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How Companies Value Body Parts?

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Injured workers are entitled to compensation for permanent disabilities under state workers’ comp laws.

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Price Check: How Companies Value Body Parts

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But – Texas has long allowed companies to opt out and write their own benefit plans.

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Benefits for the same body part can differ dramatically depending on which company you work for.

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Health Data Breaches Multiplying

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How the IRS’s Nonprofit Division Got So Dysfunctional

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The IRS Controversy

By Kim Barker and Justin Elliott

ProPublica, May 17, 2013, 5:14 p.m.

The IRS division responsible for flagging Tea Party groups has long been an agency afterthought, beset by mismanagement, financial constraints and an unwillingness to spell out just what it expects from social welfare nonprofits, former officials and experts say.

The controversy that erupted in the past week, leading to the ousting of the acting Internal Revenue Service commissioner, an investigation by the FBI, and congressional hearings that kicked off Friday, comes against a backdrop of dysfunction brewing for years.

Moves launched in the 1990s were designed to streamline the tax agency and make it more efficient. But they had unintended consequences for the IRS’s Exempt Organizations division.

Checks and balances once in place were taken away. Guidance frequently published by the IRS and closely read by tax lawyers and nonprofits disappeared. Even as political activity by social welfare nonprofits exploded [1] in recent election cycles, repeated requests for the IRS to clarify exactly what was permitted for the secretly funded groups were met, at least publicly, with silence.

All this combined to create an isolated office in Cincinnati, plagued by what an inspector general this week described [2] as “insufficient oversight,” of fewer than 200 low-level employees responsible for reviewing more than 60,000 nonprofit applications a year.

A Major Mistake

In the end, this contributed to what everyone from Republican lawmakers to the president says was a major mistake: The decision by the Ohio unit to flag for further review applications from groups with “Tea Party” and similar labels. This started around March 2010, with little pushback from Washington until the end of June 2011.

“It’s really no surprise that a number of these cases blew up on the IRS,” said Marcus Owens, who ran the Exempt Organizations division from 1990 to 2000. “They had eliminated the trip wires of 25 years.”

Of course, any number of structural fixes wouldn’t stop rogue employees with a partisan ax to grind. No one, including the IRS [3] and the inspector general [4], has presented evidence that political bias was a factor, although congressional and FBI investigators are taking another look.

But what is already clear is that the IRS once had a system in place to review how applications were being handled and to flag potentially problematic ones. The IRS also used to show its hand publicly, by publishing educational articles for agents, issuing many more rulings, and openly flagging which kind of nonprofit applications would get a more thorough review.

All of those checks and balances disappeared in recent years, largely the unforeseen result of an IRS restructuring in 1998, former officials and tax lawyers say.

“Until 2008, we had a dialogue, through various rulings and cases and the participation of various IRS officials at various ABA meetings, as to what is and what is not permissible campaign intervention,” said Gregory Colvin, the co-chair of the American Bar Association subcommittee that dealt with nonprofits, lobbying, and political intervention from 1991 to 2009.

“And there has been absolutely no willingness in the last five years by the IRS to engage in that discussion, at the same time the caseload has exploded at the IRS.”

IRS

Stone Walling

The IRS did not respond to requests for comment on this story.

Social welfare nonprofits, which operate under the 501(c)(4) section of the tax code, have always been a strange hybrid, a catchall category for nonprofits that don’t fall anywhere else. They can lobby. For decades, they have been allowed to advocate for the election or defeat of candidates, as long as that is not their primary purpose. They  also do not have to disclose their donors.

Social welfare nonprofits were only a small part of the exempt division’s work, considered minor when compared with charities. When the groups sought IRS recognition, the agency usually rubber-stamped them. Out of 24,196 applications for social welfare status between 1998 and 2009, the exempt organizations division rejected only 77, according to numbers compiled from annual IRS data books.

Into this loophole came the Supreme Court’s Citizens United decision in January 2010, which changed the campaign-finance game [5] by allowing corporate and union spending on elections.

Sensing an opportunity, some political consultants started creating social welfare nonprofits geared to political purposes. By 2012, more than $320 million in anonymous money poured into federal elections.

A couple of years earlier, beginning in 2010, the Cincinnati workers had flagged applications of tiny Tea Party groups, according to the inspector general, though the groups spent almost no money in federal elections.

