Obama Is Attacking the Perfectly Legal Medical Marijuana Industry

With storefront dispensaries popping up across the country, the Obama Administration is fighting the burgeoning industry. 

By Ted Cox, AlterNet
Posted on October 27, 2011

At the moment 16 states and Washington DC have legalized medical cannabis, providing safe access to patients, creating thousands of jobs and pumping millions of dollars in tax revenue into struggling state and local economies. Some of those state and local governments are working with their medical cannabis providers to adopt common-sense regulations and to cut down the potential for abuse -- with varying degrees of success.

But under the federal Controlled Substance Act, cannabis is a Schedule I substance -- right along with heroin, ecstasy and LSD -- and still illegal. The feds are concerned that medical cannabis is making its way onto the black market, that dispensaries are generating obscene profits and that cannabis providers are targeting children in ads.

Deputy U.S. Attorney General David Ogden issued a memorandum in October 2009 saying the Justice Department was unlikely to go after cannabis patients, but that "prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority of the department." But recent months have seen a strong push-back by the federal government. With storefront dispensaries popping up across the country, and medical cannabis expected to grow to a $1.7 billion industry, here are four ways the federal government is fighting the burgeoning industry.

1) Land seizure
The big announcement that has everyone hunkered down is that U.S. attorneys in California have threatened to seize land that is rented or leased to dispensaries.

Four U.S. attorneys have already sent letters threatening to seize land leased to cannabis clubs. Letters have so far gone out to landlords in Orange County, San Francisco, San Diego and Marin, giving them 45 days to kick out any medical marijuana operations. The feds seem to be targeting larger clubs and those operating within 1,000 feet of schools.

"Marijuana stores operating in proximity to schools, parks and other areas where children are present send the wrong message to those in our society who are the most impressionable," said Melinda Haag, attorney general for the Northern District of California. "In addition, the huge profits generated by these stores, and the value of their inventory, present a danger that the stores will become a magnet for crime, which jeopardizes the safety of nearby children."

The crackdown was the result of local officials asking the feds to step in after pot clubs fought back against attempts to shut them down. Eviction notices were sent to eight Lake Forest dispensaries and feds froze $130,000 in assets of the landlord who leased to them.

The tactic has had a chilling effect on the industry, even in jurisdictions where no eviction notices have been reported. In San Jose, some dispensaries have seen up to half of their business drop in the two weeks since the announcement.

2) Ads
Just days after feds announced the crackdown on California landowners, Laura Duffy, one of the four California U.S. attorneys, said she would next go after radio stations and newspapers that run ads for cannabis dispensaries "as part of the enforcement efforts in Southern California." Federal law prohibits advertising illegal substances.

"I'm not just seeing print advertising," Duffy is quoted as saying in California Watch. "I'm actually hearing radio and seeing TV advertising. It's gone mainstream. Not only is it inappropriate – one has to wonder what kind of message we're sending to our children – it's against the law."

Newspaper ad revenue has crashed with the tanking economy, forcing papers to lay off reporters. Cannabis ads have proved a lifeline for struggling newspapers, especially alternative newsweeklies. But even some mainstream dailies like the Sacramento Bee have started running cannabis ads.

So far, alt weeklies in the San Diego area that run cannabis ads for years have not received any warnings from the U.S. attorney office. Other California U.S. attorneys didn't say whether they would follow Duffy's lead.

3) Bank services
Cannabis dispensary owners say they're having trouble obtaining bank and credit card services and federal authorities in Northern California have ordered banks to spy on transactions of cannabis club accounts.

When it came to finding a bank, Denver-area Alpine Herbal Wellness owner Sue Harank told news service Thomson Reuters, "It was a nightmare."

Big banks like Bank of America were initially eager to provide services for cannabis dispensaries, but a warning from the DEA said banks could be open to legal liability for those services.

Under pressure from the DEA, banks are shutting down any accounts associated with medical cannabis dispensaries, making difficult for dispensaries to pay employees and payroll taxes, or to provide credit card processing equipment for transactions.

Earlier this year, the Santa Rosa Press Democrat reported that federal banking regulators would require banks on the Northern California coast to monitor accounts for medical cannabis because the area had been designated a "high-risk area" for money laundering, especially from those in the medical marijuana business.

4) IRS
In October, the IRS told Oakland, Calif.-based dispensary Harborside Health Center it owed $2.5 million in back taxes for 2007 and 2008 -- $2 million more than the dispensary had paid. The tax bill could shut down Harborside.

Because federal law prohibits cannabis dispensaries, the IRS said Harborside couldn't take standard deductions for payroll, workers' comp, rent and other business expenses. Federal tax code 280-E keeps "drug trafficking organizations" from deducting those expenses.

The IRS will also audit Harborside's 2009 and 2010 tax returns. At least a dozen California dispensaries are also being audited, according to a California attorney representing them.

A similar decision was handed to Marin Alliance for Medical Marijuana in Fairfax in March, with owner Lynette Shaw saying they now owed "millions and millions."

"This is not an effort to tax us. We're happy to pay our taxes," Harborside executive director Steve DeAngelo told the San Francisco Chronicle. "This is an effort to shut us down."

California pot shops ordered to shut down within 45 days

(Ah ha, see? Obama has destroyed the medicinal pot industry. The biggest fucking hypocrite ever elected president has broken yet another campaign promise. We knew this was going to happen and saw it coming. They used the Capone law--an ancient prohibition tax law that hasn't been used in ages. They get you on tax evasion because you can't make a single tax deduction when you deal with controlled substances, so you owe years of back taxes totaling huge sums of money. But the pharmaceutical companies sell amphetamines--a schedule 1 controlled substance--they get to take tax deductions. So, how does that work?--jef)

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By Stephen C. Webster - RAW Story

Friday, October 7, 2011

The Obama administration is finally cracking down on the medical marijuana industry, in a big way.

In letters received by 16 licensed California dispensaries and their landlords this week, U.S. Attorneys threatened to swoop in and seize the properties if they don’t close up shop within 45 days.

The Associated Press said that a coordinated crackdown on the medical marijuana industry would be announced at a press conference on Friday.

The move comes in the same week that the Internal Revenue Service took steps that may force Oakland’s Harborside Health Center, the nation’s largest medical marijuana dispensary, to shut down.

The same enforcement tactic that’s being used against Harborside — a very old law that prohibits groups that traffic in controlled substances from taking tax deductions — could also be used against pot shops in all of the 16 states that have legalized the drug’s use for medical purposes.

