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Taxing our Patience

By Brian | February 3, 2009 | Share on Facebook

Another tax problem for an Obama nominee. And once again, the media is news cataloging – lumping all three of these tax-related issues together as if they are the same thing. Let’s skim just slightly below the surface and point out the differences, shall we?

Tim Geithner- Mr. Geithner didn’t pay his employer’s portion of his social security taxes ($43,000), something that most of us don’t have to do. But the rules are different for people who work for the International Monetary Fund. At the IMF, employees are considered “self-employed” for the purposes of Social Security taxes, and are reimbursed separately for the need to pay these extra taxes. In 2006, the IRS informed him that he failed to pay these taxes (despite being reimbursed) for his 2003 and 2004 returns, and he promptly paid up (including penalties and interest). The Obama vetting team discovered the same issue with 2001 and 2002, at which point he paid up on those as well. All of this makes him careless, not criminal. Not that I’m advocating for a careless Treasury Secretary, especially in these times, but an administrative foul-up does not diminish his qualifications to run the Treasury Department.

Tom Daschle- Senator Daschle used a chauffeur-driven car that was provided to him by a long-time friend, Democratic fundraiser and founder of his own private equity firm, InterMedia Advisors, for three years. The value of this service – more than $300,000 – is taxable as income, which he never declared and hence, never paid tax on. When the Obama team vetted him for HHS secretary, they discovered the discrepancy, at which point, Senator Daschle amended his 2005, 2006, and 2007 tax returns – paying over $100,000 in back taxes and interest (but no penalties). Unlike Mr. Geithner’s case, this does not seem like an administrative oversight, nor does it seem like something that Mr. Daschle would have cleared up on his own until he got caught by the vetting process. The article I linked too, nonetheless, compares the two cases, implying that they’re part of the same story.

Nancy Killefer- Ms. Killefer owed $298 in unpaid unemployment compensation taxes for her housekeeper in February of 2005. The IRS fined her $600 for the mistake and charged her $48.69 in interest, which she paid in July of 2005. She has been free and clear of any and all tax problems for three and a half years. And yet, the Associated Press “broke” this “news story” today, linking Ms. Killefer to Messrs. Geithner and Daschle, implying that she, too, is part of the same story. This, despite the fact that she a) was quicker and more complete about settling her accounts with the IRS when she found out about them, and b) owed amounts that were orders of magnitude less than the other two. Surprisingly, Ms. Killefer decided to withdraw her name from nomination to the new post of Chief Performance Officer, saying:

“I recognize that your agenda and the duties facing your Chief Performance Officer are urgent. I have also come to realize in the current environment that my personal tax issue of D.C. Unemployment tax could be used to create exactly the kind of distraction and delay those duties must avoid. Because of this I must reluctantly ask you to withdraw my name from consideration.”

The key words here are “in the current environment.” In other words, because the media has used each subsequent story to build upon the one before, “news cataloging” these three significantly different situations together, she feels her $947 tax penalty from 2005 is enough to disqualify her from high office. One can speculate that she just didn’t want to deal with the spotlight over something so trivial.

When I sat down to write this post, I was going to conclude with “what a waste.” As it turns out, Ms. Killefer’s actions may have had some benefit after all, as it was just announced (a mere three hours after Ms. Killefer withdrew her nomination) that Senator Daschle is doing the same thing.

Of the three, Senator Daschle seems to be the one who came closest to commiting tax fraud here, and for a much larger sum of money than the other two. The right answer in this whole mess would have been for him to resign, and for the other two to get past it and get on with their new jobs.

Two out of three ain’t bad, I guess…

Topics: News and/or Media, Political Rantings | 4 Comments »

4 Responses to “Taxing our Patience”

  1. Jeff Porten says at February 5th, 2009 at 2:44 am :
    Of the three, I think the biggest deal is whether Daschle then promoted said friend for plum government positions, which is what I’ve been hearing. And honestly, still not that big a deal in my book in terms of “smoking gun” issues.

    What I don’t understand is how three years of driver service can be worth $300,000. That strikes me as rather fishy. Beyond that, I’ll admit that the underlying tax concept of this service as “income” bothers me on libertarian grounds. The penalty for this should be paying the IRS, plus fines, and firing his CPA. I’d have to see more culpability before I’d think that he’s unfit for government service.

  2. Brian says at February 5th, 2009 at 12:07 pm :
    I have not heard the accusations you describe, although I’m not sure it’s improper to recommend a friend and colleague for a government job. His employment/compensation was clearly not a prerequisite for such a job (it’s been three years…), and quite frankly, I’d rather he recommend someone he knows & works with than a stranger who’s been through some impersonal vetting process.

    As to the $300,000 and your moral/libertarian objections, I don’t think you have a leg to stand on here. I’m assuming the driver was on-call 24/7 for three years, and that he got a decent salary for it. Then there’s the cost and maintenance of the car, the gas, and parking/storage when it’s not in use. $100,000 per year for a full-time employee plus the car doesn’t strike me as over the top (assuming you can swallow the fact that he actually needed the car in the first place. Here is an old campaign ad touting how he still drives himself around Washington in an old Pontiac. D’oh!!)

    Anyway, it’s a no brainer that when your employer gives you something of monetary value, you have to declare it as income and pay taxes. This is extremely common and not overly complex. It seems obvious to me that since it’s not reported to the IRS on a W-2 form, he felt he could get away with not reporting it and save himself $100K in taxes.

    As for his being unfit for public service – I think that’s the real irony here. He withdrew his name for HHS secretary (and for “Health Czar,” which I figured was the same thing, but is apparently two different jobs), but remains a senator from South Dakota. So he’s still in a position of power. Go figure…

  3. Jeff Porten says at February 6th, 2009 at 1:59 am :
    Um… no, he left the Senate in 2004. But you keep the title for life.

    I’m happy admitting I don’t have legal leg to stand on re the tax issue; this ain’t my forte. Logically, though, it seems like you could pauperize someone by paying little and giving them great benefits, which makes very little sense to me. And the libertarian point is simply that to comply with this law requires giving the government a detailed transactional level accounting of many of your daily activities — I dislike the IRS having Daschle’s mileage and destinations for the same reason I don’t want the NSA having his phone calls.

    Again, though, this seems to me like a simple problem, solved by paying the bill, paying the fines, and firing the accountant. That’s how the tax game is played unless deliberate fraud is alleged, so I still don’t see why this should disqualify him from office. The much better argument is when the guy is nominated for Treasury.

  4. Brian says at February 6th, 2009 at 2:20 am :
    It’s not a privacy issue. Most perks like that are for business purposes only. If he doesn’t want his employer (or the IRS) knowing where he’s going, he’s free to drive himself. Use the corporate driver, though, and your trip is no longer private. Seems fair to me.

    As for “pauperizing” people – yeah, that can be a problem. Most companies avoid that kind of situation by paying the employee a lump sum payment to cover the taxes (after the taxes for the lump sum payment are taken out). That’s what the IMF did for Geithner, which is what made it so odd that he forgot to hand the money over to the IRS…

    There is no doubt in my mind that Daschle knew he was supposed to declare this income (just like anyone who runs a cash business – say, a candy store on a popular Boardwalk – knows they should report the exact amount of cash they take in as income). He just figured he could get away without paying tax on it if he didn’t declare it.

    So yes – pay the bill, pay the fines, pay the interest, and fire the accountant. But also face legal charges – especially when it’s this much money…

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