A Tax-week Talk with Former IRS Commissioner Mark Everson

By: Alex Talcott, April 14, 2015

17424808-mmmain(Mark Everson of Mississippi is vice chairman of alliantgroup tax specialists and the former Commissioner of Internal Revenue, directing the IRS from 2003-7. He also worked in the federal Office of Management and Budget and the Department of Justice as deputy commissioner of the Immigration and Naturalization Service during the Reagan administration. Everson was briefly president of the American Red Cross. Everson served in the cabinet of Indiana Governor Mitch Daniels, his former OMB boss. He has held executive positions with a French industrial conglomerate and a Texas food services company. A Republican, on March 5, 2015 he announced his candidacy for President of the United States.)

In May 2007, you were completing four years of service as commissioner of the IRS and I was completing four required credits of Federal Income Taxation. You don’t have many open-book exams in law school but that one was, because the Internal Revenue Code was “the book.” Good luck! Can you speak to the length and complexity of the Code?

The problem with the complexity of the Code is when you have a rules-based scheme and there are so many rules, what people do, businesses, they find the line. And taxpayers find the line. And that’s totally fair.

But what happens is, when I was at the Service, we had a lot of attention to abuse of shelters in that period if you remember, KPMG and some of the other things. And what would happen is, taxpayers would come in and they would have a very sophisticated transaction in mind. And they would take it in and they would get a ruling from the chief counsel’s office, “Is this proper or not?” and maybe there would be six or eight steps to the transaction. They get that ruling that says “Yes…but just barely.” It’s right up against the line. And then, over a period of years or time, the transaction itself morphs to something slightly different. And yet the person, the attorney or the CPA, whoever put the deal together, is still representing that this arrangement comports with the law. And that’s the problem you get to frequently—that things change and they get passed what has been established.

I always said, “Complexity obscures understanding.” So it hurts the compliant taxpayer, the taxpayer who wants to be compliant, and it affords opportunities to those who sort of want to circumvent the law.

You mentioned KPMG. In 2005 remarks to the Department of Justice, you said, “KPMG’s actions were a direct assault on our progressive system of income taxation, and, left unchecked, would have badly eroded the faith of hard working, taxpaying Americans in the fairness of government itself.” The word progressive in there—in a way isn’t even a flat tax progressive, to the extent that it’s a percentage and not a fee? It’s proportional, it’s a rate, but we most always take progressive to refer to the different tiers of rates.

What they were doing was, the Son of Boss transaction, I remember that statement well. I had several years to prepare it, because I knew what was going to happen, what ultimately came to be KPMG. That Son of Boss transaction was such that, without any risk – KPMG, Jenkins & Gilchrist, and the people who put that together – you could go out and build a business and then after 15 years you’d get ready to sell it, and now let’s say you had a gain of $35 million, they would just make that gain go away, go away, with no risk. Courts found that, ultimately, to be illegal. So we were heading towards a situation where, these deals were being sold of course only to the rich, so they weren’t going to end up paying taxes on the gains they had. It really was a very serious situation. We stepped in at just the right time. And if you think about it, there wasn’t a lot of vigor in some of the folks on the regulatory side during that period.

If you look particularly at the piece on banking, I have said understanding that the private sector is the engine of our economic growth doesn’t relieve Republicans of providing fair and balanced regulation. I think we need to strip out, take a good hard look at what we can live without, and terminate some of these statutes. But if there is something that is in the law, it does need to be followed. The KPMG thing—that was bad, but they made a number of reforms…and worked hard to sort of redeem themselves.

I know as part of a larger tax overhaul, you’d be interested in retaining progressivity, favoring a version of the Competitive Tax Plan authored by Columbia professor Michael Graetz. Where is that policy proposal as far as a thought piece, versus something you’ve discussed with current senators and members of Congress?

No, I haven’t had conversations as yet with members of Congress on this. What I’ve done is I’ve put it out there. I think that what has happened is there’s been a real movement, at least since I became Commissioner. The idea of moving to the VAT or anything like that was really anathema; the conservatives were very much against it. I think it’s become looked at a little more favorably so I think that the time is right to take a look at this.

You’re right: people still look at the FairTax and the flat tax. I advocate the Competitive Tax Plan for the reason you articulated. It leaves the relative burdens in place. It doesn’t increase the burden on the wealthy, nor does it reduce it. It sort of is revenue neutral, and then you see growth after that. I like that. I do think the construct of a progressive tax system with those who earn more paying relatively more, not just more. Relatively more. I think that’s established, I think that’s accepted. So I’m not trying to drive down those taxes, that relative burden if you will.