The U.S. medical marijuana market has grown into a $1.7 billion industry, and experts say it could potentially double that figure within just five years.

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Here is what the hypocrite Obama said on the campaign trail:

“My attitude is if the science and the doctors suggest that the best palliative care and the way to relieve pain and suffering is medical marijuana then that’s something I’m open to because there’s no difference between that and morphine when it comes to just giving people relief from pain. But I want to do it under strict guidelines. I want it prescribed in the same way that other painkillers or palliative drugs are prescribed.” — November 24, 2007 town hall meeting in Iowa

“I would not have the Justice Department prosecuting and raiding medical marijuana users. It’s not a good use of our resources.” — August 21, 2007, event in Nashua, New Hampshire

“I don’t think that should be a top priority of us, raiding people who are using ... medical marijuana. With all the things we’ve got to worry about, and our Justice Department should be doing, that probably shouldn’t be a high priority.” — June 2, 2007, town hall meeting in Laconia, New Hampshire

“You know, it’s really not a good use of Justice Department resources.” — responding to whether the federal government should stop medical marijuana raids, August 13, 2007, town hall meeting in Nashua, New Hampshire

“The Justice Department going after sick individuals using [marijuana] as a palliative instead of going after serious criminals makes no sense.” — July 21, 2007, town hall meeting in Manchester, New Hampshire

With latest ruling, IRS threatens to crush the whole medical marijuana industry

(So, "campaign Obama" promises to allow medical marijuana to proceed without legal interference, but president Obama--so far breaking all but one or two of his obviously empty campaign promises, uses the IRS to effectively end the entire legal medical marijuana industry. Obama apologists will spin this one way and blame it on everyone but Obama, like they do all of his failures and capitulations, and the Republicans will still call Obama the most liberal person who ever lived. How can two so totally out of touch groups co-exist without exploding? Oh yeah, and marijuana CURES cancer, so why would anyone want a legal cancer cure available to cancer patients?--jef)

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By Stephen C. Webster - RAW Story
Wednesday, October 5, 2011

The Internal Revenue Service (IRS) is on the verge of shutting down California’s largest medical marijuana dispensary, and with it potentially the entire semi-legal pot industry.

The Harborside Health Center in Oakland — which was going to be the subject of a Discovery Channel reality show called “Weed Wars” — now owes the IRS $2.5 million in back taxes, thanks to the recent enforcement of a federal law that prohibits organizations that traffic in “controlled substances” from taking tax deductions.

Those deductions, for things like payroll, workers’ compensation insurance and the like, were taken by Harborside in 2007 and 2008, meaning they owe significantly over the roughly $500,000 Harborside paid in federal taxes both years. Harborside also paid the city of Oakland about $1.1 million and the state of California another $2 million. Just last week owner Steve DeAngelo presented the city with another $360,483 tax payment, and even sent out a press release about it.

DeAngelo was quick to tell reporters that he will likely appeal the ruling, although his tax bill could grow exponentially once the IRS completes audits of his 2009 and 2010 filings.

If DeAngelo’s appeal fails, it’s over: Harborside will close up shop. So too will most of the other medical marijuana dispensaries in California, if the IRS pursues the same tax tactic state-wide.

It was not immediately clear whether this would affect the Discovery Channel’s plans for “Weed Wars.”

Harborside posted over $22 million in revenue in 2010 and boasts that it serves over 94,000 customers as the nation’s largest marijuana dispensary.

Just 16 states have legalized medical marijuana, but already it has grown into a $1.7 billion industry, and experts expect it will double those revenues within just five years.
A Discovery Channel spokeswoman did not respond to a request for comment.

Obama's Cynical Approach to Medical Marijuana

The previous ten presidents were staunch prohibitionists. Meanwhile, Obama has taken the federal hand off the scale quite a bit.
By Steven Wishnia, AlterNet
Posted on May 8, 2011

In October 2009, the Justice Department declared that prosecuting medical-marijuana users and caregivers who clearly comply with state laws was not a wise use of its resources. That declaration has dominated public perception of President Barack Obama's policy on the issue-minimal progress, but is a welcome improvement on his predecessors.

In reality, however, the Obama administration has attacked medical-marijuana providers on several fronts. Since January 2010, it has staged more than 90 raids on dispensaries and growers, according to figures collected by the patient-advocacy group Americans for Safe Access. That represents a pace double the Bush administration's, says ASA spokesperson Kris Hermes. The administration has also threatened state officials with prosecution if they participate in licensing or regulating medical marijuana. The Internal Revenue Service has expanded auditing dispensaries for tax evasion, on the grounds that drug-trafficking enterprises cannot legally claim business-expense deductions.

In April, ASA gave Obama an F for his policy on medical marijuana. He's "no better than Bush," says Hermes.

Allen St. Pierre of the National Organization for the Reform of Marijuana Laws calls that stance "hyperbolic." "The previous ten presidents did nothing," he says. Obama has "taken the federal hand off the scale a wee bit."'

Most notably, the Veterans Administration and the Department of Housing and Urban Development have revised regulations to acknowledge the use of medical marijuana.

For example, although federal zero-tolerance laws prohibit illegal-drug users from living in public housing or receiving rent subsidies such as Section 8, HUD has given local housing authorities in states that allow medical marijuana the discretion to not evict users.

Still, St. Pierre worries that the combination of raids and IRS harassment is seriously endangering medical marijuana. An unfavorable court decision regarding the IRS audits "could end medical cannabis," he warns. "They're going the Al Capone route."

The VA is the bright spot, says Michael Krawitz of Veterans for Medical Cannabis Access. Although it still forbids its doctors from recommending marijuana, and possession is illegal on VA property, last year it changed its regulations so that medical-marijuana use is no longer an automatic violation of "pain contracts"-agreements patients sign in which they state that they're not going to abuse their prescription painkillers.

In practice, Krawitz says, some VA doctors still refuse to accept medical-cannabis use, but "the feedback I've gotten from veterans, especially Vietnam-era veterans, is that it's the first time the VA did something because it's the right thing to do. Vets really appreciate that."

Overall, he says, "I'm just completely baffled by what the administration is doing. They're using the DEA and the IRS, but they're trying to look like they're not going after medical marijuana."

Raids Keep Coming

Meanwhile, federal raids on dispensaries continue. On March 14, on the eve of the Montana Senate's vote to repeal the state's medical-marijuana law, federal agencies raided 26 growers and dispensaries there. Hermes calls that "intimidation, with specific intent to undermine a state law." On April 28, DEA agents raided more than five dispensaries in Spokane, Washington.

