The tax woes of politicians

Former Senate Majority Leader Tom Daschle, who withdrew his nomination from President Obama's cabinet due to unpaid taxes.

Tess Vigeland: So here's what we know so far: Protect yourself in an audit by keeping meticulous records. Don't try anything tricky. Make sure you double-check all your math. And I don't think we've mentioned yet that you really, really, really need to sign that baby. But several national politicians in recent years didn't get any of those memos.

We asked Marketplace's David Gura to look at what goes into the creation of a high-profile tax scofflaw.


David Gura: Ah, taxes... The Achilles heel of many a-political nominee:

Tom Daschle: It is a great honor to be nominated to work on an issue that is so close to my heart, leading an organization that touches so many lives.

Buzzer

Tom Daschle, a delinquent tax bill of $150,000. Bye bye head of health and human services post.

Nancy Killefer: I'm deeply honored to be selected as the nation's first chief performance officer, and will do my best to create a government that works better for its citizens.

Buzzer

No taxes filed for household help. Bye bye chief performance officer post for Nancy Killefer.

Even Treasury Secretary Timothy Geithner, the uber-manager of all government revenue in this country, has been in trouble with the Tax Man.

So is there something in the water in Washington, D.C.?

Dana Milbank: Powerful people believe that they can operate by a different set of rules and they just won't get caught.

That's columnist Dana Milbank, the author of a book called "Homo Politicus: The Strange and Scary Tribes that Run Our Government." He says Washington D.C. transforms normal people.

Milbank: Within an alarmingly brief period of time, they become these strange political creatures who suddenly believe that they can operate by a different set of laws than those they write for everybody else in the country to follow.

Others offer a more generous interpretation: Plenty of tax payers make mistakes every year. Difference is, most of us will never have to defend our arithmetic in a Senate hearing room.

Attorney Michael Toner was on George W. Bush's transition team. He says a lot of nominees have tax problems because of who they are and what they do.

Michael Toner: They have for-profit corporations, or they have S-Corp entities, or LLCs, and how is that organized, and in what state are those entities doing business, what kind of business are they doing...

Before they're appointed, nominees fill out paperwork. There are background checks. They hand over financial records. But even with all that scrutiny, Toner says it's impossible for a presidential transition team to catch everything.

Michael Toner: It's tremendous pressure. It's very difficult. And you've just won a national election and been through an exhausting campaign, and now turning, really on a dime, to this short period of time to make these decisions.

Sometimes, nominees do sloppy paperwork or take deductions they shouldn't've. Nancy Killefer ran into trouble with what's known as the "nanny tax." Accountant Clint Stretch from Deloitte says he suspects tens of thousands of people don't withhold Social Security tax for household help, from nannies to house cleaners to gardeners.

Clint Stretch: I think if you went up and down the street in an upper-middle class neighborhood in any city in America and you said, "Do you pay taxes on your nannies?" Most people would say to you, "Are you out of your mind?"

According to Stretch, there are almost four and a half million households with incomes over $200,000. Presumably many of them hire household help. Still, a scant 2 percent withhold Social Security for those wages. But Stretch says many Washingtonians aiming for better gigs pay close attention to their finances.

Stretch: I know a lot of people in this city who are super scrupulous around their taxes because they hope that when the right time comes, they're gonna get nominated for something. And so they really go a little bit overboard.

And he says, when in doubt, call a professional. Remember this exchange, between Senator Chuck Grassley and Tim Geithner, who did his own taxes, on a computer?

Chuck Grassley: Which brand did you use?

Timothy Geithner: Uh, I'll answer that question, senator, but I want to say these are my responsibility, not the tax software responsibility but I used TurboTax to prepare my returns.

Crowd laughs

When tax troubles come to light, a nominee has two choices, Dana Milbank says. Bow out, or apologize and fight on, as Geithner did.

Milbank: You know, if the president wants somebody, they're willing to overlook a little trouble with the TurboTax.

In Washington, I'm David Gura for Marketplace Money.

About the author

David Gura is a reporter for Marketplace, based in the Washington, D.C. bureau.

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