Crains New York - May 27, 2013 - (Page 11)

The real IRS scandal? The baffling tax code P erhaps disgraced state Sens. John Sampson and Shirley Huntley should have called themselves social-welfare organizations.Then they could have practiced their frauds without worrying about paying taxes or disclosing the source of their ill-gotten gains.I digress.But the idea that Crossroads GPS,organized by Karl Rove, or Priorities USA, run by former staffers of President Barack Obama, qualified as social-welfare organizations for federal tax purposes strikes me as absurd and abusive. Yet they and many other groups applied for and received designations as tax-exempt 501(c)(4) organizations under the federal tax code. When writing this part of the law, Congress stipulated that organizations had to spend their money exclusively on social-welfare purposes.The Internal Revenue Service bureaucrats writing the regulations changed this to “primarily” without clarifying what “primarily” means— 90%, 75%, 51% or something else. And that’s what the IRS staff caught up in the current scandal was trying to determine when faced with a mounting stack of applications: whether groups that were pouring hundreds of millions of dollars into political advertising during the last ALAIR TOWNSEND campaign were truly social-welfare organizations or just dodgers trying to avoid disclosure of their donors and limitations on contributions. Those are the advantages so eagerly sought by people like Mr.Rove Next mayor’s issue: building-cost gap I t all sounded so reasonable at the Crain’s Democratic mayoral forum last week. The four candidates on the stage enthusiastically said they agreed with the building trades that all affordable housing built with city help should be constructed with union labor. We will negotiate a project labor agreement, or PLA, they said, which will eliminate the gap in cost between union and nonunion labor and, anyway, so much of the nonunion work is shoddy. The noshows at the forum,Bill de Blasio and Anthony Weiner, agree with that point of view. The reality will be far different. The gap between the cost of building with union or nonunion labor is at least 20% and probably close to 30%, according to an exhaustive 2011 study by the Regional Plan Association. Since then a few PLAs have narrowed the wage gap, but the benefits that union workers receive are so generous they more than double the hourly pay— and that part of the compensation cost has grown. Not only has no PLA eliminated the differential, once a new mayor commits to union labor the building trades have less incentive to compromise. So, a PLA won’t close the gap. And the marketplace will make it wider again. Once the city creates a union monopoly for affordable GREG DAVID housing,the relatively small number of unionized subcontractors will be able to widen their margins by raising their prices. Of course, what a mayor ought to say is that if unions want to work on affordable projects,they should compete in the marketplace. The unions can’t do that because their hold in the and his liberal counterparts attempting to influence the outcome of elections. Corporations are prohibited from contributing to federal campaigns but may give without limit and anonymously to these 501(c)(4) organizations. And the limits on what individuals can give under federal election law can be bypassed by donating to a 501(c)(4). Over the years, many goodgovernment groups have petitioned the IRS to abide by the law mandating that activity be exclusively related to social welfare, or to set explicit standards to define “primarily.” The situation has grown more urgent after the Supreme Court ruling in Citizens United that expressly allowed 501(c)(4) organizations to engage in election advocacy. A wave of money washed over our political landscape. The IRS botched its handling of these groups,particularly by appearing to single out conservative organizations for scrutiny.Those involved should be held to account. Politicizing the operations of the tax agency has widespread ramifications and undermines its credibility badly. But after all the fulminating,hearings and finger-pointing, the problem of fair administration of this section of the tax code will persist until the agency issues regulations that follow the original law.With thousands of groups seeking 501(c)(4) status, the IRS needs a bright-line standard to apply the law fairly, nonpolitically and more understandably. Bringing clients to the next level Industries served: Financial Services . Manufacturing & Distribution . Technology . Retail . Construction . Architecture & Engineering Real Estate . Healthcare . Transportation & Shipping 488 Madison Avenue, New York, NY 10022 50 Jericho Quadrangle, Jericho, NY 11753 www.grassicpas.com city has become so precarious. Ever since the city began to focus on creating affordable housing in the Koch administration through tax breaks and subsidies, mayors have known they needed to keep the cost as low as possible to build as many units as possible. The unions didn’t care because they were happy to work on commercial projects and luxury buildings in Manhattan. The nonunion builders, subcontractors and workers in affordable housing got their start in the business this way, but their skill and productivity have improved dramatically, and many of the companies have become quite large. Many have branched out and now account for most residential construction and an increasing percentage of commercial work. A competitive Democratic primary, with every candidate seeking every possible union endorsement, has given the trades their best opportunity in years to reverse this trend. As the Crain’s forum showed, the trades are winning, too. Worse, the PLA issue is only one example of areas where unions are demanding and receiving commitments from the Democrats.The hotel workers’ union wants every new hotel to go through the land-use review process, so that the City Council can block any project that doesn’t promise to be union. Then there are whatever promises the teachers’ union is extracting in return for its support. Who is the sensible economic and business candidate in the Democratic race? Good question. May 27, 2013 | Crain’s New York Business | 11 http://www.grassicpas.com http://www.grassicpas.com

Table of Contents for the Digital Edition of Crains New York - May 27, 2013

In the Boroughs
In the Markets
Small Business
The Insider
Business People
Opinion
Alair Townsend
Greg David
Steve Hindy
Report: Largest Companies
The List
Classifieds
For the Record
Real Estate Deals
New York, New York
Source Lunch
Out and About
Snaps

Crains New York - May 27, 2013