The Spokane raids came three weeks after Michael C. Ormsby, federal prosecutor for eastern Washington, had sent letters to the landlords of more than 40 dispensaries in the area, warning them that their property could be forfeited if they continued to rent to drug traffickers.

"Nearly half have reported that they have evicted their tenants to comply with federal law," says Ormsby spokesperson Tom Rice.

The touchstone here is a memorandum that Deputy Attorney General David W. Ogden sent to federal prosecutors in October 2009. In it, he told them that they "should not focus federal resources in your states on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana." Prosecuting cancer patients and their caregivers, he added, "is unlikely to be an efficient use of limited federal resources."

However, a February 2011 letter from U.S. Attorney Melinda Haag, federal prosecutor for the Bay Area and Northern California, to Oakland City Attorney John Russo significantly narrowed that policy. While the Ogden Memorandum says the federal government will not prosecute individual patients, she wrote, "we will enforce the [law] vigorously against individuals and organizations that participate in unlawful manufacturing and distribution activity regarding marijuana, even if such activity is permitted under state law."

The Ogden memo does not grant dispensaries anything remotely resembling immunity, Rice emphasizes. He points to clauses that state that "prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority of the department" and "claims of compliance with state or local law may mask operations inconsistent with the terms, purposes, and conditions of those laws."

Did the department consider whether Spokane dispensaries were in compliance with state law before authorizing the raids? "No," Rice replies. One dispensary, he says, "was across the street from a grade school."

St. Pierre is not shocked by the raids. Many growers push the limits, he explains. "The regrettable thing about the medical-cannabis industry is that it's often acting in violation of state law," he says. "50,000 plants is crossing that Rubicon."

One thing that provoked the backlash in Montana, he adds, is that some dispensary owners were "charismatic." "Charismatic" in this context sounds like a euphemism for the kind of evangelistic stoner who believes that because they're doing Jah's work, providing the herb for the healing of the nations, they don't have to worry about following the finicky feinschmeckery of bureaucratic details-and that making money is doing well by doing good.

Bill Panzer, a veteran Oakland defense lawyer, voices similar sentiments. Twenty-five years ago, he says, his clients were mostly pot smugglers "who knew they were taking a risk. Now, I'm representing people who think everything they're doing is completely legal. They're in for a rude awakening."

California law is so murky, he says, that 98 percent of the state's thousand-odd dispensaries might be illegal. The only form that would be definitely legal, he adds, would be "a true socialist collective" in which all cultivated herb was divided equally among the members. Instead, he says, lots of people are setting up co-ops and "acting like sellers." The Obama administration has also continued Bush-era prosecutions of medical-marijuana providers. On May 2, Californians Dr. Mollie Fry and Dale Schafer turned themselves in to begin serving five-year federal mandatory-minimum sentences. Fry, a breast-cancer survivor, and Schafer, a hemophiliac, were raided in 2001. In 2007, they were convicted of manufacturing and conspiracy charges for growing more than 100 plants over several years. "The Obama administration vigorously fought an appeal of their sentence," says ASA.

In any case, the federal Controlled Substances Act maintains that marijuana has no valid medical use, and thus any distribution of it in the guise of "medicine" constitutes criminal sale of a controlled substance. In the last few months, federal prosecutors have sent letters reiterating that to governors and other officials in several states, including California, Colorado, Hawaii, Montana, Rhode Island, and Washington. The letters threatened that any official involvement in licensing or regulating medical marijuana would expose state employees to prosecution.

"We maintain the authority to enforce the CSA against individuals and organizations that participate in unlawful manufacturing and distribution activity involving marijuana, even if such activity is permitted under state law," the Colorado letter, dated April 26, stated. "It is well settled that a State cannot authorize violations of federal law."

On April 14, the two federal prosecutors in Washington state warned Gov. Christine Gregoire that if the state licensed medical-marijuana cultivation and distribution, government employees who worked with such a system could be prosecuted, and state property forfeited.

On April 29, Gregoire vetoed most of a bill to regulate medical-cannabis sales and production. The provisions she rejected included state licensing of dispensaries and a state register of patients. She said she feared state workers would be subject to arrest, and she urged the federal government to move marijuana to Schedule II under the Controlled Substances Act.

IRS

The IRS first went after dispensaries during the Bush administration, but it has greatly expanded such efforts under Obama.

More than two dozen dispensaries are now being audited, according to Henry Wykowski, a former Justice Department tax prosecutor now in private practice in San Francisco. Most are in California, he says, including the massive Harborside facility in Oakland and a smaller one in Marin County; at least one is in Colorado. Allen St. Pierre says he expects the probes to expand to Rhode Island, Maine, Montana, and New Mexico.

The law involved is Section 280E of the federal tax code, which prohibits drug-trafficking enterprises from claiming business expenses as deductions. "The government has brought 280E cases for years," says Panzer, but "as far as saying, 'hey, we can use this to go after dispensaries,' it started with Obama."

"I think the IRS didn't know what to do, because of the conflict between federal law and state law," says Wykowski. "When it became clear that there weren't going to be wholesale prosecutions, they decided it was OK to audit."

However, the one case to reach the courts so far yielded highly favorable results for medical marijuana. In 2007, the IRS assessed a defunct San Francisco dispensary called CHAMP--Californians Helping Alleviate Medical Problems--for $426,000 in back taxes and penalties on $2 million in sales. A three-lawyer team that included Panzer and Wykowski got the bill reduced to less than $5,000. The IRS refused to negotiate-which is highly unusual in tax cases, says Wykowski-and lost in court.

The IRS argued that because CHAMP sold marijuana illegally, those sales should count as "an expanding drop of ink in a glass of water" to disqualify deductions, Panzer explains. But because the dispensary also provided social services, including counseling, nursing, housing assistance, and massage; hosted support groups for AIDS patients and others; and put on social events, the judge agreed that 90 percent of its rent was deductible.

Paradoxically, the judge also let CHAMP deduct the wholesale cost of the medical pot it sold. This is a principle called "cost of goods" that dates back to Prohibition, Wykowski explains. The issue is complex, but basically, he says, there is legal authority that people cannot be forced to incriminate themselves in order to pay taxes. The '70s Harlem heroin dealer Nicky Barnes used to file tax returns anonymously, and "the right to selectively assert Fifth Amendment privilege has been recognized by the courts."

