the “beyond a reasonable doubt” standard for criminal convictions.

The bill would also give property owners a variety of tools to make it easier to contest a seizure, including quicker notice of the government’s forfeiture motion, increased time to respond and a mechanism for property owners to recover attorney’s fees in certain cases that end in a settlement.

Another piece of legislation proposed this week would specifically address civil forfeiture in structuring cases. The bill would officially put previously announced IRS and Department of Justice policy changes into law, offering stronger protections for small business owners accused of nothing more than making cash deposits in amounts under $10,000.

These legislative fixes would do little for Vocatura’s Bakery, however.

While their legal saga began as a civil forfeiture case, the IRS has now decided to pursue criminal forfeiture against them. That isn’t addressed in the DUE PROCESS Act, which only deals with civil cases.

Nor is it assumed that these bills will pass. Civil asset forfeiture reform has hit snags in Congress before, in part due to aggressive lobbying from law enforcement groups intent on preserving the practice.

On Wednesday, the House Committee on Ways and Means is set to hold a hearing on “Protecting Small Businesses from IRS Abuse.” The committee held a similar hearing in February 2015, in which IRS Commissioner John Koskinen admitted that the government’s forfeiture case against McLellan, the North Carolina convenience store owner, was “not following” the agency’s own policy.

Koskinen is set to give testimony again this week. Johnson is on the witness list as well, along with Institute for Justice clients who had their assets seized by the IRS in structuring cases.

Johnson says the Vocaturas’ case should serve as further proof that the IRS is still using structuring laws to manipulate the legal process and unfairly target small businesses.

“The way you would expect the criminal justice system to work if you were reading your high school civics textbook is that you’d expect the government first to investigate people, then to obtain an indictment if they think something wrong has happened, and then to obtain a conviction and then finally to punish them,” he said.

“But in this case that all has happened exactly backwards,” Johnson continued. “The government first punished the Vocaturas by taking their property, then they tried to get them to plead guilty to charges, and only when they refused to plead guilty did the government investigate.”

In a Secret Meeting, Revelations on the Battle Over Health Care

On Jan. 13, 2014, a team of Internal Revenue Service financial managers piled into government vans and headed to the Old Executive Office Building for what would turn out to be a very unusual meeting.

Upon arrival, the I.R.S. officials, some of whom had expressed doubts that the Obama administration had the proper authority to spend billions of dollars on a crucial element of its health care law, were ushered into a conference room.

There, they were presented with an Office of Management and Budget memo laying out the administration’s justification for spending $3.9 billion on consumer health insurance subsidies. They were told they could read it but could not take notes or make copies. The O.M.B. officials left the room to allow their visitors a moment to absorb the document, and then returned to answer a few questions and note that Attorney General Eric H. Holder Jr. had been briefed and signed off on the legal rationale.

“It was not a common practice in my 10 years in government at the three agencies where I worked,” said David Fisher, a former I.R.S. financial risk officer, recounting the odd meeting during a deposition on May 11 conducted by investigators for the House Ways and Means Committee.

The clandestine nature of the session underscores the intense conflict over the spending, which is the subject of a federal lawsuit in which House Republicans have so far prevailed, as well as a continuing investigation by the Ways and Means and the Energy and Commerce Committees. It also shows that more than six years after President Obama signed the Affordable Care Act into law, Republican opposition has not waned.

After failing to win congressional approval for the funds, the Obama administration spent the money anyway and has now distributed about $7 billion to insurance companies to offset out-of-pocket costs for eligible consumers. The administration asserts that the health care legislation provided permanent, continuing authority to do so, and that no further appropriation was necessary.

Mr. Fisher, for one, did not agree, and his testimony is the first to reveal that some within the administration challenged the spending. Beginning in late 2013, he and his supervisor began having qualms about how the White House was planning to proceed. In combing through documents to make sure his agency could defend the spending in future audits, Mr. Fisher said he came up empty.

“Cost-sharing reduction payments are not linked to the Internal Revenue Code, as far as I could tell, directly anywhere,” Mr. Fisher, now in the private sector, said in his deposition, made public last week by House Democrats who feared Republicans would release selected excerpts. “There is no linkage to the permanent appropriation, nor is there any link to any other appropriation that was indicating what account these funds should be paid from.”