In other pieces of the program, I have said rather than increase the taxes, I would tighten up on entitlement programs and means-test some of the entitlement programs. That of course would come to some degree to the same people, but it’s not a tax increase. It’s more a concept of if you don’t need the insurance, then you don’t need it. The way I analogize it is: I’ve got a young son, and I’ve got an insurance policy that I’ve just re-upped. It goes for 15 years until he’ll be out of college. I’m going to be paying in $6,000 a year on that. Hopefully I don’t use it. That’s what I hope. Hopefully I live long enough that I don’t use it. It’s sort of the same concept when I look at the spending side.

You’ve got to approach this in a balanced way. You’ve got to be looking at revenue generation. What’s a good, fair system on the revenue side? And you have to look at the expense side because obviously the overall is to keep the fiscal health of the country in line.

To criminal justice. You say at your campaign site [MarkForAmerica.com], “The time has come for a complete review of our criminal statutes and incarceration practices.” How should we go about the review?

I’m pretty open to that but I do think we would need to have the right people looking at this from all perspectives: the number of people who are in our prisons… I think the federal government has its own prison system of course, and its own set of statutes. But I think you can lead. There’s Right on Crime. There’s a lot of attention to this. I think this is an issue that’s already developing. What I’m doing is I’m saying, it’s very important to get on top of it. I actually developed a program in Indiana—

— tell me about the approach in Indiana with the governor, state chamber of commerce, and manufacturers.

I took it to [Gov.] Mitch Daniels. I was running the workforce system. And I was travelling around the state and I was shocked how many employers said look, I’m having a hard time getting people who are willing to do some of the jobs that I’ve got. You hear that all the time. I initially just thought that I was old. I decided finally that there was some truth to this, that there were changed attitudes in the workplace.

And then I was concerned because I felt that what we’ve done is when we have sentenced somebody to prison now we have sentenced them to a lifetime of inferior economic opportunity. And I’m not suggesting by any means that two-thirds or half or even a third or a quarter of the people that come out of the prison system are going to be productive employees. But you can’t tell me there isn’t some number that recognizes the collision in their life and really wants to get things right.

So what I did was I went to Mitch Daniels and I said I’d like to work and identify a cohort of people coming out of the prison system who are willing to work, and we’ll help them, because it’s a win-win. All of the recidivism studies are very clear about having a job as rebuilding the communities, really helping people from going back to prison. So Mitch said yeah, go ahead. I took it to the Indiana Chamber of Commerce, I took it to the IMA [Indiana Manufacturers Association]. Indiana has a very high concentration of manufacturing, the highest per capita at present in the country. …[W]orking with the prison system, the idea was not everyone is going to qualify for this. These were people who had records of gang-free, no problems during the years in prison… And frankly it’s interesting, when I put this to the prison system, you’d sort of think oh, these will be the lower level drug guys. And they said no, not really. Because a lot of times those are younger people who are 20 years old or 22, they’re in for two years or a year-and-a-half, and the people in the prisons don’t have any real read into them. They haven’t been in there long enough, and they’re young, and they’re still sort of maybe a little bit wild. You don’t have any real idea whether they’re gonna be able to pull their weight.

So I said to somebody, well who would be someone that we could do this with? And he said I’ll give you a good example: I’ve got a guy here who’s just about to come out. He’s been in I think it was something like six or seven years for armed robbery…and that’s a very serious crime in Indiana, and he said but he’s been a model prisoner, participated in our work programs and educational programs. He said, he’s got as good a shot as anybody of making it. That’s the kind of person. Because then the people who are running the penal institutions have a view of the individual. They know the individual. They think he or she is going to have a good chance.

Anyway, I took this to the IMA and to the Chamber. I remember sitting with the board of directors in the Chamber and a woman who was a member of the board said, “Mark, I’m so glad you’re doing this. About eight years ago my best friend came to me, and she said (this was a woman who ran a small business; they had about 20 employees), my daughter got in trouble. She wrote some bad checks, or did something…white-collar crime. And she spent a couple years in prison. She’s going to come out. Would you give her a job?” And she said, “She’s my best employee, because she’s appreciative of the fact that she got the job. She’s always got my back.”

So I think it’s important, we’ve got something like 70 or 80 million people in America, depending on what the figures are, who have an arrest record. We can’t write these people off. We’ve got to work to make them a part of the society. You look at my proposals—what I say, a lot of it is about shared sacrifice, rebuilding the American spirit, and if we just sort of jettison whole classes of people, including anybody who’s had some time in prison, that’s not going to work for us over the long term.

