• With: Collin Levy, Dan Henninger, Kim Strassel, Joe Rago, Dorothy Rabinowitz

    This is a rush transcript from "Journal Editorial Report," May 18, 2013. This copy may not be in its final form and may be updated.

    PAUL GIGOT, HOST: This week on the "Journal Editorial Report," the IRS under fire over its targeting of conservative groups. It's the very same agency ramping up for the ObamaCare rollout. Could the taxman soon be playing politics with your health insurance?

    Plus, a leak investigation has the press corps in an uproar after reporters' phone records are seized. The administration says American lives were at risk, but is that reason enough?


    PRESIDENT BARACK OBAMA: Inexcusable, and Americans have a right to be angry about it and I am angry about it. I will not tolerate this kind of behavior in any agency, but especially in the IRS, given the power that it has and the reach that it has into all of our lives.


    GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    That was President Obama this week reacting to just one of the controversies swirling around his administration, news that the Internal Revenue Service targeted conservative groups for special scrutiny in the 2012 election season. The latest scandal has revived past allegations of partisan behavior at the agency and reinforced many people's fears about government run amuck.

    Joining the panel this week, Wall Street Journal columnist and deputy editor, Dan Henninger; Washington columnist, Kim Strassel, and senior editorial page writer, Collin Levy, who has been following this story for us.

    So, Collin, what were these audits about? What were they looking for from these groups?

    COLLIN LEVY, SENIOR EDITORIAL PAGE WRITER: Paul, they were looking for basically anything they could get from these groups. They wanted donor information. They wanted information about members. They wanted just about everything but the kitchen sink. And when you look at this, it really was expensive and sophisticated. Of the 170 groups that were targeted, the treasury report found that about 58 percent of those had no -- I mean no reason for that to be happening. They were completely unnecessary. And about a third of them had no political activity whatsoever. That should have been a red flag.

    GIGOT: And the idea here was to challenge potentially their tax- exempt status or to deny it all together. A lot of these groups had applied for tax-exempt status and they found their request delayed for many, many months. Is that fair?

    LEVY: Right. Right. That's very fair. That's a key point here because even under any benign understanding in which they were trying to look at these groups, nothing explains why these applications sat on the shelf sometimes for 13 months without any attention paid to them whatsoever. There is no question there was a slow tracking specifically of these Tea Party applications that was quite a different treatment than what was accorded to other nonprofit applications that were also being asked for other information.

    GIGOT: Collin, what about the point you hear from some of the defenders of the IRS, that, well, this was just a backwater in Cincinnati, a few rogue employees.


    We heard that from the acting commissioner before he was fired this week, Steven Miller. That's not true.

    LEVY: Right. By the way, the people of Ohio must be delighted to know that Cincinnati is now some sort of political backwater all of a sudden.


    By the way, this is a situation where they had specifically centralized all of the looking at this, these tax-exempt organizations, in Cincinnati. Then they turn around and say, oh, whoops. Actually, guess what? We weren't paying any attention over there. So that whole line is really sort of absurd.

    Quite a side, by the way, from whatever coordination there was as this information was run up to the chain to Washington, which we now know it was as early as 2011.

    GIGOT: And we also know there was some letters that had been sent from Democrats on Capitol Hill, including Max Baucus, the head of the Senate Finance Committee, Chuck Schumer, very powerful Democrat on the Finance Committee, essentially challenging the IRS to go after these tax- exempt groups. So there is a sense -- while we don't know to what extent the IRS -- at least we don't know now to what extent they were responding to those requests, we do know they were made and could have been a motive here for the IRS.

    LEVY: For sure. No question about it. Guess what? They have newspapers and TV's in Cincinnati, too.


    And the requests coming from Congress, from Democrats, the whole suggestion that these 501c groups were these new nefarious dark-money groups that really needed additional oversight because they were overturning the entire system of electoral politics, that message, no question, got through to the IRS employees, whether or not they were acting of their own creative impulses or not.

    GIGOT: What about the argument, Collin, that these -- you hear this from some of the liberals and defenders of the IRS, that these groups deserve this kind of scrutiny because some of them were claiming to be social welfare groups and they were really engaging in partisan activity, so they needed this kind of scrutiny.

    LEVY: Oh, guess what? This was all part of the attack that came in the aftermath of Citizens United. The Supreme Court came out and said, hey, you know what, people have more free speech than they thought they did. Democrats were upset about this. Nancy Pelosi was very clear over the past week saying, hey, Citizens United was the reason these groups exploded and they deserve more scrutiny --


    GIGOT: But, Collin, did some groups skirt close to the edge and deserve this kind of scrutiny? That seems to be essence of the argument, that they deserved it.

    LEVY: There is no indication that conservative groups were doing this more as a general matter than other groups were. There is no justification for the targeting of conservative groups.

    GIGOT: Dan, put this it in broader context. How serious do you think-- and you go back like I do, to a lot of scandals.


    GIGOT: How serious is this in the scandal scheme of things in.

    HENNINGER: Well, I think it's going to get very serious. I mean, one of the defenses of this, or one of the arguments that's been made by the other side is this has always happened going back in presidencies, using the IRS, FDR did it, JFK, LBJ.

    GIGOT: Nixon most famously.

    HENNINGER: Nixon most famously. But wait a minute. They're not saying, in all of these presidencies, lower-level, rogue IRS employees were doing it. They're saying the presidency did it. And I think, in this case, what we're going to see here is the question is to what extent was the White House or the presidency involved one way or another?

    There is one more point to make about this, Paul. This could get to the point where it will involve legal issues. In other words, people will have legal exposure to what they did.

    GIGOT: Right.

    HENNINGER: When the FBI investigates, government employees or even these IRS officials cannot lie to the FBI. That is a crime. So I think the truth is going to finally begin to leak out.

    GIGOT: Kim, you wrote this week that, in fact, this scandal started at the top when -- you meant President Obama. What do you mean by that, because right now he is claiming to be as outraged as anybody else?