Committee Republicans say Mr. Fisher’s sworn testimony, compelled by a rare Ways and Means Committee subpoena, affirms what they thought all along: that the Obama administration knew it did not have the authority to spend the money and did so regardless to strengthen the health care law in defiance of the Constitution. They say the administration violated a fundamental principle of American government: Congress must appropriate any money spent by the executive branch.

“Our investigation is revealing,” said Representative Kevin Brady, the Texas Republican who leads the Ways and Means Committee. “The more we learn, the more it’s clear that high-level administration officials knowingly circumvented Congress and undermined the Constitution.”

Committee Democrats dismiss such talk as overheated. They accuse Republicans of conducting a witch hunt in their crusade to dismantle the Affordable Care Act, which has twice been upheld by the Supreme Court.

Representative Sander M. Levin of Michigan, the top Democrat on the committee, said Mr. Fisher’s testimony made clear that internal accounting disputes were not uncommon, and that Mr. Fisher had acknowledged that the I.R.S. commissioner, John Koskinen, reached a reasonable decision to free up the money based on the guidance of others who saw the legal justification differently.

“The deposition only reinforces that the administration looked at this diligently and reached a conclusion,” Mr. Levin said. “The Republicans just have this kind of conspiratorial notion, but I think they are out to sink the A.C.A. and they don’t really care what technique they use.”

The deposition does show that the spending received substantial attention at the highest levels of the government. Not only was Mr. Holder’s name invoked, but Treasury Secretary Jacob J. Lew signed off on a separate memorandum approving the spending. Republicans say White House visitor logs suggest multiple senior-level meetings on the subject.

The dispute over the money is not going away. Mr. Brady said his panel would continue to investigate, and a report highly critical of the administration is expected this summer. Congress could take steps to reclaim the money distributed so far.

In the court fight, Judge Rosemary M. Collyer of Federal District Court has already ruled that the administration violated the Constitution in spending the money, but stayed her order blocking any more funds pending the administration’s appeal. If the ruling is reversed, it is more likely to be on the question of whether the House had standing to sue the administration, not the legality of the spending.

Mr. Fisher, in his testimony, sought to dispel any notion that his reservations were related to the health law. He said his objective was to make sure that he and his agency were not running afoul of the Antideficiency Act, a nearly 150-year-old statute that prohibits spending federal funds in excess of legitimate appropriations.

“This was about appropriations law,” he said. “For those of us who work in financial management, when it comes to the Antideficiency Act, which has criminal penalties associated with it, we take it very seriously.”

Mr. Fisher wanted to be careful not to break the law. Republicans want to know if others were not quite so scrupulous.

‘Dark Money’ Bill Seen as Harmful to Stopping Charity Fraud

By David Morgan

WASHINGTON (Reuters) – Fighting charity fraud could become more difficult under a Republican bill in Congress to prohibit the U.S. Internal Revenue Service from collecting the names of top donors to charities and other nonprofit groups, critics warned on Tuesday.

Meant to protect the privacy of wealthy individuals who make anonymous, or “dark money” donations to politically active nonprofit groups, the bill would eliminate a decades-old IRS donor-identity disclosure requirement for a range of tax-exempt groups that includes hospitals, universities, community and sports organizations.

Backers of the legislation say donor lists have sometimes been disclosed to the public even though the names and addresses are supposed to be private.

In a related development, the IRS itself plans to propose new regulations eliminating donor-reporting requirements for most tax-exempt organizations, according to a document posted on a White House Office of Management and Budget website. It is unclear which groups would still be subject to disclosure under the regulations, which are expected in December.

But either move would deprive resource-strapped state law enforcement authorities of ready information used to look into wrongdoing by charities, state officials told Reuters.

“It’s important forensic data to us state regulators. It’s evidence we can consider using in an investigation to determine whether a charity’s board has breached its fiduciary duty,” said Hugh Jones, deputy state attorney general for Hawaii.

The Republican measure was approved by a tax committee in April and awaits a House of Representatives vote. If approved it would go next to the Senate, where its outlook was unclear.