Main Question

The main question raised by the audit is how the Cincinnati office and superiors in Washington could have gotten it so wrong. The audit shows no evidence that these workers even looked at records from the Federal Election Commission to vet much larger groups [6] that spent hundreds of thousands and even millions [7] in anonymous money to run election ads.

The IRS Exempt Organizations division, the watchdog for about 1.5 million nonprofits, has always had to deal with controversial groups. For decades, the division periodically listed red flags that would merit an application being sent to the IRS’s Washington, D.C., headquarters for review, said Owens, the former division head.

In the 1970s, that meant flagging all applications for primary and secondary schools in the south facing desegregation. In the 1980s, during the wave of consolidation in the health-care industry, all applications from health-care nonprofits needed to be sent to headquarters. The division’s different field offices had to send these applications up the chain.

“Back then, many more applications came to Washington to be worked — the idea was to have the most sensitive ones come to Washington,” said Paul Streckfus, a former IRS lawyer who screened applications at headquarters in the 1970s and founded the industry publication EO Tax Journal [8] in 1996.

Because this list was public, lawyers and nonprofits knew which cases would automatically be reviewed.

“We had a core of experts in tax law,” recalled Milton Cerny, who worked for the IRS, mainly in Exempt Organizations, from 1960 to 1987. “We had developed a broad group of tax experts to deal with these issues.”

In the 1980s, the division issued many more “revenue rulings” than issued in recent years, said Cerny, then head of the rulings process. These revenue rulings set precedents for the division. Revenue rulings along with regulations are basically the binding IRS rules for nonprofits.

“We would do a revenue ruling, so the public and agents would know,” Cerny said. “Over the years, it apparently was felt that a revenue ruling should only be published at an extraordinary time. So today you’re lucky if you get one a year. Sometimes it’s less than that. It’s amazing to me.”

Other checks and balances had existed too. Not only were certain kinds of applications publicly flagged, there was another mechanism called “post-review,” Owens said. Headquarters in Washington would pull a random sample every month from the different field offices, to see how applications were being reviewed. There was also a surprise “saturation review,” once a year, for each of the offices, where everything from a certain time period needed to be sent to Washington for another look.

So internally, the division had ways, if imperfect, to flag potential problems. It also had ways of letting the public know what exactly agents were looking at and how the division was approaching controversial topics.

For instance, there was the division’s “Continuing Professional Education,” or CPE, technical instruction program. These articles were supposed to be used for training of line agents, collecting and putting out the agency’s best information on a particular topic — on, say, political activity [9] by social welfare nonprofits in 1995.

“People in a group would write up their thoughts: ‘Here’s the law,’” said Beth Kingsley, a Washington lawyer with Harmon, Curran, Spielberg & Eisenberg who’s worked with nonprofits for almost 20 years. “It wasn’t pushing the envelope. It was, ‘This is how we see this issue.’ It told us what the IRS was thinking.”

The system began to change in the mid-1990s. The IRS was having trouble hiring people for low-level positions in field offices like New York or Atlanta — the kinds of workers that typically reviewed applications by nonprofits, Owens said.

In Cincinnati

The answer to this was simple: Cincinnati.

The city had a history of being able to hire people at low federal grades, which in 1995 paid between $19,704 and $38,814 a year — almost the same as those federal grades paid in New York City or Chicago. (Adjusted for inflation, that’s between $30,064 and $59,222 now.)

“That was well below what the prevailing rate was in the New York City area for accountants with training,” Owens said. “We had one accountant who just had gotten out of jail — that’s the sort of people who would show up for jobs. That was really the low point.”

So in 1995, the Exempt Organizations division started to centralize. Instead of field offices evaluating applications for nonprofits in each region, those applications would all be sent to one mailing address, a post-office box in Covington, Ky. Then a central office in Cincinnati would review all the applications.

Almost inadvertently, because people there were willing to work for less than elsewhere, Cincinnati became ground zero for nonprofit applications.

For the time being, the checks remained in place. The criteria for flagged nonprofits were still made public. The Continuing Professional Education text was still made public. Saturation reviews and post reviews were still in place.

But by 1998, after hearings in which Republican Senator Trent Lott accused the IRS of “Gestapo-like” tactics, a new law mandated the agency’s restructuring. In the years that followed, the agency aimed to streamline. For most of the ‘90s, the IRS had more than 100,000 employees. That number would drop every year, to slightly less than 90,000 [10] by 2012.

