As Michael Kinsley once wrote, "The scandal in Washington isn't what's illegal. It's what's legal."
Which brings us to the creative tax dodges used by Health and Human Services Secretary Mike Leavitt's family charitable foundation.
The foundation, set up by Leavitt's parents in 2000, has let the Cabinet official claim $1.2 million in tax write-offs over the past five years. And yet, in its first three years the organization donated on average less than 1 percent of its assets to charity. Most charitable foundations by law must give away at least 5 percent of their holdings each year.
Meantime, the foundation aided businesses controlled by the Leavitt family.
This and other Section 509(a)(3) Supporting Organizations, so named for the provision of the tax code under which they're listed, have so egregiously violated the spirit of the laws that IRS Commissioner Mark Everson included "Type III" groups on his "Dirty Dozen" list of the worst tax scams perpetrated in 2005.
Leavitt continues to insist that the foundation's activities are legal. Perhaps. And its donations have hit the 5-percent mark the past two years.
Whether the foundation has behaved ethically is anohter matter.
The top Democrat and Republican on the Senate Finance Committee have jointly proposed fixes in the tax code that would force Type III groups to behave more like normal charities, rather than piggy banks for their donors. Congress should support those reforms.
Type III groups operate under laxer regulations because they tend to "support" a handful of specific nonprofit institutions - such as a university endowment. In Leavitt's case, his foundation supports the Mormon Church and the Western Association of Leavitt Families, a genealogical group, among other charities.
Still, the Leavitt foundation has given hundreds of thousands of dollars in interest-free loans to real-estate companies owned by family members. The typical family charity could never get away with such cronyism.
Whatever Leavitt's fate, the current system makes a mockery of the laws that govern charitable institutions. The tax code needs to be changed.
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