I’d like to see us get our best talent. A lot of this is obviously dependent on who would hold an important position like the Attorney Generalship, what the leadership would be in Senate and House Judiciary, and find an approach. I’m confident that this is something that’s going to come. I’m just suggesting that I will help lead that conversation. You’ve got to do a scrub of what the statutes are and what you can live without. George Will wrote a column on this just in the last few days.

From expanding opportunities to limiting powers — you’re quoted in a McClatchy article as saying you “understand the limits of the powers of the presidency.” Tell us about that understanding and those limits.

What I would say about that is I actually have a track record. Unlike most of these folks, I have run executive branch agencies. Important ones. The INS as the number two, and then the IRS, as you know. People can evaluate what I did. I called the shots down the middle. When you run the executive branch, you’re supposed to execute the laws.

I am concerned about the actions this president has taken. He has gone to the limits of his authority and then some. It’s things like the Affordable Care Act, not following very bright lines and deadlines. And we’ll see how the Court interprets the Burwell decision. It’s like the unilateral executive order deferring the enforcement action and granting work authorization to four to five million people here illegally. These are pretty much breathtaking actions. What I have seen is I have a clear record of following the law as written, not as I might wish it to be, and that’s the approach that I would take, should I be elected.

More on that interplay between the branches of government: you’ve testified before the Congress 50 or so times. Even when doing so with regularity per oversight, as opposed to at invitation or by subpoena, it looks like such an uneven circumstance, with the representatives up high on the dais and the testifying agency employee below at the table, trying to be all polite. Talk about that experience, testifying before Congress.

I think the Congress doesn’t do a particularly good job of legislating. But I think it really has an extremely important job in its oversight of the executive branch. I always welcomed testifying before Congress. As you indicated I testified some 50 times. And before I went up to the Hill, I always had three, four, or five meetings of an hour, 90 minutes, 120 minutes, with sometimes 10 or 20 people in the room, going over the expected content of the hearings and anything that was happening. Because when you go up and you testify before full Ways and Means – and you’ve got 35 Members there or whatever it is, they each ask a question – if the hearing is on not-for-profit hospitals, they may or may not ask about not-for-profit hospitals. They’re going to ask about anything. So I always walked away from any hearing knowing my agency and my tasks and the responsibilities better. So I felt that was important.

And I also felt it was very important for me—my job as Commissioner was to represent the tax administration system of the nation to the Congress (coequal branch of government), to the media, and to the people. I more than any other figure spoke for the tax system and had to make people understand…what it did…so I welcomed that. And I didn’t feel it was uneven. I felt sometimes people would be overly dramatic. The executive branch witness actually has the advantage because he knows the subject matter the best. That should be the way it works.

Your most recent fellow entrant to the presidential race today: Hillary Clinton. Writing about her foundation fundraising and emails in an op-ed for Newsmax March 25, you said, “Unless the State Inspector General steps in, the public will not know whether this money is for favors yet to come or from services already rendered.” Can you speak to your sense really of a perceived quid pro quo in that case, and the idea more generally of the role of inspectors general, ombudsmen, regulating the regulators?

Well, inspectors general are a real pain in the neck. But they are a necessary pain in the neck. That’s just part of the protections that we have in, that someone is taking a look to make sure that things are being done properly. Both the IGs and GAO [Government Accountability Office] play a role where they come in and they take a look to make sure that the agency or department is following the statutes and then they may find things that the management doesn’t find! And you need to welcome that.

The Clinton issue itself, I’m very concerned, because I find the communications between the former Secretary and her subordinates the least interesting. What’s really interesting is who on the outside was making suggestions or bringing policy pressure or whatever else, and we just don’t know. The reason I made the suggestion of the Inspector General: I think in that sense they were running government operations out of a private server in Chappaqua. Once you’ve done that, I think that gives the IG every right to see what was happening there. It’s not a question of whether information was classified or not. To me the much more important question is: was money that was funneled through the Clinton Foundation somehow buying untoward access or longtime associations? Again, as I wrote in the Newsmax piece, where are the big banks saying let’s do the “reset” [with Russia]? Well we’ll just never know unless somebody goes in there and tries to retrieve those emails.

(Alex Talcott, J.D. is a Faculty Team Lead for Criminal Justice and Political Science at Southern New Hampshire University, where he also teaches business law.)