Posted by: bmeverett | June 6, 2013

The Solyndra and IRS Scandals are the Same

Recent revelations that the IRS delayed applications from conservative organizations for tax exempt status seem to baffle the media. Could it be true, as the White House claims, that a few low-level IRS staffers concocted this scheme on their own? Did the White House issue instructions to harass these groups? These very questions show a fundamental misunderstanding of how Washington operates.

There are basically two types of people working in the government. The first and largest group is the professional employees attracted to government work for its good pay, job security and a genuine desire to provide essential services to the public. These policy professionals develop expertise on substantive and administrative issues and generally know what they are doing. The second and smaller group is political operatives – the campaign workers who attach themselves to a particular candidate or party and who devote themselves totally to the political advancement of their patrons. Successful political operatives are smart and highly skilled in their profession. They also tend to become ruthless and utterly focused on bare-knuckle politics. These people generally care little about economics, national defense, health care, the environment or other policy questions, but they understand how to use these issues for their patrons’ political benefit.

When a President takes office, one of his major tasks is to get control of the huge federal bureaucracy. This job is almost always given to the President’s closest friends and advisors – all of whom are political operatives, not policy professionals. These are the people who helped the president get elected, shielded him from the consequences of his weaknesses, attacked his enemies and undermined his opponents. Some will work in the White House, while others will be appointed to cabinet level or sub cabinet level jobs. Their message to the professional civil service is always the same. They do not say, “The president wants to run the government capably, and he is relying on all of you to do your best professional job.” Their message instead is, “We’re in charge now. We reward our friends and punish our enemies, just as we did on the campaign trail. We do not respect the ‘neutrality’ of civil servants. You’re either for us or against us, and we know where you live.”

Professional civil servants can ride out this periodic political storm if they choose because they know that government procedures make it almost impossible to fire anybody. They keep their heads down and do their jobs. The more ambitious government employees, however, will look for opportunities to advance their careers by catering to the wishes of White House staff who (temporarily at least) have a great deal of power to dispense favors, which can include plum assignments and promotions. The President and his staff do not need to issue explicit orders for this process to work. They only need to give subtle signals, which smart people can easily interpret.

We can get some real insight into the current IRS scandal by looking at the mess over Solyndra, the solar panel manufacturer that went bankrupt, defaulting on a half billion dollar loan from the American taxpayer. The problem started when Congress appropriated tens of billions of dollars for loan guarantees to advance renewable energy technology. Those who do not understand how Washington works believe that experts at the Department of Energy examine applications for these loans and decide which projects look most promising from a technical and economic standpoint. In other words, they assume that these decisions will be in the hands of professional civil servants.

In reality, political operatives have a great deal of influence over how this money is disbursed and their criteria are purely political. Entrepreneurs are very practical people and see government funds as a low-cost form of financing. In emails released to the House Energy and Commerce Committee last year, for example, the CEO of Solyndra referred to the federal government as “The Bank of Washington.” The quickest way to get access to this financing is not by sending a well-argued technical proposal to the DOE staff for evaluation, but to be a friend of the President.

The largest shareholder in Solyndra was George Kaiser, a billionaire Oklahoma oil-man who was a “bundler” for the Obama campaign in 2008. In other words, since individual campaign contributions are limited, he organized a large number of individual contributions into a bundle estimated at over $100,000. Such a contribution makes you by definition a friend of the President. Records show that Mr. Kaiser personally visited with White House staff on several occasions to discuss Solyndra. The White House staff subsequently set a date for a high-visibility visit by President Obama’s to Solyndra’s California manufacturing facility. This situation was a win-win for the White House political machine. The President could show gratitude for Mr. Kaiser’s campaign contributions while publicly demonstrating his support for clean energy and green job creation. Unfortunately for the taxpayer, all these political steps were put in place before the DOE staff had completed its review of Solyndra’s loan application – a process that was of no interest to the White House. Other released emails show that analysts at both DOE and the Office of Management and Budget recognized Solyndra’s poor prospects and warned of the likely failure of the company.

Under these circumstances, how did Solyndra’s loan get approved and subsequently restructured at taxpayer expense? The answer is simple. The White House did not need to issue an order to DOE to approve the loan. The very fact that the White House publicly supported the project was sufficient to convince ambitious people at DOE, including both the political appointees and senior civil servants, to approve the loan. Why not? Their careers might benefit, and the loans were made with Other People’s Money, for which DOE is never held accountable.

Fast forward to the IRS scandal. When President Obama took office, IRS employees were undoubtedly given the “We reward our friends and punish our enemies” message. If you are ambitious, you want to be on the lookout for opportunities to make the boss happy. In April, 2012, for example, an Obama campaign website attacked Mr. Frank VanderSloot, an Idaho businessman and donor to Mitt Romney’s campaign. The Obama campaign named Mr. VanderSloot and several others as “wealthy individuals with less-than-reputable records” and called him “litigious, combative and a bitter foe of the gay rights movement”. Shortly afterwards, Mr. VanderSloot and his wife were subjected to IRS audits of their tax records and Mr. VanderSloot was subjected to a Labor Department audit of his business.

The White House claims no connection to these actions and has essentially challenged the press to find a “smoking gun” memo from the White House directing these agencies to harass Mr. VanderSloot. No such memo was needed. All it takes is for a few senior people in the IRS and the Labor Department to decide to curry favor with the White House by taking actions they know will be viewed favorably. The same is true with the targeting of conservative political organizations for delay and harassment when they filed 502(c)4 tax exemption applications. Smart IRS officials don’t have to be told that such behavior will earn them the notice and approval of the White House.

The White House and its media allies continue to claim that the lack of a “smoking gun” exonerates the President. The politicization of the federal bureaucracy, however, does not require direct Presidential orders. Nor does this problem exist only for Democrats. Republicans do pretty much the same thing. They just have different friends and constituents. When a Republican inhabits the White House, ambitious bureaucrats will look for a way of pleasing those political operatives. It’s interesting to look at the case of Victoria Nuland, a career foreign service officer recently implicated in the distortion of the Benghazi talking points. The press is puzzled by the fact that Ms. Nuland could have served in a senior position in the Clinton Administration, then as a foreign policy advisor to Vice President Cheney and now as a loyal member of the Obama foreign policy team. Such behavior is in fact common in Washington. Loyalty to those currently in power is a good strategy for career advancement.

The root cause of this problem is not the behavior of either political operatives or professional civil servants, a situation well understood by our Founding Fathers. The problem is rather the enormous breadth of federal authority and the sheer vagueness of the laws passed by Congress. Congress appropriates huge sums of money, like the alternative energy loan guarantee program, with minimum guidance as to how the money is to be spent. Can anyone be surprised that businesses will try to access these funds or that the political operatives who run the White House will try to direct these funds to improve their political position? Congress also frequently passes laws with wonderful names like The Affordable Care Act and then delegates to the bureaucracy the job of actually defining and implementing the law. Can anyone be surprised that the political operatives who run the White House will try to use these complex and ambiguous statutes for political purposes? Those who are surprised are demonstrating one of the fundamental flaws of central planning: the belief that federal policies are implemented by experts interested primarily in helping out the citizenry.

The solution is not to throw out the Democrats and elect Republicans. That might help on the margin, but don’t expect too much. Politicians are politicians. The current White House “scandals” will serve only to reconfirm that the federal bureaucracy can be used for blatantly political purposes with complete impunity. The only solution is to limit the size and scope of the federal government.


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