With “dark money” and other forms of cash pouring into U.S. politics, the 2016 presidential contest is expected to cost $5 billion, double that of 2012. Campaign committees and political action committees raise most of that cash, but dark money, or spending whose sources are not disclosed, could exceed $500 million this year, up from only $6 million in 2004.

Known as 501(c)s for the tax law section that covers them, these groups, under current law, must disclose donor information on a confidential basis to the IRS on Schedule B of tax Form 990. But they do not have to identify their donors publicly, which makes the groups attractive to wealthy, publicity-shy individuals with a political agenda to pursue.

Representative Pete Roskam, an Illinois Republican steering the bill, said his measure is needed to protect 501(c) donors from having their identities leaked by the IRS. Such leaks could expose them to intimidation by political adversaries and infringe on their free-speech rights, he said.

“The IRS is ill-equipped to deal with sensitive data, and there’s a great deal of vulnerability,” Roskam told Reuters. “Confidentiality breached chills First Amendment rights.”

IRS officials declined to comment.


Although Roskam’s bill is geared to address the concerns of political donors, critics say it will have another impact.

State authorities investigating charity fraud sometimes ask nonprofit groups for their Schedule B forms, which can help investigators spot conflicts of interest and suspicious movements of money and in-kind donations between charities.

“We would otherwise not have a clue that there was any relationship between charity A and charity B or charity C and D and E and F,” said Karl Emerson, former director of the Pennsylvania Bureau of Charitable Organizations.

Experts said charity scams affect at least 1 percent of annual U.S. giving, or about $3.6 billion a year.

Backers of the Roskam bill say Schedule B is not widely used in fraud inquiries. “I don’t know of one case where a fraud was proven by the IRS having had the Schedule B,” said David Bossie, president of the conservative group Citizens United.

Bossie’s organization won a landmark 2010 Supreme Court case that opened the way to unlimited spending on political campaigns by individuals, corporations, unions and other groups.

Backers of the Roskam bill include Citizens United and billionaire industrialists Charles and David Koch, who donate to a number of politically active nonprofit groups.

The Koch-backed Americans for Prosperity Foundation and other groups argue that government-mandated disclosure of Schedule B information to state authorities is unconstitutional.

The groups have filed lawsuits to stop Democratic attorneys general in California and New York from obtaining Schedule Bs as a part of state-level nonprofit registration procedures.

In its lawsuit against California Attorney General Kamala Harris, Americans for Prosperity said more than 1,400 Schedule Bs showed up on a public state website, court documents said.

The Roskam bill would preserve some disclosure by requiring nonprofits to continue to report contributions from board members, officers and top salaried employees.

The Supreme Court Faces a Different Trump Contest

Trump Taj Mahal Casino in Atlantic City, NJ.
Trump Taj Mahal Casino in Atlantic City, NJ.
Credit: Sean Pavone/

The name “Trump” is on ballots, hotels, casinos and now a U.S. Supreme Court petition.

The justices on Thursday are scheduled to take their first look at Unite Here Local 54 v. Trump Entertainment Resorts, a case that arose out of the bankruptcy of the Trump Taj Mahal Casino in Atlantic City, New Jersey.

The legal issue involves the authority of bankruptcy courts, but the fallout suffered by union workers may not enhance presumptive GOP presidential candidate Donald Trump’s campaign message. And if the high court agrees to hear the case, it could add to distractions during the fall campaign.

The union, which represents about 1,100 of the 3,000 Taj workers, asks the justices to review a January decision by the U.S. Court of Appeals for the Third Circuit. The appeals court upheld a bankruptcy judge’s 2014 ruling that Trump Entertainment could alter its contract with Local 54 and stop funding the union’s health care and pensions as part of its reorganization plan.

The National Labor Relations Board filed an amicus brief supporting the union in the Third Circuit.

The union’s petition asks the justices whether “a bankruptcy court may authorize a unionized debtor employer to abolish its employees’ pensions, health coverage and other benefits without complying with its bargaining obligations under the National Labor Relations Act, when no collective bargaining agreement exists.”

