Obama nominee pulls out over tax trouble

by on February 3, 2009 at 11:18 am in Law | Permalink

Which one?  I am more than willing to grant that not every nominee deserves to be appointed to rule over me.  But I'm also worried about the incentives we are producing by applying tougher standards.  Knocking out the caught cheaters won't make all the DC people honest or virtuous.  The long run effect is to select for people who have known — from the very beginning — that they seek power and who are willing to pay money to the taxman to keep that option alive.  We are selecting for people who are very good at covering up their misdeeds.  We're selecting for honest people too.  There's lots of posturing on this issue, but I'm not sure whether the net effect of the crackdown is positive, once you take all these selection effects into account.  There's something to be said for selecting people who are relatively bad at cover-ups. 

There's also something to be said for increasing the wages paid to top appointees, as they do in Singapore.  That would encourage more tax compliance without just selecting for the power seekers.

1 Yancey Ward February 3, 2009 at 11:25 am

Too funny! Of the three so far, her’s was definitely the least objectionable case. Geithner’s was deliberate tax evasion followed by serial perjury. Daschle’s was probably deliberate, too.

2 TC February 3, 2009 at 11:41 am

Tyler, I hope that you are kidding.

Geithner and Daschle quite literally lied. Geithner squeezed by apparently because Summers was too politically tainted.

The former Majority Leader of the Senate should know the tax rules — he voted on them for years, after all. Daschle should not get a pass on this one.

I’m pretty disgusted with the whole thing.

3 Taeyoung February 3, 2009 at 11:45 am

But I’m also worried about the incentives we are producing by applying tougher standards.

What are these standards “tougher” than? If I recall correctly, a couple of Clinton’s nominees were knocked out of consideration for nanny and tax issues that, in retrospect, pale in comparison to Geithner and especially Daschle. I can’t even recall whether nanny and tax issues were uncovered for Bush II nominees (I know one of them — commerce? — was knocked out for something, but I can’t remember what; probably social security taxes for the nanny or hiring illegal immigrants for yardwork or something).

If anything, standards for Obama’s cabinet officials are now considerably laxer than at any time in the past 20 years. I think part of that is that of Obama’s original choices, we’ve already seen one get dinged because the transition team thought he was going to get indicted for corruption. And of course, Blagojevich has been in the news, reminding us all about Illinois politics. That has a way of reframing the debate, so that faults which would have crippled any other President’s nominees seem minor. We can be thankful that at least these nominees aren’t under indictment. Our expectations for the probity of the Obama cabinet have been duly lowered.

4 rb February 3, 2009 at 11:48 am

I hate to ask the dumb question but, what is the “Chief White House Performance Officer”. It appear to be a new position. Do we really need to pay one more person, “to scrutinize government spending.” Maybe the new position should follow her out the door.

5 Kent Guida February 3, 2009 at 11:54 am

What about this signaling business economists are always going on about?
What signals are Obama, the Democrats, the senators who vote to confirm and the media who yawn sending?

6 Andrew February 3, 2009 at 11:56 am

I would only punish Democrats for this. (Not that not getting a government job is a punishment.)

Not for political reasons, but because they are the ones who advocate taxation. Hypocrisy is the least acceptable trait of a ruler.

I don’t think anyone should have to follow their dumb rules. They think only we should have to follow them.

Again, I come down opposite of Tyler based on my mirror image assumptions about the government. I have no problem if the best people don’t enter government. He has “public choice concerns” and I believe that the institution is damn near irredeemable.

7 Common Cents February 3, 2009 at 12:03 pm

As has been pointed out Ms Killefer’s tax issues were bad, but certainly not at the level of Geithner’s and/or Daschle’s issues. Plus, she hasn’t had to perjure herself in a confirmation hearing.

I’m wondering if the White House isn’t signaling to Mr. Daschle the right, honorable and classy thing to do is to withdraw your nomination now.

Also, I’m glad we’re having these tax-nomination issues. It sheds light on just how impossible it is to equally and justly enforce our current tax system.

Want a real economic stimulus package? Scrap payroll/income tax.

8 Bob Montgomery February 3, 2009 at 12:14 pm

But I’m also worried about the incentives we are producing by applying tougher standards.
Is it that hard to find someone who hasn’t cheated on their taxes? That’s the new, tougher standard, that people who want to work for the government have to actually obey the law?

How I hate politicians.

Relatedly, the best political news I’ve heard recently is that Obama is taking Ron Sims away from us here in the NW corner. He may do more in DC, but surely whatever he does there will affect us less here in WA.

9 guy in the veal calf office February 3, 2009 at 12:43 pm

Joe Biden said paying taxes is a patriotic duty and Rangel, Geithner, Daschle, Marc Rich & his patron Bill Clinton, Caroline Kennedy and this lady prove once again that democrats aren’t patriotic.

BTW, last week, the Feds sent 20 agents to ransack and intimdate Greg Anderson’s mother-in-law for alleged tax violations. At least they’ll harrass tax cheats that aren’t powerful.

I echo the comments that point out that low salaries have nothing to do with the Democratic party’s tax cheating virus- Rangel cheated on rental income, Geitner on international wages, and Daschle on $100,000 year fringe benefits while “consulting” for lobbyists.

10 Speedmaster February 3, 2009 at 1:09 pm

And now Daschle is out! Hope and change. 😉

11 meter February 3, 2009 at 1:13 pm

Most of these comments suck – especially Andrew’s (what else is new) – but I share outrage at the hypocrisy, especially re: Geithner.