It would be self-incriminatory for a taxpayer to report their occupation as "marijuana grower," Wykowski adds. Disallowing the cost-of-goods deduction "would have made it impossible for any dispensary to remain in business." Still, with the IRS continuing to audit dispensaries under Section 280E, that makes lawyers in the field fear a bad precedent. Other dispensaries may not have as strong a case, keep good records, or have the financial and legal resources to defend themselves.

"We are concerned that someone who doesn't know what they're doing will take a bad case to court and lose, and jeopardize everyone else in the industry," Wykowski says." The conflicts between federal and state law and between tax and criminal law also create a massive record-keeping dilemma for dispensaries. If they keep accurate and complete records, they can prove that they're acting like a legitimate business, a legitimate medical-services provider-but they're potentially handing the federal government a cut-and-paste indictment.

"The same records that can help you in state court can screw you over in federal court," says Panzer. If the amount of cannabis a dispensary grows, buys, or distributes is tallied cumulatively over several years, it can be large enough to trigger a five- or ten-year mandatory-minimum sentence.

Rescheduling

The overriding fact is that the Controlled Substances Act, enacted in 1970, puts marijuana in Schedule I, saying it has "a high potential for abuse, has no currently accepted medical use in treatment in the United States, and has a lack of accepted safety for use under medical supervision." Thus, the law does not recognize "medical use" as a valid defense to charges of possession, sale, or cultivation. As far as federal law is concerned, medical-marijuana users are the equivalent of junkies, no matter how sick they are, and the dispensaries and growers that supply them are little different from crack dealers and meth-lab operators.

This rule is tied into a host of other laws intended to prohibit money-laundering and the like. Medical-marijuana users in public housing and landlords who rent to dispensaries run afoul of laws intended to close crackhouses.

The obvious solution, at least to those in the medical-marijuana movement, would be for the federal government to move marijuana out of Schedule I and into the realm of legitimate prescription drugs. Even moving it to Schedule II would gain it that status, although under controls as strict as those for OxyContin or medical cocaine. Marinol, the synthetic THC that is the prime legal cannabinoid drug, is in Schedule III, along with codeine.

That is not likely to happen soon. The Drug Enforcement Administration has jurisdiction over scheduling. In 2002, a coalition including NORML, ASA, and Virginia cannabis-policy expert Jon Gettman filed a petition to reschedule marijuana for medical use. It "has been languishing without a response from the DEA for nearly nine years," says an angry Dale Gieringer of California NORML. "They're sitting on our petition."

The DEA, he says, has also "blocked efforts to establish a legal medical marijuana research garden," which would provide the scientific background needed to obtain Food and Drug Administration approval.

"If the federal government would stop fighting the rescheduling process, we could have a resolution," says St. Pierre. "They're not choosing to lead."

The DEA, headed by Bush holdover Michelle Leonhart, remains resistant. Its official stance, the lead item in "DEA Position on Marijuana," a 54-page booklet issued in July 2010, is that medical marijuana is a "fallacy," that "smoked marijuana is not medicine," and there is "no sound scientific evidence that smoked marijuana can be used safely and effectively as medicine."

It blames "organizers of the 'medical' marijuana movement" for failing to ensure that "the product meets the standards of modern medicine?. [There is] no safety regulation, no way to measure its effectiveness (beyond anecdotal stories), and no insurance coverage." It calls the entire idea that marijuana has medical use "false-trickery [sic] used by those promoting wholesale legalization."

"I don't think that's happening any time soon," a DEA spokesperson who refused to give his name said of rescheduling. "I don't see any movement on that. The science hasn't borne it out."

Demonizing Taxes, Heightening Inequality

Tuesday, April 19, 2011 by GRITtv
by Laura Flanders

Yesterday was Tax Day in the US, and that's almost universally greeted with groans and complaints. That tax word's been so effectively demonized that it may be there's no coming back. Is it time for a new word?

Some research by Duke University's Dan Ariely suggests it might be.

Ariely's study showed that Americans actually want a more equitable society—in fact, they think they have one. When asked to identify their homeland from a list of nations described only by their level of equality--a majority of those polled picked Sweden, thinking it was the US. When asked to create their ideal society, Democrats, Republicans, men and women, the rich and the poor all created a distribution of wealth that is much more equal than the one we've got.

All that "social mobility, low inequality" stuff--Americans love it. They just don't have it. In fact, social mobility here's been shrivelling, as the wealth gap's been opening up.

There are only a few ways to get that more equal distribution: government investment (benefits and services) corporate action (paying people more) or redistribution: taking from each according to their means, to help the whole. We call that tax.

Yet according to Ariely, the very same people who expressed an ardent wish for an equal society have an highly averse reaction to the word tax. Why, he wondered, recently, to National Public Radio.

It's not so hard to figure out. Day in day out, when you hear taxes mentioned, what's the context? Social citizenship? Tools of an equal society? Or is it rather all about how heavy the burden is, how overtaxed Americans are. The Taxman, the IRS--the first public workers our media teach us to hate.

There are taxes to hate--taxes that go to give a blank check to the military, or tax credits for corporations that export American jobs. But the truth is, taxes on the rich have done nothing but fall since the Reagan years. And inequality's only gotten bigger.

What's the money media's stake in all this? It's hardly hidden. Remember that GE tax refund for $3.2 billion? The co-owner of NBC and MSNBC isn't alone either. Time Warner and News Corp, owners of CNN and Fox, are also on a list of the biggest corporate tax avoiders.

Super Rich See Federal Taxes Drop Dramatically

Sunday, April 17, 2011 by Associated Press
by Stephen Ohlemacher

WASHINGTON – As millions of procrastinators scramble to meet Monday's tax filing deadline, ponder this: The super rich pay a lot less taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all.

The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.

Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.

The top income tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college, and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.

There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

"It's the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes," said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes.

The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.

President Barack Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. Obama's proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details, putting off hard choices about which tax breaks to eliminate.

In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.

More than half of the nation's tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes.

Obama wants the wealthy to pay so "the amount of taxes you pay isn't determined by what kind of accountant you can afford."

Eric Schoenberg says to sign him up for paying higher taxes. Schoenberg, who inherited money and has a healthy portfolio from his days as an investment banker, has joined a group of other wealthy Americans called United for a Fair Economy. Their goal: Raise taxes on rich people like themselves.

Shoenberg, who now teaches a business class at Columbia University, said his income is usually "north of half a million a year." But 2009 was a bad year for investments, so his income dropped to a little over $200,000. His federal income tax bill was a little more than $2,000.

"I simply point out to people, `Do you think this is reasonable, that somebody in my circumstances should only be paying 1 percent of their income in tax?'" Schoenberg said.