Trump founded the casino, which is owned by Trump Entertainment Resorts, in 1990. He sold majority ownership of the company in 2012. The company went into bankruptcy in 2014 due to a loss of $25 million in 2013. Trump gave up his remaining 10 percent stake in the company earlier this year.

Wall Street magnate Carl Icahn is expected to take over the casino resort when it exits bankruptcy.

In the high court, the union is represented by Richard McCracken of San Francisco’s Davis Cowell & Bowe, international counsel to United Here. Trump Entertainment’s counsel is Dechert Hartford partner G. Eric Brunstad Jr., a veteran high court litigator of bankruptcy cases. Brunstad wants the justices to deny the union’s petition.


Puerto Rico Bill Goes to the House Floor and the Fight

By Colin Wilhelm

05/27/2016 05:02 AM EDT

The last time Congress considered a debt-restructuring bill for Puerto Rico after lawmakers returned from a two-week recess, the measure died in committee.

Now, with a new bill to help the commonwealth avert a historic default facing a House vote next month after the Memorial Day break, House Speaker Paul Ryan and Minority Leader Nancy Pelosi want to make sure the legislation doesn’t stall again.

Ryan, who hammered out a deal with the White House on the legislation in an early test of his leadership, will have to rely on Pelosi’s Democrats to help pass it, lawmakers and staff on both sides of the aisle agree.

Though the bill cleared a big hurdle when it was approved Wednesday by the House Natural Resources Committee, fewer Republicans than expected voted in favor, raising pressure on Pelosi to limit defections from her own caucus, where some also remain wary of the measure.

Should the House approve the legislation, it will mark a rare show of bipartisan cooperation in Congress on an issue that has pitted Wall Street lobbyists against lawmakers and featured blistering ads in congressional districts over the Easter recess warning that the deal amounted to a “bailout.”

The Obama administration on Thursday continued to pitch the bill to House Democrats, with Treasury official Antonio Weiss, the point man on the Puerto Rican debt crisis, briefing the Congressional Hispanic Caucus.

“We’re not going to have unanimity in the Hispanic Caucus, but I think a majority will probably vote in favor of it,” said Caucus Chair Linda Sanchez (D-Calif.), who helps whip votes for Democrats. “And I think the Democratic side of the aisle will probably be the same.”

The legislation would help Puerto Rico restructure its $73 billion in debt and establish a federal oversight board to supervise the process. Pensions and social services would receive a measure of protection, while bondholders would probably be forced to accept less money than they’re owed. The bill would not spend any federal money on the debt.

Even though Pelosi and House Minority Whip Steny Hoyer (D-Md.) have voiced support for the bill, some lawmakers in the party remain uncomfortable, especially with the federally appointed oversight board, which some say will exert too much power over Puerto Rico.

“There’s going to be a lot of members on the House floor, on the Democratic side, that are going to have to have a true gut check when it comes to this,” said Ruben Gallego (D-Ariz.). Gallego voted for the bill in committee after attaching amendments he drafted. He also received a call from Treasury Secretary Jack Lew asking him to support the legislation.

“It was very difficult for me to not vote for this bill in the end because I couldn’t let my personal political ideology stand in the way of relief for 3.5 million people,” Gallego said.

Many members of the Congressional Hispanic Caucus remained noncommittal even after Treasury’s Weiss briefed them, Luis Gutierrez (D-Ill.), an opponent of the bill, said.

Gutierrez and Sen. Bob Menendez (D-N.J.) held a news conference immediately after the meeting to blast the bill, calling it “neocolonial” because of the powers granted to the oversight board to overrule Puerto Rican elected officials on revenue, spending and budgetary matters.

“I’m going to actively work amongst my Democratic colleagues in the House to defeat” the bill, said Gutierrez.

Sources on both sides of the aisle have indicated that a bill introduced by Rep. Nydia Velazquez (D-N.Y.), an influential member among Democrats on Puerto Rico, will be considered the same week as the debt legislation as a way for Democrats to claim a minor victory. The bill ends an exemption in financial regulation that allows investment firms to both underwrite and sell municipal bonds on Puerto Rico. Critics of the exemption say it creates a conflict of interest.

