When will Beltway types learn to pay their taxes?

When will Beltway types learn to pay their taxes?

One would think that anyone in Washington, D.C., who had a high-profile job — or aspired to have one — would be painfully scrupulous about paying his or her income taxes.

Zoe Baird, Bill Clinton’s first pick for attorney general, earned a place in history not by becoming attorney general, but by being disqualified for not paying employment taxes for a nanny she hired. Ten years before that, Democrats delayed the nomination of Ronald Reagan’s attorney general nominee, Edwin Meese, over unpaid interest on a $60,000 loan from a friend.

When someone has been nominated for a Cabinet level position, any skeleton in his or her closet will end up rattling noisily through the halls of Congress.

And yet, already, three of President Barack Obama’s nominees have found themselves in trouble over unpaid taxes; two of them have withdrawn.

Treasury secretary Timothy Geithner was roughed up in his confirmation hearings because of $34,023 in payroll taxes from a two-year stint with the International Monetary Fund. Either he didn’t know or he chose to ignore that Americans who work for international organizations that do not deduct for Social Security are liable for both the employer half and their own half of the federal payroll tax. This is not information that would surprise any tax accountant, and given that Geithner will now oversee the IRS he’s lucky to have won confirmation.

Nancy Killefer, Obama’s choice to be White House performance czar, withdrew over $946 in back taxes, interest and penalties for a brief period when she failed to pay the unemployment compensation tax for her household help.

Former U.S. Sen. Thomas Daschle withdrew from consideration as secretary of Health and Human Services over $140,167 in taxes and interest for, among other things, failing to treat the use of a company-provided car and driver as taxable income.

Some oversight

The average person might wonder how anyone could forget to pay more than $120,000 in taxes owed. We’ve seen no specific report of exactly how much Daschle made during those three years, or how much he paid to the IRS, but he wasn’t an average taxpayer. The Boston Globe reported that Daschle made about $2 million from the Washington law firm Alston & Bird after leaving the Senate and was also on the payroll of a private equity firm, InterMedia Advisors, which paid him $2 million in 2008.

Andrew Johns of the IRS and Joel Slemrod, a professor of economics at the University of Michigan, co-wrote a study on tax non-compliance that found taxpayers earning less than $100,000 misreported net income by 7 percent, while those earning more than $100,000 underreported by 15.2 percent. The highest underreporting was 21 percent, by taxpayers earning between $500,000 and $1 million a year.

By those numbers, Daschle, was almost a model taxpayer. But almost doesn’t cut it for someone aspiring to serve in any president’s cabinet — and certainly not in the cabinet of a president who aspires to set a new standard of accountability and transparency.

Even though everyone inside the Washington Beltway knows that nannygate was the downfall of Zoe Baird, some still haven’t learned the lesson. Indeed, New York City’s former police commissioner, Bernard Kerik, withdrew as President George W. Bush’s Homeland Security secretary nominee in 2004 after it was disclosed that he had hired an illegal immigrant as a nanny-housekeeper and failed to pay employment taxes.

These people either need higher ethics or better accountants, because their tax statements are going to be scoured by the transition teams and Senate committees that vet nominees.

And meanwhile, the IRS might want to take a closer look at a lot of tax returns, especially those in the $500,000-to-$1 million bracket, where Johns and Slemrod found underreporting that dwarfs anything Senate committee staffs have uncovered.