Sen. Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, said he has a solution for rich people who want to pay more in taxes: Write a check to the IRS. There's nothing stopping you.

"There's still time before the filing deadline for them to give Uncle Sam some more money," Hatch said.

Schoenberg said Hatch's suggestion misses the point.

"This voluntary idea clearly represents a mindset that basically pretends there's no such things as collective goods that we produce," Schoenberg said. "Are you going to let people volunteer to build the road system? Are you going to let them volunteer to pay for education?"

The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch.

The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes.

The share of people paying no federal income tax has dropped slightly the past two years. It was 47 percent for 2009. The main difference for 2010 was the expiration of a tax break that exempted the first $2,400 of unemployment benefits from taxation, Williams said.

In 2009, nearly 35 million taxpayers got a tax break for paying interest on their home mortgages, and nearly 36 million taxpayers took the $1,000-per-child tax credit. About 41 million households reduced their federal income taxes by deducting state and local income and sales taxes from their taxable income.

About 36 million families cut their taxes by nearly $35 billion by deducting charitable donations, and 28 million taxpayers saved a total of $24 billion because their income from Social Security and railroad pensions was untaxed.

"As a matter of policy, there would be a lot of ways to save money and actually make these things work better," said Leonard Burman, a public affairs professor at Syracuse University. "As a matter of politics, it's really, really difficult."

Rigging the Tax Code to Profit From Disasters

GO-Zones and Rep. Jim McCrery
By DARWIN BOND-GRAHAM

Piles of words have been written about disaster capitalism. This brand of capitalism involves two kinds of assaults on communities: severe budget cuts and extensive privatization, both imposed during periods of psycho-social shock resulting from an economic crash, war, or a "natural disaster." In 2005 Hurricane Katrina became a case study to trace these twin prongs of disaster capitalism as one of the world's great cities and a stretch of the Gulf Coast were decimated by a post-hurricane flurry of budget cuts and privatization.

However, there's a third leg of the violent imposition of neoliberalism in the wake of disaster that has been subject to much less scrutiny. This aspect has been as effective as privatization in opportunistically transferring huge sums of wealth into the hands of a few corporations and the rich. It has also laid much of the groundwork for further budget cutting in the wake of catastrophe. What is it?

Two words: tax policy. Disaster tax policy.

In December of 2005 Congress responded to Hurricane Katrina by passing an unprecedented economic recovery package in the form of a tellingly named bill, the Gulf Opportunity Zone Act of 2005 (or "GO-Zone"). For those familiar with corporate globalization-speak, an "opportunity zone" is a synonym for "enterprise zone," and also closely related to the various other "zones" of special exploitation carved out by states for the benefit of capital. In these sorts of zones the normal rules of state regulation (to protect the environment, workers, etc.) are suspended, creating a laissez faire atmosphere. The GO-Zone essentially amended sections of the Internal Revenue Code, sections that normally apply to corporations and financial entities operating in a region of opportunity that included the southern counties of Mississippi and Alabama, and southern parishes of Louisiana.

The GO-Zone, the central economic policy response to Hurricane Katrina, was quite simply a massive tax break for corporations and the wealthy. It has resulted in the transfer of billions of dollars from the federal government and public sector to mostly large transnational corporations and investment banks, but also to the top 5 per cent of wealth holders in Louisiana, Mississippi and Alabama. Because this raid on the federal budget was designed to occur through somewhat arcane tax expenditures its effect of upwardly redistributing wealth and reducing federal revenues have been subtle and difficult to discern. Its absence of positive economic impacts for the hardest hit communities are conspicuous, however.

As a policy the GO-Zone has its origins in another recent disaster, 9-11. A virtually identical package of tax breaks for corporate wealth was written into a section of the Job Creation and Worker Assistance Act of 2002 shortly after blocks of New York City were reduced to rubble on September 11, 2001. Buried not too deeply in this bill was the provision for creating a "New York Liberty Zone."

This uber-patriotic idea (conveniently designed to aid already fabulously wealthy real estate and financial companies owning real estate and operating in lower Manhattan) was thought up right in between the two most important Bush-era tax laws, the Economic Growth and Tax Relief Reconciliation Act of 2001, and Jobs and Growth Tax Relief Reconciliation Act of 2003. All three of these bills reduced corporate taxes and taxes on personal wealth to nearly record levels, and set the federal government on its path to where it is today - massive deficit spending and a budget crisis due to shrinking revenues.

One of the Republican Party's key players in drafting all of this pro-corporate tax legislation was a relatively unassuming and little known House member from Louisiana's 4th District, Jim McCrery.

McCrery's Congressional career began in 1988 and lasted just over two decades. In that time he became one of the Congress's most knowledgeable members with respect to tax issues, and therefore a key contributor to the Bush administration's rollback of progressive taxes. McCrery co-sponsored the Bush tax cut bills and helped work out some of their finer points as a powerful member of the Ways and Means Committee.

In December of 2005 McCrery introduced the GO-Zone act to Congress and shepherded it through the House, Senate, and to the President's desk in a swift sixteen days with strong bi-partisan support. On the floor of the House McCrery implored, "I cannot overemphasize the importance of putting into law as quickly as possible incentives to give businesses, individuals, people with capital to invest, the urge to go to these devastated areas and invest that capital." His colleagues on both sides of the isle concurred that government's role should be to lavish the wealthy and powerful with lucrative tax incentives. During the perfunctory floor debate no Democrat or Republican asked why similarly targeted economic assistance was not being proposed for workers, small businesses, and others who lacked "capital to invest."

At the center of the GO-Zone are two key provisions that require a corporation or individual already be wealthy and powerful to take advantage of. The first is a $14.9 billion in bonding authority given to Louisiana, Mississippi, and Alabama. These "GO-Zone bonds" allow private financial institutions to lend billions to private companies to build all manner of private, for-profit industrial and commercial projects, with profits on these bonds subject to zero federal tax. The Congressional Research Service notes that this provision alone will reduce federal revenues by at least $1 billion over the eleven-year span of the program.

The second key provision was establishment of a bonus depreciation allowance which let businesses drastically reduce their tax burdens by claiming a deduction related to the expected wear-and-tear and therefore decline in the value of property and capital invested in after the storm. Depreciation is a standard tax deduction used by businesses, but the "bonus" aspect allowed for larger immediate deductions. The GO-Zone included billions more in other tax credits, tax exemptions, tax write offs, and tax loopholes to be claimed by corporations and other owners of large real estate and capital holdings, all predicated on the notion that the best disaster recovery policy is aimed at helping those who already have the most.

