Trouble in Paradise

Two of President Obama’s appointees withdrew their nominations yesterday. In both cases the reason for their withdrawal was the exposure of problems with filing and paying taxes. Tom Daschle, the former majority leader of the US Senate, pulled out of consideration to be Secretary of Health and Human Services. His tax faux pas was failing to list the use of a car and driver as compensation when he reported his income. The vehicle was provided to Mr. Daschle by one of the companies he worked for. The rule is pretty simple. If you pay for a car and driver yourself, you can use the milage driven for business purposes as a tax deduction. If you accept a car from someone else, the value of that service is compensation, the same as getting paid.

The other nominee was Nancy Killefer, who had been tapped to become the nation’s Chief Performance Officer. Ms. Killefer, a senior partner at the McKinsey management consulting firm, failed to pay the unemployment insurance premiums on her personal household staff of two assistants and a housekeeper.

This is so rich a situation that one scarcely knows where to begin, but time is short, so I’ll start by venting my spleen on the low hanging fruit.

Chief Performance Officer? What the hell kind of job is that? Apparently someone had the bright idea of creating a new position, based in the White House, tasked with finding and eliminating wasteful spending by the government. ‘Cause having Inspector Generals in every government department wasn’t enough. No, we needed a new government waste czar.

Here’s a little hint for you: the position of Chief Performance Officer is a terrific example of government waste. Criminy, the job title is it’s own punchline.

Now let’s talk about the tax issues, starting with Ms. Killefer’s. This is pretty simple. With household help, such as maids, nannies, drivers, cooks, and personal assistants, the rule is pretty simple: either you pay an independent contractor for services rendered, or you have employees. With independent contractors, they have to deal with the taxes and government paperwork on their own. With employees, you have to deal with those hassles for them. Every small business owner in America has learned that lesson.

I can only guess at why Ms. Killefer did not pay the unemployment insurance for her employees. Perhaps she believed that she did not have enough employees to fall under the requirements of the law. The District of Columbia disagreed. The funny thing is that there are employee leasing firms that will handle all of those messy details for you. Heck, any temp agency could have handled the payroll issues, for a markup of the employees’ wages. Why didn’t she just do that?

By the way, did she provide her employees health insurance? That’s a question I’d like to have answered.

Mr. Daschle apparently had the use of the car and driver for three years before he got around to talking to his accountant about it. The value of those services was about $300,000, based on the amount of taxes paid to settle the issue. By the way, this is the same sort of tax issue that fat cat corporate types run into, when they use the company jet to fly their spouses on vacation. If you use the company vehicle for personal purposes, the cost is income to you. Does that make Mr. Daschle a fat cat corporate type?

One Republican has already quipped: “No wonder the Democrats don’t mind raising taxes. They don’t intend to pay them!”

Now, these were probably unintentional violations of local and Federal laws. Both individuals have admitted they made a mistake and made restitution. But these are supposed to be the best and the brightest, and they can’t figure out how to comply with government requirements.

After all, the incoming administration is pro-government regulation. They believe that more government, not less, is the solution to the nation’s problems, yet some of the very people selected to put new programs in place are not in compliance with the existing regulatory scheme.

How will the rest of us cope, after they’ve had more time to put their agenda into place?