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03/3/2017

Transparent Procedures about the President’s Tax Returns

As we explained earlier this week, post-Watergate reforms to the Internal Revenue Code declared taxpayer’s tax returns and related information confidential.  Disclosure of confidential taxpayer information is the exception and is prohibited except for enumerated, limited purposes and situations that are “authorized by statute.”  Even when disclosure is statutorily authorized, the Internal Revenue Code imposes additional procedures so that, absent prior consent, disclosure of confidential taxpayer information to the government for purposes other than administering or enforcing tax law becomes a matter of public record.

Recent debate about President Trump’s tax returns has provided a case study about how the confidentiality rule and limited disclosure exceptions operate, both legally and politically. Under 26 U.S.C. § 6103(f), the House Ways and Means Committee and the Senate Finance Committee can request access to examine any taxpayer’s information (including the president’s) without the taxpayer’s consent, but only subject to procedural safeguards designed to make the fact of Congress’s request publicly transparent.  Last week, the Ways and Means Committee considered but decided against invoking that authority to obtain the president’s returns.  On February 27, 2017, the Democrats forced the entire House to take a floor vote on whether the Committee should invoke the statute.  Again, along party lines, the decision was made not to seek the President’s returns (although two Republicans voted “present” rather than nay).

Thereafter, in a March 1, 2017 letter, Democratic members of the Senate Finance Committee requested that their Chairman, Orrin Hatch (R-UT), use the same statutory authority to obtain President Trump’s tax returns for the Committee’s review.  The Democrats argued that the information would help investigate suspicions about the President’s business and political relationships.  Senator Hatch, in a joint letter with House Ways and Means Committee Chairman Brady, rejected the Democratic members’ request.  The Senate and House Chairmen argued that their Committees’ authority to obtain taxpayer information should only be invoked when tax improprieties or abuse of taxpayer rights were suspected, and that broader uses to investigate business and political relationships would be an “abusive” and “dangerous precedent.”

The press has widely reported these events and arguments, as it should. As we wrote earlier this week, “by requiring that every congressional request for an American taxpayer’s confidential information is transparent, the Tax Reform Act of 1976 implicitly relies on the press and third-party watchdog groups to make that information known to the broader public, hopefully, in an accurate and user-friendly form.”  The public is indeed paying attention and some constituents are vigorously inquiring about their representatives’ and senators’ position about the President’s tax returns.  Engagement like that indicates that the statutory protections promoting transparency for congressional requests to see confidential taxpayer information are operating as they should.  Lawmakers must weigh the value of confidentiality whenever they consider seeking access to a taxpayer’s protected information and, when they choose disclosure over confidentiality (or when, as in this instance, they vote against disclosure), constituents will know and be able to use that information in evaluating the work of their representatives.

Mike Geske is counsel at Cause of Action Institute

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02/28/2017

February Newsletter

Cause of Action Institute published its February newsletter today. You can read the newsletter here and subscribe to the newsletter here. The February newsletter highlights:

  • We filed an amicus curiae brief challenging a new Food and Drug Administration regulation with far-ranging, negative economic impacts on consumers and small businesses engaged in the premium cigar industry. The regulation unfairly targets America’s smaller-scale cigar manufacturers, trampling on a proud American heritage and eliminating economic opportunity for many small businesses. Read More;
  • This month, we joined a “friend of the court” brief in support of the CEO of a large egg production company after he was found criminally liable for a salmonella outbreak. Unaware of the contamination when it occurred, our brief argues that liability for responsible corporate officers should never result in prison time. Read More; and
  • We have called for an investigation into whether Federal Election Commission Commissioner Ellen Weintraub violated federal ethics laws when she demanded President Trump provide evidence of his voter fraud claims in New Hampshire. Despite its name, the FEC has no authority over voter fraud claims.  Read More.
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02/27/2017

The Press and the President’s Tax Returns

All this month The Atlantic, along with many other publications, reported that the House Ways and Means Committee took up a request by one of its Democratic members to obtain President Trump’s tax returns by invoking a venerable provision of the federal Tax Code. In the time since Congressman Bill Pascrell, Jr. (D-NJ) made his request on February 1, 2017, a broad variety of publications have followed, reported, explained, and opined upon the Committee’s consideration of the matter.