“As there may yet be further changes, I will withhold judgment until the legislation is finalized and I can fully weigh the bill’s benefits against my remaining concerns,” Velazquez said in an email regarding the debt compromise. Among her concerns are whether the debt restructuring can work and that the oversight board will enjoy too much sway over Puerto Rico.

Allowing Velazquez’s bill to come to the floor signals the realization among Republican leaders that they may not get a majority of their members to vote for the Puerto Rico legislation before a $2 billion payment comes due for the commonwealth on July 1.

In a possible preview of a House floor vote, all 10 members voting against the bill in the Natural Resources Committee were Republican, a higher number than the panel had hoped. Two others, Reps. Alex Mooney (R-W.Va.) and Paul Cook(R-Calif.) did not vote.

TV, radio and social media ads, some directly targeting members in their districts, have now been joined by automated phone calls telling constituents to call their congressional office in opposition to the bill, a last-ditch effort to make the vote more painful for House conservatives.

Few Republicans outside of those on natural resources wanted to talk about Puerto Rico after the bill passed committee, saying they hadn’t had a chance to catch up on the current legislation, even though the panel’s staff had briefed members again this week.

Formal vote-counting has yet to start but the Puerto Rico debt bill is expected to come to the House floor in the second week of June, when Congress returns from the break.

Republicans on the natural resources panel hesitated to project much more than cautious optimism.

“I think we’re going to be ok,” said Rep. Cynthia Lummis (R-Wyo.) said Thursday. Yet she added, “I think there will be some attempts at some floor amendments,” with Republicans who couldn’t change the bill in committee, most of whom were opposed to the underlying measure.

“It should pass with the majority on both sides,” said Rep. Rob Bishop (R-Utah), chair of the natural resources panel and one of its main salesmen within his caucus. “There’s no reason to vote against the bill.”

GOP U.S. Congressman Admits Medical Marijuana Use

By Russ Belville – May 24, 2016

WASHINGTON, D.C. – Speaking to an assembly of cannabis activists, a sitting Republican US Congressman admits medical marijuana use personally to treat arthritis pain.

US Congressman Admits Medical Marijuana Use
Congressman Dana Rohrabacher admits to medical marijuana use while addressing NORML activists on Capitol Hill

Congressman Dana Rohrabacher (R-CA) was one of five members of Congress to address the gathering of activists representing the National Organization for the Reform of Marijuana Laws (NORML).

Rohrabacher was the only Republican of the five to speak on the federal issues concerning marijuana legalization nationwide. He told the activists how he has been a surfer for over three decades and how the sport has taken its physical toll on him.

“I haven’t been able to go surfing for a year-and-a-half and I’ve been in severe pain,” Rohrabacher explained, while trying to demonstrate the paddling motion surfers use to get out into a wave, “because I spent all this time doing that, which I can barely do now.”

Rohrabacher said he didn’t regret the toll surfing had taken on his shoulder, especially if we can do something about it.

“I went to one of these hempfests in San Bernardino,” he continued, explaining a vendor who showed him a cannabis-infused topical preparation to run into his aching shoulder. “And you know what? I tried it about two weeks ago, and it’s the first time… in a year-and-a-half that I’ve had a decent night’s sleep, because the arthritis pain was gone.”

After the applause from the activists subsided, Rohrabacher confirmed that it was a medical marijuana product he tried.

“Now don’t tell anybody I broke the law,” he sarcastically confided, “They’ll bust down my door and, you know, and take whatever’s inside and use it for evidence against me. The bottom line is that… there’s definitely cannabis in there, and it makes sure that I can sleep now.”


Stunned by the admission, NORML Executive Director Allen St. Pierre tells Cannabis Radio News that Rohrabacher’s staff told him this is the first time they’ve heard the congressman make a public admission of his medical marijuana use.

“This is definitely the first legislator in Congress in at least thirty-some-odd years who has acknowledged to using marijuana illegally,” said St. Pierre. “Back in the 19-early-80s, there was a congressman, Stewart McKinney… and he and a guy named Newt Gingrich introduced a bill, and it was all about his [McKinney’s] need to use medical marijuana, even back in the 1980s.”