Change Will Come

Change also came to the Exempt Organizations division.

The IRS tried to remove discretion from lower-level employees around the country by creating rules they had to follow. While the reorganization was designed to centralize power in the agency’s Washington headquarters, it didn’t work out that way.

“The distance between Cincinnati and Washington was such that soon Cincinnati became a power center,” said Streckfus, the former IRS lawyer.

Following reorganization, many highly trained lawyers in Washington who previously handled the most sensitive nonprofit applications were reassigned to focus on special projects, he said.

Owens, who left the IRS in 2000 but stayed in touch with his old division, said the focus on efficiency meant “eliminating those steps deemed unimportant and anachronistic.”

In 2003, the saturation reviews and post reviews ended, and the public list of criteria that would get an application referred to headquarters disappeared, Owens said. Instead, agents in Cincinnati could ask to have cases reviewed, if they wanted. But they didn’t very often.

“No one really knows what kinds of cases are being sent to Washington, if any,” Owens said. “It’s all opaque now. It’s gone dark.”

By the end of 2004, the Continuing Professional Education articles stopped [11].

Recommendations [12] from an ABA task force for IRS guidelines on social welfare nonprofits and politics that same year were met with silence.

Even the IRS’s Political Activities Compliance Initiative, which investigated [13] complaints of charities engaged in politics — primarily churches — closed up shop in early 2009 after less than five years, without any explanation.

Both before and after the changes, the Exempt Organizations division has been a small part of the IRS, which is focused on collecting money and chasing delinquent taxpayers.

US capitol

IRS Employee Count in 2012

Rulings and Agreements, the division that handles applications of all nonprofits, accounted for less than 0.5 percent of all IRS employees in 2012.

Source: IRS Data Books [14], IRS Exempt Organizations Annual Report [15]

Of the 90,000 employees at the agency last year, only 876 worked in the Exempt Organizations’ division, or less than 1 in 1,000 employees.

Of those, 335 worked in the office that actually handles applications of nonprofits.

Most of those — about 300 — worked in Cincinnati, Streckfus estimates. The rest were at headquarters, in Washington D.C.

In Cincinnati, the employees’ primary job was sifting through the applications of nonprofits, making determinations as to whether a nonprofit should be recognized as tax-exempt. In a press release [16] Wednesday, the IRS said fewer than 200 employees were responsible for that work.

In 2012, these employees received 60,780 applications. The bulk of those — 51,748 — were from groups that wanted to be recognized as charities.

But the number of social welfare nonprofit applications spiked from 1,777 in 2011 to 2,774 in 2012. It’s impossible to say how many of those groups indicated whether they would engage in politics, or why the number of applications increased. The IRS said Wednesday that it “has seen an increase in the number of tax-exempt organization applications in which the organization is potentially engaged in political activity,” including both charities and social welfare nonprofits, but didn’t specify any numbers.

Total 501(c)(4) [17] Nonprofit Applications from 2002 to 2012

From 2011 to 2012, applications increased by more than 50 percent.

Source: IRS Data Books [14]

On average, one employee in Cincinnati would be responsible for going through roughly one application per day.

Some would be easy — say, a local soup kitchen. But to evaluate whether a social welfare nonprofit has social welfare as its primary purpose, the agent is supposed to use a “facts and circumstances” test. There is no checklist. Reviewing just one social welfare nonprofit could take days or weeks, to look through a group’s website, track down TV ads and so forth.

“You’ve got 60,000 applications coming through, and it’s hard to do that with the number of agents looking at them,” said Philip Hackney [18], who was in the IRS’s chief counsel office in Washington between 2006 and 2011 but said he wasn’t involved in the Tea Party controversy. “The reality is that they cannot do that, and that’s why you’re seeing them pick stuff out for review. They tried to do that here, and it burned them.”

As we have previously reported, last year the same Cincinnati office sent ProPublica [19] confidential applications from conservative groups. An IRS spokeswoman said the disclosures were inadvertent.

The Commissioner Speaks

Mark Everson, IRS commissioner for four years during the George W. Bush administration, said he believed the fact that the division is understaffed is relevant, but not an excuse for what happened. “The whole service is under-funded,” he pointed out.