On February 14, 2017, along strict party lines, the Ways and Means Committee voted not to invoke its statutory authority to examine President Trump’s tax returns. The Committee’s action received considerable news coverage.  The most common theme among the reports, regardless of the correspondent’s view about what should happen with President Trump’s tax returns, was that the statute at issue is “obscure” or “little known.”  However that view of the statute got started, one need only read a handful of the reports to see how easily the media can fall victim to its own echo chamber.

The statute considered by the Committee, 26 U.S.C. § 6103, is anything but obscure. It is, in fact, one of the foremost reforms arising out of the Watergate scandal.  The investigation and hearings into the burglary led to the discovery that President Nixon had routinely abused the IRS’s audit and investigatory powers, particularly against his political opponents.  The Articles of Impeachment against President Nixon charged that he had “endeavored to obtain from the Internal Revenue Service … income tax returns for purposes not authorized by law.”  In the wake of those events, Congress added privacy protections to taxpayer information held by the IRS and rearranged existing protections (the subsection the Committee considered was one of the latter).  In particular, the Tax Reform Act of 1976 reformed tax privacy to emphasize that tax returns and related information “shall be confidential.” To guard against abuse by future presidents and other government officials, Congress prohibited disclosure of tax returns and related information “except as authorized” by statute. Under this reform, confidentiality became the rule and disclosure, the exception.

The newly strengthened privacy protections, backed up by criminal and civil penalties for unlawful mischief, are designed to ensure that IRS information is used only to administer taxes and related programs, such as social security, and that any disclosure is strictly limited by tailored safeguards and procedures designed to prevent improper violation of taxpayer confidentiality. Over time, politicians have found ways around the statute’s safeguards.  A number of well-documented, egregious, and large scale violations during the Obama administration, which were directed against President Obama’s political opponents, are described in our Investigative Report: Presidential Access to Taxpayer Information (which also provides more detail about the statute). By and large, however, government actors — especially those not administering taxes — are legally and procedurally barred from publishing or using confidential information about any taxpayer absent prior consent.

Congress, like the Executive Branch, is not immune from the temptation to use confidential taxpayer information held by the government. To limit the risk of abuse by legislators, the applicable statute strictly limits congressional access to particular circumstances and subject to specifically tailored safeguards.  Under 26 U.S.C. § 6103(f), the section of the statute that Rep. Pascrell invoked, three congressional committees, including the Ways and Means Committee, can request access to examine any taxpayer’s information (which would include the President’s) but only subject to procedural safeguards designed to make the fact of their request publicly transparent.

First, the Chair of the Ways and Means Committee must send a written request to the Secretary of the Treasury (that is, a third party from a separate, co-equal branch of government) that describes the information sought (like returns from named taxpayers for specific periods). The Secretary of the Treasury, in turn, must record and then regularly and publicly report the number and types of these requests.  Even then, the Secretary may furnish confidential tax information that can be associated with or identify a specific taxpayer only when the Committee members are meeting alone in executive session, unless the specific taxpayer provides written consent prior to any broader disclosure.  Those safeguards ensure that congressional access to any taxpayer’s confidential information becomes a matter of public record.

But how many taxpayers have the time, ability, or inclination to read any part of the Congressional Record, let alone all of it every day, or even a portion of their own representative’s report and reaction about a committee’s work? Indeed, by requiring that every congressional request for an American taxpayer’s confidential information is transparent, the Tax Reform Act of 1976 implicitly relies on the press and third-party watchdog groups to make that information known to the broader public, hopefully, in an accurate and user-friendly form.  In the present case, however, the press missed their own boat by failing to understand the purpose and context of the statute at issue.  If the press intends to improve its reputation for reporting the facts accurately, it needs to take the time, at the very least, to understand the laws and government procedures it’s trying to report.

