Why tax problems have plagued Team Obama

Treasury Secretary Timothy Geithner speaks at the Treasury Department in Washington, detailing the Obama Administrations plans for the economic recovery. (AP)

It’s been a recurring question about the young Obama administration: Why have so many of its nominees come down with tax problems?

Timothy Geithner, Tom Daschle, Ron Kirk, Nancy Killefer, and a number of others who didn’t make it to the nomination stage — all have been felled, or tainted, by unpaid tax bills ranging from a few hundred dollars to more than $140,000. After the first few cases, Republican Rep. Eric Cantor quipped that “it’s easy for [Democrats] to sit here and advocate higher taxes because — you know what? — they don’t pay them.”

For their part, some Democrats have suggested that the Senate Finance Committee, which investigates nominees before confirmation, has gotten so nit-picky in examining tax returns that good candidates have gone down in flames. “The Finance Committee has gone a bit overboard, and I find it a little striking that a Democratic committee is doing this to a Democratic administration,” one anonymous insider told the Politico recently. “This has been a lot more in-depth and detailed, to the point of being silly.”

Now, we find out that neither Cantor nor the unnamed Democrat was correct. The problem is not with Democrats in general, nor with the Finance Committee in particular. The problem is the Obama White House, which, fully aware of its nominees’ tax issues, decided that those problems were trivial, or that the public wouldn’t care about them, and pushed forward with nominations that in the past would have been quietly shelved.

In little-noticed remarks last week, Sen. Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee, gave us a look inside the confirmation process. Irritated by news reports suggesting the committee had been too hard on Obama’s nominees, Grassley pointed the finger back at the White House.

“I want to stress that the Finance Committee is not doing anything different now from what it has always done under the leadership of either Senator Baucus or me,” Grassley said, referring to Democratic chairman Max Baucus of Montana. “We are vetting nominees for the current administration the same way we vetted nominees for the previous administration.”

“The tax issues of the nominees considered by the committee this year came to be public only because the nominees chose to proceed.”

Grassley said the committee has always requested three years of tax returns from nominees, and always employed experts to review them. And in the past, he added, “many nominees” faced questions based on their tax returns. The reason tax problems seem more prevalent now, Grassley explained, is that in previous administrations those nominees chose to quietly withdraw. Now, they try to stick it out, leading to sometimes embarrassing controversy. “Chairman Baucus and I agree that if a nominee chooses to proceed after tax issues are identified, then the public should be informed of those issues,” Grassley said.

I asked a Senate source close to the nominating process why the troubled nominations kept coming, in spite of the tax problems. “I think it was the administration underestimating what the grassroots folks who elected President Obama were going to object to,” the source told me. With the out-of-touch White House firmly behind the nominees, Senate Democrats got the message that they, too, needed to line up in support. So they did — until they started hearing from outside the Washington bubble. “If you look at Daschle’s experience, he came out of a meeting with members of the committee, and the Democratic members said they supported him,” the insider pointed out. “But on the next day he withdrew.”

So when it comes to tax woes, the White House has no one to blame but itself. Looking at the reports the Finance Committee staff produced on Geithner, Daschle and others, it’s impressive how bipartisan the work has been. Baucus and Grassley appear to be working together quite closely on nominations, and their assessments of nominees’ tax problems have been dry, matter-of-fact, and fair. Some members of Team Obama may believe the senators have gone too far, but it’s a very hard case to make.

So why the complaints? “I think it’s just someone in the administration being completely frustrated by what’s going on with their nominees and then attempting to discredit the process or discourage Baucus and Grassley from doing what they’ve always done before,” my Senate insider told me. “It hasn’t worked.”

-UPDATE: 2:42 pm-

A number of readers have suggested that the tax problems of Obama nominees point to, among other things, the need for a simpler, more rational tax system.  There's a difference of opinion on that, but there's no doubt that the nominees who ran afoul of the IRS should have been doing the things that all other Americans are required to do.  Sen. Grassley addressed this issue when he brought up the statement of a fellow senator (Grassley didn't name names, but it was Republican Lamar Alexander) who complained about "the maze of forms and onerous reviews for nominees."  Here's what Grassley said to that:

"If by “maze of forms” this individual is referring to the IRS Form 1040, then I agree that it is maze-like. But we shouldn’t hold the people who are literally running this country to a lower standard than the more than 130 million individuals and families that file a tax return every year."

At another place in his statement, Grassley also addressed the issue of the basic responsibilities of citizenship that nominees for high office, perhaps more than the average citizen, should observe:

"The Finance Committee has an obligation to thoroughly vet every nominee that comes before it.  Many, if not all, of these individuals will make decisions that will impact the lives of many people.  The purpose of the vetting process is neither to embarrass anyone, nor to further inject politics into the process.  Rather, the purpose of the vetting process is to ensure that nominees may be trusted with the responsibilities that come with serving in a Senate-confirmed position.

By ensuring that these individuals are paying their taxes, something which they should be doing anyway, we are ensuring they are, at a minimum, complying with the rules that in many cases they will help create and administer."

I'd like to thank everyone for their comments today, and I hope you'll be back for future stories. - Byron