12 Allan February 3, 2009 at 1:28 pm

The problem is not that we pay public officials too little. It is that we pay private sector guys too much. But it is a market issue. There are 500 CEOs of Fortune 500 companies. And, maybe there are 10,000 people at the high executive level. With 300,000,000 people in this country, is the labor market so small that we can only hire one of the 10,000?

If so, then the market is working.

But I suspect not. Whether someone moves up the ranks is just as dependent on school or family ties as it is on performance (in my view).

I would encourage expanding the labor pool, so that wages are lower in the private sector (caused by market forces), rather than increasing federal government salaries.

13 Barbar February 3, 2009 at 1:39 pm

Occasionally Tyler puts up a post whose main effect is to make me think, “Man, there are a lot of things about which economists have absolutely nothing to say, so why do they bother to try?” His post on closing Gitmo is one example; this post is another. The issues here are perfectly clear to the layman: many people behave poorly when they think no one is watching. This idea that we need to pay more money to public officials so that they will no longer have incentives to dodge over $100,000 in taxes for *having a driver* is pretty desperate barrel-scraping.

14 Randy February 3, 2009 at 1:46 pm

Question; If the limo service was a “gift”, why is Daschle supposed to pay the tax on it? I thought that it was the responsibility of the giver to pay the gift tax.

15 Common Cents February 3, 2009 at 2:01 pm

Only additional comment I’ll make to Mr. Daschle’s withdrawal is …. he should have kept his money, cash is king.

16 Kent Guida February 3, 2009 at 2:30 pm

Who is more clueless about this, the Obama administration or economists?

17 Hopefully Anonymous February 3, 2009 at 2:50 pm

Barbar, I agree in that it takes a good suggestion and seemingly maliciously tarnishes it with a weak supporting reason.

Pay to attract top talent to government administration is a great idea, in my opinion. But I think it should in large part be performance pay (think of how the UFC and some professional sports does it, not how Wall Street has been doing it).

18 pmp February 3, 2009 at 3:07 pm

We need a law that’s transparent, fair, and easy-to-follow.

If we had such a law–say, a flat income tax or a flat consumption tax–it would be very easy to tell the honest people from the crooks.

Today, the law is so complex that some honest people look like crooks and vice versa!

19 Jason February 3, 2009 at 3:29 pm

Given the general Libertarian view point on taxes, I would think that one would not be so upset about tax evasion.

To be honest, every single person tries to do things to lower their tax bill. Some people end up stepping too far.

I for one, don’t care that much about someone trying to avoid paying taxes. The people who do are generally the people being grossly abused by the tax system. If your in the top 50% of income earners in the US, there is no way possible you are getting your money’s worth in taxes. Good for them for avoiding legalized theft.

20 bjk February 3, 2009 at 4:00 pm

Concern troll post.

21 Jule Herbert February 3, 2009 at 4:31 pm

I am having a little difficulty in figuring out why Daschle has an additional tax liability. As I understand the story, he has a consulting (lobbying) job with “old friend† and he was being compensated for it. Old friend lets Daschle use driver/company car, and Daschle failed to report as income this “perk.† Now Daschle must pay for the perk, but doesn’t get to offset this by the expense of the perk.

Suppose the perk costs in salary/depreciation/expenses $800 per day. Then Daschle should have billed for $800 per day and then claimed $800 per day in expenses. What difference does it make if the client pays this directly to the service providers?

22 JDM February 3, 2009 at 4:55 pm

When you appoint a known tax cheat and perjurer as head of the Treasury or HHS, other people are going to look at them and think (with some justification) that it’s OK to cheat on their taxes. They’ll also become more cynical about government. These are the things you need to worry about, not the absurd worry that we’re going to be selecting for power mongers and people who are good at cover-ups.

A disappointing post.

23 Yancey Ward February 3, 2009 at 5:33 pm


It appears that the use of the car and driver was for anytime Daschle wanted to use them, even when he wasn’t actually doing his job, and it appears he made full use of this benefit. This counts as a form of taxable compensation.

24 Superheater February 3, 2009 at 8:46 pm

Given the general Libertarian view point on taxes, I would think that one would not be so upset about tax evasion.

Tax avoidance, the use of LEGAL methods to MINIMIZE a tax liability, would be, applauded by anyone. Why you would think libertarians would applaud Tax evasion, the use of illegal methods to avoid payment isn’t clear. Anarchists, yes.

25 Chase February 3, 2009 at 11:25 pm

Tyler, I used to read your blog a lot, but this post reminded me of why I stopped. When has it been anyone’s goal to “make all the DC people honest or virtuous?” Not even Obama. So why such a high, impossible standard? You have to know that making that standard the benchmark is ludicrous. People want “more” accountability, not perfection. You’re “not sure whether the net effect of the crackdown is positive?” Huh? This statement makes no sense because Obama campaigned on more accountability! Would a 4-year distrust of Obama be a long-term positive simply because he refused to live up to the ethical standards he campaigned on? He would have huge problems being an effective President. Please Tyler, you make it seem as if these nominees are supermen, and can’t be replaced. There are plenty of people who don’t cheat on their taxes who are nominated for posts. Plenty who were not seeking “power and who are willing to pay money to the taxman to keep that option alive.” Ever heard of Colin Powell?

26 tom February 4, 2009 at 10:16 am

There’s also something to be said for increasing the wages paid to top appointees, as they do in Singapore. That would encourage more tax compliance without just selecting for the power seekers.

Dachle was making $5 mil a year when he failed to pay his taxes. So how much more would he have to be paid to get him to pay his taxes?

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