And Dan Backer, a lawyer in Washington who represented six of the groups held up because of the Tea Party criteria, said he doesn’t buy the notion that low-level employees in Cincinnati were alone responsible.

“It doesn’t just strain credulity,” Backer said. “It broke credulity and left it laying on the road about a mile back. Clearly these guys were all on the same marching orders.”

The inspector general’s audit was prompted last year after members of Congress, responding to complaints by Tea Party groups, asked for it.

Like former officials interviewed by ProPublica, the audit suggests that officials at IRS headquarters in Washington were unable to manage their subordinates in Cincinnati. When Lois Lerner, the Exempt Organizations division director in Washington, learned [20] in June 2011 about the improper criteria for screening applications, she instructed that they be “immediately revised.”

But just six months later, Cincinnati employees changed [21] the revised criteria to focus on “organizations involved in limiting/expanding government” or “educating on the Constitution.” They did so “without executive approval.”

“The story people are overlooking is: Congress is complaining about underpaid, overworked employees who are not adequately trained,” said Bryan Camp, a former attorney in the IRS chief counsel’s office.

Assessment

In the end, after all the millions of anonymous money spent by some groups to elect candidates in 2012, after all [22] the groups [23] that said in their applications that they would not spend money to elect candidates before doing exactly that, after the Cincinnati office flagged conservative groups, the IRS approved almost all the new applications. Only eight applications were denied.

Source: http://www.propublica.org/article/how-irs-nonprofit-division-got-so-dysfunctional

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How Bad Is Our National Debt Problem, Anyway?

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And … Will a Deal Fix It?

By Theodoric Meyer
ProPublica, Dec. 28, 2012, 12:34 p.m.

President Obama will meet with congressional leaders today [1] in another attempt to avert the fiscal cliff — the automatic tax increases and spending cuts set to take effect Jan. 1st unless Congress can strike a deal. The cuts and tax hikes, which total more than $500 billion, are so large and so sudden that many economists fear they would plunge the country back into recession.

As Washington tries to hash out a deal, we’ve taken a step back to break down the numbers behind our deficit — how it grew so big, why it is actually shrinking and whether a deal can bring it under control.

How much are we in debt?

The federal debt is just shy of $16.4 trillion [2] at the moment, which also happens to be the debt limit that Congress set in 2011. Treasury Secretary Timothy F. Geithner announced on Wednesday [3] that the nation would hit the limit on Dec. 31. The Treasury can take some “extraordinary measures” to keep paying its bills for a few weeks, but it’ll run out of cash by February or March unless Congress raises the limit again.

And that’s different from the deficit, right?

Yes. The debt is the total amount of the government’s outstanding obligations. The deficit is how much the government is in the red in a given year. In the 2012 fiscal year, which ended Sept. 30, the deficit amounted to $1.1 trillion [4].

That seems like a huge number. How did the deficit get so big?

The 2012 deficit was actually the smallest one since 2008. But it’s still a giant shortfall.

As Binyamin Appelbaum noted in The New York Times [5], the federal government has run a deficit in 45 of the last 50 years. (The exceptions were 1969 and 1998 through 2001.) The financial crisis in 2008, however, caused the deficit to skyrocket, as tax revenues fell because of the slump in incomes and production, and government spending on the stimulus and safety net measures such as unemployment insurance shot up. The deficit for the 2008 fiscal year was $455 billion. In 2009, it surged to more than $1.4 trillion.

Since then, the deficit has been falling, albeit very slowly. The government took in 6.4 percent more in taxes in 2012 than in 2011, as the economy improved a bit and several tax breaks expired. And it spent less on Medicaid, unemployment insurance and the continuing operations in Iraq and Afghanistan.

What about the total debt? How much of that is President Obama’s fault?

The debt has grown by nearly $6 trillion since Obama took office, from $10.5 trillion to $16.4 trillion.

Figuring out how much of that is due to Obama is tougher. The Washington Post’s Ezra Klein, working with the Center on Budget and Policy Priorities, calculated in January [6] that the legislation Obama had actually signed — as opposed to factors like the economy — had added about $983 billion to the debt.

Klein has also rounded up several charts [7] that break down exactly what’s caused our debt to grow so large. The biggest single factor has been the weak economy; President George W. Bush’s tax cuts and the wars in Iraq and Afghanistan also fueled the debt buildup, as did President Obama’s stimulus.

