The number of smart, well-paid people President Obama has nominated to high government positions who have run into trouble over nonpayment of taxes mystifies tax-policy experts and infuriates taxpayers.
At last count, there were three, plus a fourth nominee’s husband, who had not paid income taxes they owed until they were picked for their jobs — embarrassing Mr. Obama and his party, raising troubling questions about his personnel-vetting process and handing the Republicans potent political ammunition to use against the Democrats.
“It is easy for the other side to advocate higher taxes because you know what? They don’t pay them,” House Minority Whip Eric Cantor of Virginia told a Republican strategy retreat last weekend.
Few things anger Americans more than people who do not pay their taxes. A poll released by the Internal Revenue Service on Friday said 89 percent of Americans believe it is “not at all acceptable” to cheat the tax-collection agency, the highest level recorded since the survey began in 2002.
More than eight out of 10 said the value they placed on their personal integrity has had a “great deal of influence” over whether they reported and paid their taxes honestly, the IRS said. The poll of 1,000 Americans, conducted last summer, was released after two of Mr. Obama’s nominees withdrew last week.
“It’s certainly created an appearance problem. At a time when Americans are making lots of sacrifices and are concerned about their finances, they see their nominated leaders apparently making decisions or neglecting to make decisions [about paying their taxes], while they are taking responsibility for their personal finances,” said Massie Ritsch, communications director at the Center for Responsive Politics, a nonpartisan research group.
“It is hard for most Americans to relate to someone who owes more in taxes than the average person makes in a year or two years,” Mr. Ritsch said.
Other administrations have had tax problems. President Clinton nominated at least four people to high office who owed back taxes for domestic help or other reasons. But Mr. Obama ran into a quick succession of them, two of whom owed substantial sums, including interest and penalties, to the U.S. Treasury:
• Timothy Geithner, who oversees the IRS in his position as Treasury secretary, had failed to pay $34,000 in taxes he owed the IRS until he was nominated. He was confirmed anyway.
• Former Senate Democratic leader Tom Daschle, nominated to be health and human services secretary, had put off paying $128,000 in taxes until he was offered the job. He withdrew last week.
• Nancy Killefer, picked to be Mr. Obama’s chief performance officer, had a lien placed on her home when she hadn’t paid taxes for domestic help. She withdrew last week.
• Sam Sayyad, the husband of Rep. Hilda L. Solis of California, Mr. Obama’s nominee for labor secretary, has just paid $6,400 to settle tax liens on his business for unpaid back taxes that had been outstanding for 16 years. The Senate put her nomination on hold.
A variety of excuses have been forthcoming from the nominees — from ignorance of the law to human error — but public-policy analysts, presidential scholars and ethics lawyers are at a loss to explain how such highly educated people in high positions of authority can end up in such a fix.
“I don’t have a good answer to that question,” said Thomas Mann, senior fellow for governance studies at the Brookings Institution.
“One possibility: I bet a significant percentage, 10 [percent] to 20 percent, of itemized tax returns have errors, many of which are inadvertent. Vetters fail to catch many of these errors because the politicians don’t believe they have done anything wrong,” Mr. Mann said.
But others find it inexplicable how Mr. Geithner, the former president the Federal Reserve Bank of New York, did not pay his back taxes until he was named to head the Treasury Department. Or that Mr. Daschle, who served on the tax-writing Senate Finance Committee, didn’t know that when he was provided with the services of car and chauffeur, that he had to pay taxes on the more than $200,000 it cost his benefactor.
“These are mystifying situations. We don’t know Daschle’s tax preparer knew he had a car and driver. We also know there was a tax problem back in June, but he didn’t do anything about it until the end of the year,” said Jan Baran, a Washington lawyer who handles campaign-finance law cases and other ethical issues.
“It’s ironic, but it seems that the most successful tax collection is simply being nominated to the Obama administration. It seems to be more effective than IRS audits,” Mr. Baran said.
The IRS says that of 130 million tax returns, an estimated 17 percent of taxpayers do not pay everything they owe.
“The total tax gap among corporations, small businesses and individuals who filed their taxes but failed to pay what they owe totaled $345 billion, according to our data for 2001, the last year for which statistics are available,” said Bruce Friedland, a spokesman for the IRS.
Relatively few tax cheaters get caught because the IRS audits just 1 percent of all tax filers. Only 2,472 Americans were caught and convicted of violating tax laws last year, or just .002 percent, according to bookkeeperlist.com.
“These statistics demonstrate that our tax system is very dependent on voluntary compliance. When the public sees officials in nonvoluntary compliance when they pay their taxes, the public gets infuriated. I think there is a lot of pent-up fury,” Mr. Baran said.
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