Mike Geske is counsel at Cause of Action Institute

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02/24/2017

Bob Bauer Agrees With Us About Commissioner Weintraub, But Doesn’t Want to Do Anything About It

Does the rule of law matter and should government officials abide by the ethical obligations that govern them?  Robert Bauer, former White House Counsel for President Obama, answers: “Not so much.”

On Tuesday, in furtherance of its mission to hold our government accountable, Cause of Action Institute (“CoA Institute”) sent a letter to the Federal Election Commission (“FEC”) Inspector General (“IG”) and Designated Agency Ethics Officer asking them to investigate whether Commissioner Ellen Weintraub violated government ethics standards when she acted outside her authority as a commissioner while using FEC resources.  Ms. Weintraub issued a statement on FEC letterhead, posted to the FEC website, urging President Trump to provide evidence of his claims about voter fraud during the 2016 elections, and then went on national media outlets to promote that statement.  In our letter, we explained that alleged voter fraud and New Hampshire criminal violations, the two subjects of Ms. Weintraub’s statement, are outside the FEC’s jurisdiction and therefore her advocacy on this matter was an improper use of government property and official time.  We also pointed out that, during the Obama administration, Ms. Weintraub herself had expressly rejected any involvement in questions of voter fraud because such matters were outside the FEC’s jurisdiction.

Commissioner Weintraub responded to our letter by providing a post hoc rationalization that her statement was in some manner geared to determine whether “the expense of these buses [alleged to have been used in the voter fraud] has not been accounted for on any campaign-finance filing.”  Without addressing her prior statement about voter fraud being outside of FEC jurisdiction, she also alleged, without citation to any authority, that her statement about the investigation of voter fraud was proper because it was within her “official duties as a federal election official to comment publicly on any aspect of the integrity of federal elections in the United States.”

Yesterday, former White House Counsel Bauer rode to Ms. Weintraub’s defense with a post on his campaign-finance blog, More Soft Money Hard Law.  Nearly lost among Mr. Bauer’s various defenses of Ms. Weintraub’s behavior is a key concession that vindicates CoA Institute’s letter to the FEC.  As he wrote: “Are Weintraub’s comments directly and squarely within the jurisdiction of the Commission, such that she can take some action in response to the President’s failure to produce the requested evidence?  No[.]”  To anyone who believes in the rule of law—that old-fashioned notion that laws, standards, and rules are to be applied regardless of one’s rank or standing in society—that should have ended the matter.  Ms. Weintraub, in her role as FEC Commissioner, acted outside her authority; applicable ethics rules prohibit officials from using official time and government property in unauthorized conduct; Ms. Weintraub continued her unauthorized conduct; she should accordingly be the subject of an ethics investigation.

But Mr. Bauer demurs.  Instead of describing the governing ethical standards and their application to Ms. Weintraub’s behavior, he claims that, “as a 13-year Commissioner, [Ms. Weintraub] should be free to take notice of any claims that bear on the integrity of elections.”  Of course she is free to “take notice” of such claims; no one has argued otherwise.  The issue, however, is whether she can expend government time and resources in promoting the notice she takes.

The length of an official’s tenure at an agency has no bearing on whether she is permitted to operate outside the statutory authority creating the agency’s jurisdiction.  If Ms. Weintraub felt moved by these issues, she was free to opine in her personal capacity.  But using government property and official time to advance personal views that are—as Mr. Bauer himself admits—outside the FEC’s jurisdiction was improper.

Unable to find a valid basis to defend Ms. Weintraub’s behavior, Mr. Bauer’s only remaining move is to impugn CoA Institute’s motives and methods.

First, the motives.  Apparently unconcerned with Ms. Weintraub’s unethical use of government property and time, Mr. Bauer writes that “Budgets are not balanced on the savings achieved by stopping this level of activity.  There is very little of a principle to be upheld here.”  Although the volume of money used improperly may not be enough to balance a budget, the principle at issue is vital and one that CoA Institute works every day to uphold.  Congress creates federal agencies to accomplish statutory objectives and funds them with the taxpayers’ money.  Public officials are hired and paid solely to accomplish those objectives.  Unfortunately, agencies are notorious for straying beyond their authority, wasting taxpayer resources, interfering with the free market, and undermining the liberties that are Americans’ birthrights.  Mr. Bauer may not care that Ms. Weintraub exceeded her authority, but we do.  Mr. Bauer may not be upset with the unchecked growth of power in the administrative state, but we are.