Have debt levels ever been this high before?

Yes, proportionally. Economists like talk about a country’s debt in relation to its gross domestic product (a measure of the economy’s total annual output). And instead of using a country’s total outstanding debt to calculate this debt-to-GDP ratio, economists typically use the amount of debt held by the public. (Somewhat confusingly, the federal government holds about $5 trillion in obligations to itself, most of which is money owed to the funds that support Social Security and other programs.)

Using this measurement, our debt was about 67.7 percent of GDP last year. As this chart compiled by Quartz’s Ritchie King shows [8], that’s the highest our debt-to-GDP ratio has been since the 1940s, when the need to finance World War II caused the debt to surge to 112.7 percent of GDP. But the economy grew fast enough after the war that the debt soon became a much smaller percentage of the country’s GDP.

It’s worth noting that a number of other developed countries have higher debt-to-GDP ratios [9] than the U.S. Germany’s public debt is 80.6 percent of GDP, and Canada’s is 87.4 percent. The euro zone’s most troubled countries fare even worse: Italy’s debt is 120.1 percent of GDP; Greece’s is 165.3 percent.

US Capitol

At least we’re not Greece. How much longer can we keep borrowing?

That’s a tough one. Some commentators — including Paul Krugman, the Nobel-winning economist and columnist for The New York Times — have argued that our current deficits are mostly a product of the sluggish economy. The deficit, Krugman wrote last week [10], “is a side-effect of an economic depression, and the first order of business should be to end that depression — which means, among other things, leaving the deficit alone for now.”

Other economists — including Carmen Reinhart and Kenneth Rogoff, who studied eight centuries’ worth of financial crises for their book “This Time Is Different” — argue that countries with debt-to-GDP ratios above a certain level tend to experience slower economic growth. Reinhart and Rogoff suggest the level is around 90 percent of GDP [11] — which the U.S. is rapidly approaching. A recent Congressional Research Service report [12] concluded that while the debt-to-GDP ratio can’t keep rising forever, “it can rise for a time.” The report continued:

It is hard to predict at what point bond holders would deem it to be unsustainable. A few other advanced economies have debt-to-GDP ratios higher than that of the United States. Some of those countries in Europe have recently seen their financing costs rise to the point that they are unable to finance their deficits solely through private markets. But Japan has the highest debt-to-GDP ratio of any advanced economy, and it has continued to be able to finance its debt at extremely low costs.

How does all this fit into the fiscal cliff?  Would a deal to avert it fix our debt problem?

Actually, going over the fiscal cliff would almost singlehandedly erase the deficit. Tax rates would shoot up, and the fiscal cliff’s indiscriminate budget cuts would slash military and safety-net spending alike.

The problem is that all those tax increases and spending cuts would likely throw the economy back into a recession, causing the deficit to balloon again. “The economy will, I think, go off a cliff,” said Ben Bernanke [13], the Federal Reserve chairman.

(For more detail, see The Washington Post’s exhaustive fiscal cliff explainer [14].)

What the two sides are trying to do is identify cuts that are ultimately deep enough to bring down the deficit — and thus, eventually, the debt — without stalling the economy. But negotiations collapsed last week [15] after John Boehner, the Republican House speaker, tried and failed to pass a “Plan B” alternative to the president’s proposal in the House. Obama is set to meet with congressional leaders today to try to strike a deal to block at least some of the cliff’s impact by Monday night. But its prospects seem dim.

“I have to be very honest,” Sen. Harry Reid, the majority leader, said on Thursday. “I don’t know timewise how it can happen now.”

Assessment

Of course, some analysts have pointed out that people on both the Republican and the Democratic sides may actually want to move the cliff just slightly down the road into the next Congress, which convenes Thursday, Jan. 3. The advantages: Boehner can be safely re-elected as Speaker before he has to do serious twisting of arms of fellow GOP House members to get their votes for any compromise plan. And there will be a few more Democrats in the House and the Senate for the White House to rely on in enlisting the votes it needs to ratify any such deal. The disadvantage: Delay makes the risk of miscalculation greater for either or both sides — and for the public.

Link: http://www.propublica.org/article/how-bad-is-our-debt-problem-anyway-and-will-a-deal-fix-it

Conclusion

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