After more than five years the GO-Zone has proven a resounding failure with respect to economic recovery along the Gulf Coast. Although local chamber of commerce boosters have pointed to a lower unemployment rate than the national average, the reality is that the region's economy has shrunk, especially in locales like New Orleans and coastal parishes where the GO-Zone's promised benefits never materialized and never will. New Orleans and many of the hardest hit Louisiana parishes and counties in Mississippi and Alabama have seen little to no benefit from the promised infusions of cash via corporate investments in their backyards. This has meant relatively poor levels of job creation, few if any local construction contracts or subcontracts, few new sources of local tax revenues, actual reductions in housing stocks, and closures of unfunded public schools, public housing, public libraries, and other public goods. Because disaster tax policies are expressly written to benefit large wealth holders, these policies have no positive impact for working families. The majority who possess no vast real estate holdings and who own none of the corporate capital are at the mercy of the wealthy few to make decisions about the future. Democratic control over economic development is made impossible.

The hard truth is that most communities inside the GO-Zone's boundaries were never meant to reap benefits from these tax incentives. The intended benefactors from the very beginning were large corporations, the big financial companies that loan to them, and the elite law firms that serve both.

The Gulf Opportunity Zone Act was written by and for corporate capital. Representative McCrery sponsored the bill to respond to his most important constituents: major corporations and financial institutions with stakes in Louisiana, Mississippi and Alabama. These parties were not interested in rebuilding the region's economy to benefit disaster stricken communities. They were keen on obtaining huge tax breaks and cheap bond money to expand the already harmful economy of extraction: refineries, pipelines, and chemical plants.

This opportunistic imposition of disaster tax policy was a fitting capstone to McCrery's Congressional career which was characterized by a nearly perfect record of supporting regressive taxation and budget cutting. McCrery began his professional life as a lawyer in the small city of Leesville, Louisiana. After a stint as an assistant attorney for the city of Shreveport, in 1981 he joined the staff of Rep. Charles Roemer, III. McCrery's boss would eventually become a tax-hating, budget slashing Governor of Louisiana, one who also ushered in gambling via floating casinos and the now ubiquitous video poker machines placed in seemingly every bayou bar and truck stop. McCrery inherited Roemer's Congressional seat in 1988.

In the interim, however, McCrery spent four years working as a lawyer for the Georgia Pacific Corporation, one of the largest timber, pulp, and chemicals companies in the world with operations in Louisiana and nearby Arkansas. Perhaps it was during his four years at Georgia Pacific that McCrery's pro-corporate ideology was finally and fully cemented, or maybe it was earlier. Whenever it was, freshman McCrery entered the Congress ready to rewrite the tax code in favor of further concentrating wealth to the benefit of companies like G-P.

Candidate McCrery's elections were bankrolled by the usual powerhouse corporations that spend heavily on Republicans and Democrats alike, many of them big insurance, healthcare, and financial concerns. Oil and chemical companies with operations in Louisiana were also among the Congressman's biggest sources of campaign cash. He received virtually nothing from unions, environmental funds, women's organizations, and African American owned businesses.

McCrery's former employer Georgia Pacific was one of his top donors throughout his career. Between 1998 and 2004 Georgia Pacific gave McCrery more than $21,000. After Georgia Pacific was bought out by Koch Industries in 2005 (just around the same time Hurricane Katrina struck) Koch continued to donate to McCrery, giving him $10,000 in 2006. Another major funder of McCrery was Harrah's Entertainment. The Casino giant with two hotels, two casinos, and a horse-racing track in his district, gave McCrery $17,500 between 2002 and 2006. These corporations were largely investing in McCrery for his deft knowledge of tax policy, and his effectiveness in crafting tax legislation redistribute wealth from the public sector to private. These were shrewd investments.

To build support for this neoliberal economic agenda, Rep. McCrery created a very successful political action committee in 1996, the Committee for the Preservation of Capitalism (CPC). In addition to spending tens of thousands of dollars on ritzy fund raising events at various California wine country attractions like the Lodge at Sonoma, and Benziger Winery, McCrery's CPC doled out $5000 and $10,000 contributions to Republican candidates who would help pass extremely corporate friendly laws. A list of the CPC's biggest cash cows correlates almost perfectly with high scorers on the Americans for Tax Reform scorecard (Grover Norquist's austerity-obsessed organization). McCrery himself routinely scored above the 95th percentile. Some of the CPC's favored candidates have become stars of the Tea Party.

Having helped stack the House with Republican allies, when Hurricane Katrina hit it was almost a foregone conclusion that the economic policy response would center on tax cuts. Democrats voted with equal enthusiasm for the GO-Zone Act though, their own party's leadership having been been infected by the same neoliberal policy doctrines during the Clinton years.

Most aspects of the GO-Zone Act were set to expire at the end of 2010, but late last year the Congress extended many provisions, including the tax-exempt bond program which had failed to dole out its entire lending cap. Nevertheless, after a half-decade of implementation the GO-Zone's record speaks loud and clear. The primary beneficiaries of GO-Zone bonds have been the large oil and chemical companies. Areas that have seen the largest GO-Zone bond investments are uniformly outside of the hardest hit parishes and counties. Any economic stimulus and jobs created therefore have been at a distance from the most crippled areas. A mere ten mega-projects financed with GO-Zone bonds involving expansion of oil refineries, chemical plants, pipelines, and petroleum tanks have consumed more than half of all the program's funds in Louisiana. (In the upcoming May/June issue of Dollars and Sense magazine, http://www.dollarsandsense.org/, I will present a more complete picture of the GO-Zone's failure as a disaster reconstruction policy in Louisiana.)

One of the biggest GO-Zone bond recipients in Louisiana will be McCrery's former employer and major campaign donor, Koch subsidiary Georgia Pacific. The Atlanta based company is expected to receive $250 million to expand a pulp and paper plant in East Baton Rouge Parish. It's an exemplary disaster tax policy-enabled project; the plant will be built in a Parish that experienced relatively little damage from Katrina; it reinforces and further enriches the heavily polluting industries that already dominate Louisiana's chemical corridor; it will generate huge profits for Koch Industries; and it's all being done in the name of disaster reconstruction.

