Tax Cheats Put White House on the Defensive

Donald Lambro
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Posted: Feb 04, 2009 12:01 AM
Tax Cheats Put White House on the Defensive

WASHINGTON -- It's safe bet that President Barack Obama will not be getting any awards from H&R Block for his administration's ability to sniff out tax dodgers among his Cabinet nominees.

Three nominees in a row, at last count, have run into trouble for nonpayment of taxes. One wiggled through his nomination, but two others have withdrawn, badly tarnishing the Obama presidency and shaking public confidence in his administration.

It was embarrassing enough that Timothy Geithner, President Obama's nominee for Treasury secretary, failed to pay $34,000 in taxes. This guy, after all, was a Federal Reserve president who will oversee the Internal Revenue Service -- whose job is to go after tax deadbeats.

But worse than that, Geithner had put off paying the IRS until November, shortly before Obama named him to the high-level Cabinet post, two years after the IRS brought the troubling tax problems to his attention in 2006.

When the roll was called in the Senate on his nomination, 34 senators voted against confirmation -- an unusually high vote of no confidence for a Treasury secretary -- including Democratic Sen. Tom Harkin of Iowa.

Before that scandal had barely cooled, former Senate Majority Leader Tom Daschle, nominated to be secretary of the Department of Health and Human Services, revealed that he hadn't paid more than $128,000 in back taxes over three years.

Incredibly, Daschle chose to pay what he owed (more than $140,000 with penalties) just six days before his confirmation hearing. Colleagues were stunned by his lame excuse that he didn't know he owed the taxes.

The Senate Finance Committee, which oversees the IRS and the tax code, questioned Daschle behind closed doors Monday to hear their former colleague's explanations for his transgressions. He emerged from the grilling looking ashen-faced. By Tuesday, he withdrew his nomination, saying the uproar of his tax delinquency would only be "a distraction" that would end up hurting a presidency still in its infancy.

Ignorance of the law is no excuse when the average American worker is hauled before the IRS court to explain nonpayment of taxes. But that was part of Daschle's explanation when he was asked why he did not pay the taxes that were long overdue.

He had made more than $5 million in the past two years, reaping more than $220,000 from the healthcare industry that he would oversee as secretary of HHS, and the use of a chauffeured limo whose services are taxed by the IRS as income -- but on which he had paid no taxes.

That service alone was valued at $255,000 in unreported income, the committee's staff investigation found. Failure to report it can be a crime.

Particularly embarrassing to the Obama White House was the huge sum Daschle raked in from the health industry over which he would have official jurisdiction as HHS secretary.

The Health Industry Distributors Association (HIDA) dished out $14,000 for a speech he gave last year, and reminded the South Dakota Democrat of the fat check he received when the group raised concerns about possible Medicare reforms that would affect the healthcare industry.

In a letter, posted on its Web site, the organization reminded Daschle: "As you may recall from speaking to some of our members during HIDA's 2008 Executive Conference in Miami, where you were the keynote speaker, a competitive bidding program will undermine access to quality care for millions of beneficiaries."

But the consulting (i.e., lobbying) Daschle did for the healthcare industry goes much deeper than the large speaking fees he got from the health-insurance industry, drug companies and other healthcare groups.

As part of his work for law firm Alston & Bird in the past two years, he gave "policy advice" to UnitedHealth Group, an insurance conglomerate that assists the Medicaid program and dispenses advice to drug companies.

Obama wanted Daschle to oversee the development of his healthcare-reform program, but in the end he had become a case study in conflicts of interest that turned into an ethical nightmare for the administration.

The third nominee to run into income tax trouble Tuesday was Nancy Killefer, nominated to be a deputy director of the Office of Management and Budget and the administration's chief performance officer. She withdrew her name Tuesday after it came to light that she had mishandled her payroll taxes.

These embarrassing vetting blunders were "really quite stunning for a transition team that has so carefully studied everything that might go wrong," said presidential scholar Stephen Hess at the liberal Brookings Institution.

If any of these tax-evasion cases had broken in a Republican White House, the Democrats would be screaming for a special prosecutor and blocking any vote. The Democrats confirmed Geithner Monday and probably would have confirmed Daschle, too, but he mercifully spared Obama and his party from the bloody Senate battle that would have ensued.

Leona Helmsley, the late New York real-estate diva who went prison for failing to pay her taxes, once famously said, "Only the little people pay taxes." Three high-income tax evaders in a row this week left many people thinking that the Obama Democrats were adopting Helmsley's imperious rule.