Other members of Congress addressing the NORML activists were Democrats Sam Farr (CA), Earl Blumenauer (OR), Jared Polis (CO), and Suzan Delbene (WA), all representatives of the states that recognize legal adult use of marijuana.


Las Vegas Judge Handcuffs Public Defender in Courtroom

A Nevada judge says he’s been having a problem for about six months with a lawyer who regularly appears in his courtroom talking over him.

So on Monday, he had his courtroom marshal handcuff assistant public defender Zohra Bakhtary. She was then seated in the jury box alongside inmates while the judge finished hearing the case, reports the Las Vegas Review-Journal.

Las Vegas Justice of the Peace Conrad Hafen then had the marshal take the handcuffs off Bakhtary, saying, “I think she’s learned a lesson.”

The incident began, according to a court transcript, when Bakhtary was arguing to try to keep a client out of jail.

Told by Hafen on Monday to “be quiet,” she kept talking.

“Zohra,” the judge said.

“You’re making—” she said.

“Do you want to be found in contempt?” the judge asked her.

“Judge, you’re asking—” she responded.

“Now. Not another word,” the judge said.

“Judge, you’re—,” said Bakhtary, who was cut off by the judge’s order to his marshal to handcuff her: “Travis, right now. I’m tired of it. Right now.”

Hafen then sentenced Bakhtary’s client to six months in jail.

Clark County Public Defender Phil Kohn said this is the first time in the 12 years he has run the office that one of his lawyers has been handcuffed in court, the Review-Journal reports.

Nonetheless, he said after a private meeting with Hafen that he believed the incident had been resolved and that Bakhtary could continue working in Hafen’s courtroom without being deterred from representing her clients zealously. “She’s tenacious,” Kohn told the Review-Journal. “It’s probably why today happened.” Bakhtary did not give the newspaper a comment.

In a telephone interview with the newspaper, Hafen said that Bakhtary’s talking over him had been an issue for about six months.

“There’s been a progression of steps in the courtroom where I’ve tried to let her know it’s not proper decorum for her to continue to talk over me or interrupt me after she’s already made her argument,” he said. “Once an argument is made, then you have to allow the judge to respond, so there’s a clear record, and you shouldn’t be interrupting the judge as the judge is making a ruling. … I’ve been trying to work with her. And today it just spilled over to where I thought, ‘Well, clearly she’s not understanding what I’m trying to tell her.’ ”

The Las Vegas Review Journal later published a statement from Bakhtary in which she said Hafen did not give her a chance to argue against a jail term for her client before ordering her to be quiet.

“I did not act unprofessionally. I simply wanted the court to listen to my argument and consider it before remanding my client for a 180-day jail sentence,” she wrote. “The court’s constitutional duty is to listen to arguments, not silence them.”

Hafen did not comment on Bakhtary’s statement.

There was no videotape of the incident with Bakhtary. The Review-Journal reports that Hafen prefers having an official court reporter transcribe what occurs and has not used the camera system in his six years on the bench. A transcript of relevant part of the hearing is available.


Finally an Honest Politician: Congressman Explains How a Lobbyist Tried to Buy Him

(ANTIMEDIA) United States — “It was one of the scummiest meetings I’ve ever been in,” said Rep. Thomas Massie of a proposal from a lobbyist to help place him in the powerful, influential House Ways and Means Committee, which oversees tax policy, among other things.

“He pulled me and my chief of staff into a meeting,” Massie told the Cincinnati Enquirer of the lobbyist he refused to identify, but who ‘represents the medical device sector.’ “He offered to raise the money that would be required to get me on Ways and Means. This is a lobbyist telling me he can get me on Ways and Means.”

In essence, Massie explained, the lobbyist wanted to help him win the prominent position in return for future legislation benefiting the lobbyist’s interests. Though such mutual back scratching seems obvious when tracing the money trail, Massie’s comments show how directly the money-infused lobbying, well, racket literally shapes policy.

Perhaps tempting to other politicians, Massie rebuffed the offer — but, for him, it was an epiphanic moment:

“I left just reeling, thinking about the implications for how this place works when you realize that the lobbyists pick who goes on which committee.”