Mr. Bauer also repeats Ms. Weintraub’s claim that our letter was an effort to silence the commissioner, stating that our aim is to “suppress[] unwanted speech” and our “purpose is clearly to strike back at the Weintraub [sic] for the substance of her comments and have her think twice about repeating them while ‘under investigation.’”  What does Mr. Bauer know about our motives?  Did he interview those who drafted the letter?  Did he even go to our website to look at our mission statement or review the kinds of cases we take on?  Since its inception over five years ago, CoA Institute has existed to provide oversight of federal agencies and hold accountable the officials who exercise so much control over the lives of everyday Americans.  We are firm defenders of the First Amendment, and if Ms. Weintraub had made the same statement in her personal capacity, we would have applauded her right to do so.  But that is not what happened.  In acting in this matter in her official capacity, she exceeded her statutory authority, and for that, she should be held accountable.  We do that for apparent violations of all kinds by government officials, regardless of their political affiliation, including former Secretary of Agriculture Tom Vilsack and former Secretary of State Colin Powell.

As for methods, Mr. Bauer suggests that CoA Institute’s request for an investigation will cost more money than it will save and thus, if we were really concerned about preserving government resources, we should have remained silent.  As he stated: “But it cannot escape attention that to make its point, the organization urges a remedy that requires throwing real government money away, on an ‘investigation.’  Ms. Weintraub’s statement-and-tweets communication on voter fraud is a bargain compared to the paper and staff time that may be burned in an IG inquiry.”  Here, Mr. Bauer appears unaware of the economic concept of a sunk cost.  Federal tax dollars already are being spent to employ both an IG and Designated Agency Ethics Officer at the FEC, and the precise purpose for which these officials and their offices exist is to administer government ethics rules and oversee investigations into wrongdoing.  Our request that they allocate a portion of their time to determine whether Ms. Weintraub violated her ethical obligations in this matter is thus entirely proper.  These officials exist to investigate misconduct and we are merely bringing to their attention a matter that they should be investigating of their own accord.  And if we’re wrong, which Mr. Bauer does not believe, we’ll post a follow-up, just as we did for former Secretary Vilsack.

Finally, Mr. Bauer’s attempts to justify Ms. Weintraub’s unethical behavior by pointing to President Trump’s use of “Twitter to visit hell on a department store chain that discontinued his daughter’s line of clothing,” is a logical fallacy.  If President Trump’s action is wrong, how does that exonerate Ms. Weintraub?  Far from proving that CoA Institute acted from a partisan agenda rather than from principle, Mr. Bauer’s insinuation is a case of projection.

James Valvo is Counsel & Senior Policy Advisor at Cause of Action Institute.  You can follow him on Twitter at @JamesValvo.

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02/22/2017

FDA is Trying to Snuff Out America’s Cigar Industry

New rule would cripple a $20 billion industry and put thousands of American jobs in danger

Washington, D.C. – Cause of Action Institute (“CoA Institute”) today filed an amicus curiae brief in support of Plaintiffs the Cigar Association of America, the International Premium Cigar and Pipe Retailers Association, and Cigar Rights of America in their lawsuit against the Food and Drug Administration (“FDA”) challenging a new regulation with far-ranging, negative economic impacts on consumers and small businesses engaged in the premium cigar industry. The new regulation finalized by FDA unfairly targets America’s smaller-scale cigar manufacturers, trampling on a proud American heritage and eliminating economic opportunity for many small businesses.

“Common sense appears to be dead at the FDA,” said Patrick Massari, Assistant Vice President at CoA Institute. “Inexplicably, the FDA ignored tens of thousands of comments from the premium cigar industry, Congress, local government, media, and the citizens of the United States, particularly those affected in ways large and small by FDA’s power grab. Under this new rule, the tradition of premium, hand-rolled cigars handed down by generations will turn into a corporate profit mill.”