When McCrery retired from the House in 2008 he wasted no time stepping through the revolving door and into a job with the lobbying firm Capitol Counsel. It was a perfect fit for the ex-Congressman. Started in 2007 Capitol Counsel was described by The Hill's Alexander Bolton as a lobbying firm focused on helping shape tax policy for its clients. According to Bolton:

"Two of the most experienced Democratic tax lobbyists in Washington have joined forces with a team of Democratic fundraisers and operatives to form what likely will emerge as one of Washington’s premier boutique lobbying shops. The firm, Capitol Counsel LLC, will focus almost exclusively on two of the most powerful committees in Congress: the House Ways and Means and the Senate Finance panels."

When McCrery joined Capitol Counsel he was leaving the Congress as the highly influential ranking member of the House Ways and Means Committee. Reaching back into this Committee, and the Senate's tax policy panel, McCrery has worked to reduce taxes for companies like General Electric, provide tax breaks for oil firms like Bass Enterprises Production, and tax credits for manufacturers like Parsons& Whittemore.

For example, in 2010 McCrery lobbied his former House colleagues and the Senate for passage of a bill that would have amended the Internal Revenue Code to allow a credit against income tax for corporations using energy derived from biomass to power domestic paper, pulp and paperboard factories. Parsons& Whittemore, McCrery's client, would have profited nicely if the bill had passed, but it did not. Coincidentally, earlier in 2010 McCrery's former employer Georgia Pacific reached an agreement to purchase several Alabama pulp and paper mills from Parsons & Whittemore.

Another example of McCrery's continuing influence over tax policy involves Harrah's Casino. Having been one of his biggest fundraisers while a Congressman, Harrah's is now a client. McCrery spent the Summer of 2010 lobbying on Harrah's behalf to amend portions of the tax code to allow the company to expand into Internet gaming and reduce the company's tax burden. While the GO-Zone specifically barred casinos from utilizing its tax provisions, Harrah's nevertheless profited from Hurricane Katrina in its own way by successfully pressuring Mississippi politicians to finally allow casinos such as its Grand Casino Biloxi to be built on dry land.

Before McCrery exited the House for his substantially more lucrative lobbying gig the Congress attempted to implement disaster tax policies after several other storms. Most notable was the introduction of the Midwestern Disaster Tax Relief Act of 2008 by Senator Charles Grassley (with Senator Barack Obama co-sponsoring). This bill would have duplicated the GO-Zone's two key provisions with tax-exempt bond financing and bonus depreciation deductions made available to businesses within the geographic region flooded by the storms of that year.

The bill never became law. The Heartland Disaster Tax Relief Act of 2008 was passed instead. The "Heartland" bill included many tax benefits for individuals and some for businesses, but these two key disaster tax policies were nixed. Nevertheless, the concept of using tax deductions as the central policy tool to rebuild after disasters remains popular in Congress, due in part to the continuing influence of corporations and large wealth holders through lobby shops like Capitol Counsel.

Ironically a senior lawyer at the elite New Orleans law firm of Adams & Reese who helped write portions of the GO-Zone Act, and whose clients have included big companies that have utilized tax-free GO-Zone bonds, sums up the harmful corporate bias inherent in disaster tax policy:

"the single greatest deficiency in the [GO-Zone] Act is the lack of sufficient assistance for small businesses. Smaller businesses typically do not need bonus depreciation because it is only beneficial if you have or expect substantial federal tax liability.”

In other words, bonus depreciation was explicitly designed to help only very large corporations, particularly those like oil and chemical companies —think Exxon or Georgia Pacific— who routinely reinvest in machinery and their physical plants. This lawyer continued:

"Without allowing the GO Zone bonds to be bank qualified, banks cannot generally justify the purchase of tax-exempt bonds for small borrowers."

Bank qualification was only one of the many reasons why tax-exempt GO-Zone bonds went un-utilized by 99 per cent of businesses, mostly medium and small firms, in the disaster-stricken region. Again, it was an opportunistic policy that only large corporations and large financial companies could possibly gain from.

Thus, more than five years after Katrina, the Gulf Opportunity Zone has become a zone of spotty recovery, with some communities still suffering from economic damages that will never be repaired by policies that were never designed to do so, and other areas seeing huge investments by polluting industries, wealth all the while being concentrated in the hands of a few. Ultimately this episode is about much more than one member of Congress, or one set of industries that gamed the tax code after a natural disaster; it's about the ascendancy of an ideology among government leadership, on both side of the aisle. The problem is that those who adhere to disaster tax policy not only believe the best response to calamity is to further enrich and empower the wealthy few: they also lack the ability to imagine that government could respond any differently, that it could directly empower and enrich the people, from the bottom up.

Sen. Sanders calls for eliminating corporate tax loopholes and tax breaks

(Go Bernie! The IRS will hunt people like you and me down and ruin our lives if we're late paying our taxes, but they let big corporations dodge taxes for a decade or more without even investigating them. Come on! If that doesn't define who controls our government, nothing does.--jef)

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Sen. Bernie Sanders calls for eliminating corporate tax loopholes and tax breaks

By Eric W. Dolan - RAW Story
Sunday, March 27th, 2011

Sen. Bernie Sanders (I-VT) called for closing corporate tax loopholes and eliminating tax breaks for oil and gas companies Sunday after reports that General Electric and other giant corporations pay nothing or almost nothing in federal income taxes.

According to The New York Times, General Electric made $14.2 billion in profit last year, $5.1 billion of which was made in the United States. The corporation received $3.2 billion in tax benefits, but did not pay any money in taxes.

"We have a deficit problem," said Sanders. "It has to be addressed, but it cannot be addressed on the backs of the sick, the elderly, the poor, young people, the most vulnerable in this country. The wealthiest people and the largest corporations in this country have got to contribute. We've got to talk about shared sacrifice."

Oil giant Exxon Mobil made $19 billion in profits in 2009, but paid no federal income taxes, according to the senator. Instead, the corporation received a $156 million rebate from the IRS.

Sanders has introduced legislation that would establish a surtax on millionaires and strip tax deductions for oil companies -- a proposal he claims would cut the deficit by about $50 billion.

The Emergency Deficit Reduction Act would accomplish this by raising taxes by 5.4 percent on annual income over $1 million.

Sanders said it was grossly unfair for Republicans to propose massive cuts to Head Start, Pell Grants, the Social Security Administration, nutrition grants for pregnant low-income women and the Environmental Protection Agency while ignoring the fact that many corporations pay nothing in federal income taxes.

Meanwhile, Congressman Dave Camp (R-MI), the chairman of the House Ways and Means Committee, has said he hopes to cut the tax rate for the richest individuals and corporations to 25 percent and would like to see many popular deductions cut or completely eliminated.

Sage Eastman, deputy staff director for the Ways and Means Committee, claimed the plan would create the same level of revenue while making the tax code less complex.