As the Enquirer reported, Massie’s colleagues expressed shock over his account of the meeting,  saying they hadn’t encountered anything of its kind before.

“That’s just crazy,” asserted Steve LaTourette, a former Ohio congressman — who now lobbies in Washington. LaTourette claims whether or not a lobbyist might have political pull is of no consequence in helping place specific politicians on any committee. He insists it’s impossible. Each party chooses members for “steering committees,” who then decide who will comprise House committees.

As the Enquirer explained, each party’s “panel also has lawmakers who represent each region of the country, along with committee chairmen and others. They vote on committee assignments, chairmanships, and subcommittee chairmanships in closed-door sessions.

Whether or not the unidentified politicians’ astonishment amounted to feigned denial could be widely left to interpretation, considering the blurred lines between money and politics — and legislation. Other unidentified congresspeople pointed out that while lobbyists can’t directly aid an individual’s placement on a desirable committee, their influence behind the scenes is palpable.

Campaign Legal Center policy director Meredith McGehee told the Enquirer she’d never heard of an “explicit” offer like Massie’s, but lobbyists do “organize and direct money” for their clients — “corporations, trade groups and nonprofit organizations” — so helping politicians ‘secure’ powerful positions might be the most beneficial way to do so.

“There’s an enormous amount of pressure on K Street-type lobbyists to deliver, and if you don’t your clients get hurt,”she explained.

While, perhaps, such a blatant proposal as was offered to Massie might be highly unusual, lobbyists with familiarity to more seasoned politicians can exert influence if a newer politician makes it onto a panel or into a position of power on a committee.

“Every committee has a constituency,” LaTourette continued, “and if you’re trying to be the chairman of Ways and Means, there are lots of businesses and corporations and hospitals who are really dependent on what sort of product the Ways and Means Committee produces.”

Open Secrets describes the relationship between lobbyists and lawmakers as “complicated. On one hand, lobbyists pursue relationships with lawmakers in order to shape legislation so that it benefits clients who would be affected by new laws and regulations. On the other hand, lobbyists are frequently targeted by lawmakers as sources of campaign money, which the lobbyists feel beholden to give to improve their clients’ prospects of success.”

Voters and the general public view this so-called ‘complicated’ relationship with a high degree of suspicion — precisely because the offer Massie describes wouldn’t seem to be a stretch. Such overt influence over legislation and policy — particularly by behemoth corporations — continues to embitter Americans against the legislative and political process.

This article (Finally an Honest Politician: Congressman Explains How a Lobbyist Tried to Buy Him) is a free and open source. You have permission to republish this article under a Creative Commons license with attribution to Claire Bernish and Anti-Media Radio airs weeknights at 11 pm Eastern/8 pm Pacific. If you spot a typo, email

GOP, Dem Lawmakers Target IRS Seizures, Put Aside Impeachment Battles

One day after a showy hearing on impeaching the IRS commissioner ignited a feud between House Republicans and Democrats, members of both parties were in the same corner Wednesday when it came to the agency’s use of asset forfeiture.

The bipartisan criticism the IRS has gotten from the Ways and Means Oversight Subcommittee over its aggressive seizures surprised veteran members of the panel.

Oversight Subcommittee Ranking Member John Lewis (D-Ga.) said he couldn’t recall such a sense of “togetherness” on the committee. “On this issue, we are in accord,” he said.

Former Ways and Means Chairman Charlie Rangel (D-N.Y.) echoed that sentiment during questioning about how long it would take the IRS and the Department of Justice to get to the bottom of the remaining cases where wrongfully seized money hasn’t been returned.

“Let me make it abundantly clear – this is not going to take as long as you think it’s going to take. I’ve never seen this kind of bipartisanship on this committee, and I’m going to take advantage of it,” Rangel said.

At issue is the government’s seizure of funds over violations of “structuring” laws, which were intended to catch terrorists and drug kingpins trying to evade bank reporting requirements by depositing cash in sums of less than $10,000.