In its brief, CoA Institute argues that FDA failed to conduct a legally sufficient cost-benefit analysis, as required by federal law and Executive Orders issued by President Clinton and President Obama. Specifically, President Clinton’s 1993 EO 12866 requires that “[e]ach agency shall tailor its regulations to impose the least burden on society, including individuals, businesses of differing sizes, and other entities (including small communities and governmental entities), consistent with obtaining the regulatory objectives, taking into account, among other things, and to the extent practicable, the costs of cumulative regulations.” [emphasis added].

The limited analysis FDA produced either omitted or glossed over several important costs:

  • First, premium cigar prices will substantially increase for all consumers as a result of the rule;
  • Second, the sheer compliance costs of FDA’s regulation will be so high that smaller, family-owned businesses will no longer be able to comply;
  • Third, the resulting government-defined marketplace will cripple consumer choice and bar future innovation.

Many companies will likely have no choice but to sell out to larger corporations, which will then dominate the market as regulation-protected monopolies.

The FDA itself admits that it failed to do any analysis on consumer choice, saying: “We lack a baseline estimate of consumer valuation of tobacco product variety, making it impossible to estimate how consumers who continue to use tobacco products would value the potential loss of variety due to product exit under this final rule.” Instead, the FDA ignored this essential element of cost-benefit analysis by pretending that such data does not exist.

In its brief, CoA Institute calls on the Court to order FDA to reopen its cost-benefit analysis and to vacate and remand the final rule.

The full amicus brief can be found here

About Cause of Action Institute:

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government free from abuse.

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org

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02/21/2017

Did FEC Commissioner Misuse Her Position When She Demanded Proof of Trump’s N.H. Voter Fraud Claim?

Washington D.C. – Cause of Action Institute (“CoA Institute”) today called for an investigation into whether Federal Election Commission (“FEC”) Commissioner Ellen Weintraub violated federal ethics laws when she demanded President Trump provide evidence of his voter fraud claims in New Hampshire. Commissioner Weintraub used government property and official time to make these statements, and then promoted her statement on the FEC website, social media, and national media outlets.

In its letter, CoA Institute asks the FEC’s Office of Inspector General and Designated Agency Ethics Officer to open an investigation into whether Commissioner Weintraub violated her ethical obligations and to determine whether it is appropriate for the FEC website to continue to host the statement related to voter fraud and New Hampshire criminal violations, both of which concern matters outside the agency’s jurisdiction. Despite its name, the FEC has no authority over voter fraud claims.

CoA Institute Assistant Vice President Lee Steven: “The public must have confidence that federal agency employees are acting within their ethical requirements and that taxpayer dollars are being used for authorized purposes.  Commissioner Weintraub’s behavior threatens the public’s faith in both of these important principals.”

On February 9, 2017, President Trump was reported to have stated that voter fraud in New Hampshire cost him and former Senator Kelly Ayotte electoral victories in that state in November 2016.   In response to that report, Commissioner Weintraub issued a statement calling “upon President Trump to immediately share his evidence with the public and with the appropriate law-enforcement authorities so that his allegations may be investigated promptly and thoroughly.”   Her statement also claimed that the “scheme the President of the United States alleges would constitute thousands of felony criminal offenses under New Hampshire law.” Commissioner Weintraub subsequently appeared on CNN and public radio to discuss her statement.

When asked about her position, Commissioner Weintraub stated that “[a]s a commissioner on the Federal Election Commission, I fight every day to build the faith of the American people in our elections. . . .  It’s absolutely my right to raise public questions about another public official’s statements about the integrity of our elections.”   In October 2016, however, Commissioner Weintraub took the exact opposite stance, stating through her Twitter account that voter fraud was beyond FEC jurisdiction. In response to the question “What is the FEC doing abt [sic] recent reports of voter fraud?” she replied, “That’s outside the @FEC’s jurisdiction.  We do campaign finance *only*.  The elections themselves are handled by the states.”