"You're not getting a tax cut because those credits in the code are artificially altering those rates," Eastman told MLive. "The plan is to continue with that same level of revenue, but do it in a more efficient way."

A NBC/Wall Street Journal poll found late February that 81 percent of Americans believe a surtax on millionaires is an acceptable way to close the budget shortfall.

Federal agency recognizes marijuana for medical use

By David Ferguson - RAW Story
Sunday, March 27th, 2011

Medical marijuana dispensaries currently under fire from the IRS may have been handed a critical new weapon in their fight to stay open. The National Cancer Institute, one of the many federal agencies who make up the National Institute of Health, has ruled that marijuana does in fact have medical benefits, making it the first federal agency to do so.

The NCI has issued a statement that in clinical trials, cancer patients successfully treated nausea and vomiting, sleeplessness, pain, and loss of appetite using marijuana.  It stated that cannabis was being investigated as having not only a palliative effect on symptoms, but also a possible "direct antitumor effect".

The IRS has been citing § 280E of the federal tax code as a means of disallowing years of business deductions for marijuana dispensaries, which, if allowed, would effectively put many of them out of business. § 280E states that no business deductions will be allowed for businesses "trafficking in controlled substances".

From the Washington Independent:

The new NCI assessment could have an impact on the classification of marijuana as a Schedule I drug, the harshest possible drug classification, which has resulted in a prison population in which 1 in 8 prisoners in the U.S. is locked up for a marijuana-related offense. One of the principal criteria for a Schedule I determination is that there be “no currently accepted medical use in treatment in the United States.” The U.S. Justice Department may have a hard time maintaining that claim if challenged, considering a federal agency now recognizes marijuana’s medical use in cancer treatment.

The Independent also reports on a white paper (PDF) issued by the American Society of Addiction Medicine (ASAM) stating that because marijuana is not regulated by the Food and Drug Administration, doctors should be censured for prescribing it in states where it is legal.  The report cites marijuana use as a health risk in that the drug's primary method of consumption is through smoking.

Marijuana advocates like Allen St. Pierre of the National Organization for Marijuana Legalization (NORML) believe that the physician-directed ASAM has a vested interest in keeping marijuana illegal.  St. Pierre is quoted in the Independent as saying, "These doctors are making a fortune off of marijuana prohibition.  They have a financial, proprietary interest to maintain the status quo."

Chamber of Commerce Allegedly Laundered Millions in Charity Dollars to Defeat Financial Reform & Re-Elect Republicans

A watch-dog group charged that the CoC violated U.S. tax laws by funneling $18 million from its charitable, non-profit arm into lobbying.
By Joshua Holland, AlterNet
Posted on September 13, 2010

According to a complaint filed with the Internal Revenue Service last week, the U.S. Chamber of Commerce (CoC), the corporate right’s massive lobbying arm, laundered millions of dollars in charitable contributions to finance its political assault on the American working class.

The New York Times notes that the Chamber has “a war chest rivaling that of the Republican Party itself” and represents “the Obama administration’s most-well-financed rival on signature policy debates like health care and financial regulation.” According to the Washington Post, the $44.3 million the group has paid to lobbyists so far this year, along with the $50 million it plans on spending to elect business-friendly politicians this fall, will make it the top lobbyist in Washington once again. (The group is nevertheless unlikely to top the $144 million it spent buying political influence in 2009.)

Those expenditures represent the day-to-day business of the Chamber. But according to the complaint filed last week by U.S. Chamber Watch, a watch-dog group, the CoC violated U.S. tax laws by funneling $18 million in loans and grants that the Starr Foundation gave to the Chamber’s charitable, non-profit arm, the National Chamber Foundation into the CoC’s lobbying efforts. The Starr Foundation was created by AIG’s founder, Cornelius Vander Starr, and is led by former CEO Maurice Greenberg. According to Chamber Watch’s complaint, none of the group’s $12 million in principle loans had been repaid, and the “money appeared to have been given to the chamber’s foundation for unrestricted use.”

According to a New York Times analysis of the complaint:

The money, in violation of nonprofit restrictions, was ultimately funneled to the chamber itself and used to finance broader political causes, including support for legal tort reform to shield companies like A.I.G. from liability. Mr. Greenberg himself had worked to promote restrictions on lawsuits, the complaint notes.

Christy Setzer, a spokeperson for Chamber Watch, told AlterNet that the cash was ultimately funneled to the chamber itself where it was used to further its political agenda. “The Starr Foundation began giving about a million dollars per year to the National Chamber Foundation in 2000," she said. "Then in 2003, the Starr Foundation gives $5 million and then another $10 million in the following year. And subsequently, in the same time period, it appears that the National Chamber Foundation turns around and gives that money to the Chamber itself.”

“What’s interesting about all of this is what was happening at the time,” Setzer said. She noted that the cash was transferred during a time when the Chamber was amassing a massive war chest for the re-election of George W. Bush in 2004, and also when AIG was lobbying hard to roll back greater oversight of the financial industry’s accounting practices. “While the Chamber and AIG were campaigning against laws to crack down on accounting fraud, they were potentially committing accounting fraud of their own,” she said.

According to Setzer, during those years, 80 percent of the National Chamber Foundation’s operating budget was provided by the Starr Foundation. “There’s a question about what the role of the National Chamber Foundation really was other than to be a pass-through organization for this money.”

Stan Harrell, chief financial officer for the Chamber of Commerce, told the New York Times that the Chamber Watch complaint was politically motivated and that the CoC had disclosed the transaction as required under the law.

Mr. Harrell said that the funding from the Starr Foundation was listed in tax documents as a loan only in the most technical sense and that it was never intended to be paid back. Instead, he said, the money was restricted for long-term use on educational and research projects as part of the chamber’s capital plan and was invested by the chamber to ensure the Starr Foundation a set rate of return.

“We wanted to make sure we guaranteed the investment return,” Harrell told the Times. “Legally, that has to be represented as a loan.” But according to Setzer, the CoC’s potential legal problems stem from the fact that charitable organizations cannot give money to a political organization in the first place. “The issue isn’t that the money flowed from a charitable organization to a political organization and then was used for political purposes,” she told AlterNet. “The issue is that it flowed there at all … so their answer doesn’t respond to the legal complaint.”

The stakes surrounding the complaint are high. According to Setzer, if the IRS upholds it, the National Chamber Foundation would lose its status as a tax-exempt charitable organization. “Effectively, the National Chamber Foundation would cease to exist,” she said.

That's Tariffic!

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