The IRS and Justice have adopted restrictions on asset seizure over the last year and a half as a result of the uproar over legitimate small businesses getting caught in the crosshairs. But they haven’t returned all of the money.

Rep. Pat Meehan (R-Pa.) noted there were 618 cases where assets were seized when the IRS reported no criminal suspicion, questioning IRS Commissioner John Koskinen’s estimate of 75 cases where a crime was not committed.

Koskinen said that while the box hadn’t been checked for intent to criminally prosecute in those 618 cases, “that doesn’t mean that those cases don’t have illegal sourcing being used as part of the structuring.”

Whether it’s 75 or 600, Rangel said, there’s no excuse for dawdling on investigating the cases and returning any wrongfully seized money.

“You knew we were coming – why wasn’t this put on a special detail” and expedited at the IRS and Justice, Rangel asked.

The Justice official, Criminal Investigation Deputy Assistant Attorney General Kenneth Blanco, said he first heard the 600 estimate at the hearing.

Subcommittee Chairman Peter Roskam (R-Ill.) noted that one of the witnesses whose assets were seized, Maryland dairy farmer Randy Sowers, has been waiting 10 months for a response on the return of nearly $30,000 he paid to settle his case with the government “under overwhelming pressure.”

Sowers told the subcommittee that he often made large cash deposits of earnings from farmers markets.

Roskam recalled that when he asked IRS and Justice officials where Sowers’ money was during a February briefing, he was told it had been “dissipated into the system.”

“What does that mean? Because if my constituents spend tax money that they owe the government, what does the government do? The government takes their house and puts them in prison,” Roskam said.

Roskam unveiled legislation this week that would prohibit the IRS from seizing funds without proving an underlying crime.

“I would stress that [the money] was not wrongfully taken at the time,” Koskinen protested at one point. He said that the “change in policy does not render prior seizures unlawful, as structuring is still a federal felony regardless of whether the source of the funds is legal or illegal.”

Koskinen also praised the IRS’ Criminal Investigation unit, noting its 93 percent conviction rate is “one of the highest amongst law enforcement agencies.”

Subcommittee member Rep. George Holding (R-N.C.) last week introduced legislation to strip IRS agents of their “guns and badges” by placing the IRS’ Criminal Investigation unit outside of the agency, placing it directly under Treasury.

Koskinen told reporters after the hearing that removing the CI unit from the IRS would only add a “barrier” in solving cases. The two have always been linked, he added, “going back to Al Capone days.”

The impeachment drive against Koskinen didn’t come up during the hearing. In fact, it was the relatively unknown Blanco who came in for the harshest personal criticism.

“I can’t figure out if you’re playing straight with me or you’re hustling me,” Roskam told Blanco near the end of the hearing, as he pressed again for a timetable on the remaining cases.

“We’re working as expeditiously as possible,” Blanco said. “… One thing I will say, Congressman – and I feel very deeply about this – justice should not be rushed.”

Roskam shot back that the answer was “obtuse”, “evasive” and “condescending,” and lamented “the passive-aggressive nature of trying to get information from your staff; we’re basically stiff-armed.”

Behind the scenes, meanwhile, Koskinen’s precarious political position with Republicans was evident when he was denied access to the witness room, a holding room off the floor of the main hearing room, while the hearing’s first panel testified.

Roskam said he wanted Koskinen in the hearing room to hear the first panel. Pressed on the fact that the witness room has a TV to watch the hearing, he said he wanted Koskinen to “really listen” to the testimony of Sowers and another farmer whose money was seized.

Democratic committee aides handed over their staff room after seeing Koskinen, surrounded by his security detail, cooling his heels in the hallway.

“It’s standard protocol for a Cabinet-level official” to be given a room, a Democratic aide said, since “he has his security detail – he can’t just sit there in the hearing,” which was held in a relatively cramped room in the Rayburn basement.

And while the hearing Wednesday was more sober than the circus surrounding Tuesday’s impeachment hearing, it wasn’t without the occasional theatrical flourish. The two flat-screen TVs in the hearing room, for instance, flashed the definition of “extortion” in large type at one point as Rep. Mike Kelly (R-Pa.) accused the IRS of a “shakedown” and referred to the Gestapo.

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