FEC regulations provide that FEC members and employees are covered by the Office of Government Ethics (“OGE”) rules governing the proper use of government property and official time. Under OGE regulations, Commissioner Weintraub may only use FEC property and act in her official capacity for purposes that advance the FEC mission as authorized in law or regulation.

The full letter is available here.

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02/17/2017

Doing the Time Without Doing the Crime

Imagine that you are the CEO of large food producer, and you are notified out of the blue that your company is responsible for a salmonella outbreak possibly affecting thousands of people around the country.  If I were that CEO, I would be worried for those who were affected and disappointed that my leadership hadn’t prevented such an outbreak.  Most importantly, I would immediately act to remedy the situation.

In August, 2010, this hypothetical became a reality for Austin (“Jack”) DeCoster and his son, Peter DeCoster, the CEO and COO, respectively, of a large Iowa egg producer, Quality Egg, LLC.  Around this time, the Food and Drug Administration traced a salmonella outbreak back to the company’s eggs after it received reports of roughly 1,900 illnesses.  Jack and Peter DeCoster were unaware of the contamination in their facilities and had no knowledge that their company was sending out such eggs, but they immediately took steps to remedy the outbreak.  They voluntarily recalled millions of dozens of eggs and complied with all of the Food and Drug Administration’s investigations into their facilities.

When the United States prosecuted Quality Egg under the Food, Drug, and Cosmetic Act (“FDCA”), which prohibits the introduction of any adulterated food into interstate commerce, the company plead guilty and agreed to pay a $6.8 million dollar fine.  Jack and Peter DeCoster also plead guilty to being “responsible corporate officers” of Quality Egg under a doctrine created by the Supreme Court in United States v. Park, 421 U.S. 658 (1975).

Under the Park doctrine, a corporate officer can be found guilty of committing a misdemeanor when his or her corporate position affords them “the power to prevent” violations of the FDCA, even absent “knowledge of, or personal participation in” the violation.  Park, 421 U.S. at 6670, 676.  Because of this low burden for proving criminal culpability, and the lack of any “guilty mind” requirement, no corporate officer had ever received a jail sentence under the Park doctrine.  In the plea agreement, both the government and the DeCosters agreed that the DeCosters had no knowledge that the eggs contained salmonella and that the DeCosters had taken no action to contribute to the release of the adulterated eggs into the marketplace.  In other words, the DeCosters had neither a “guilty mind” nor had they taken any “guilty act” to commit this crime, as is required to receive a prison sentence under the Fifth Amendment Due Process Clause of the United States Constitution.

Nonetheless, at sentencing, the Judge found the DeCosters had run the company in a negligent manner, and sentenced them each to pay a $100,000 fine and serve three months in prison.

After a split panel of the United States Court of Appeals for the Eighth Circuit affirmed, the DeCosters filed a petition for a writ of certiorari, asking the Supreme Court to review the legality of their prison sentence.  The DeCosters’ petition highlights Due Process concerns that could affect anyone being charged criminally for the conduct of others.  On February 10, 2017, Cause of Action joined a “friend of the court” brief in support of the DeCosters’ petition, along with the National Association of Manufacturers and the National Association of Criminal Defense Lawyers, arguing that liability for “responsible corporate officers” has never and should never result in prison time, due to a lack of any mens rea requirement for conviction.

In our system, the government must prove in a criminal prosecution that the defendant committed a criminal act and did so with criminal intent.  As the Supreme Court has stated, “we must construe [an imprisonment] statute in light of the background rules of the common law in which the requirement of some mens rea for a crime is firmly embedded.”  Staples v. United States, 511 U.S. 600, 605 (1994).

The DOJ wants to make an example of the DeCosters.  The U.S. Attorney who filed the case stated: “Corporate officials are on notice….[c]laims of ignorance or ‘I delegated the responsibility to someone else’ will not shield them from criminal responsibility.”  But to do so at the expense of a hallmark principle of our justice system is a mistake, and marks a dangerous departure from the safeguards of American criminal jurisprudence.

The brief can be found here.

Erica Marshall is counsel at Cause of Action Institute.

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