Blogs and Stories
Why Geithner Was Worse Than Daschle
L To R: Chip Somodevilla / Getty Images; David Zalubowski / AP Photo
The Pulitzer Prize-winning reporting team—and authors of The Great American Tax Dodge—on the breakdown of America’s tax system—and why Timothy Geithner’s lapses were far more egregious than Tom Daschle’s.
The tax troubles of some of President Obama’s Cabinet nominees have exposed one of Washington’s dirty little secrets: Tax avoidance, error and fraud are out of control.
The terms "taxpayer error" and "taxpayer mistake" have become convenient ways to describe the complete breakdown of the American tax system. By our own rough estimate, as much as $600 billion—more than two-thirds of the government’s stimulus package—is lost each year as a result of tax fraud and avoidance.
Geithner actually acknowledged years ago that he owed the taxes—but didn’t pay them until he was nominated for the Treasury job. That hardly counts as a mistake.
But don’t look for Congress to order the IRS to begin collecting. For a quarter-century, lawmakers have toiled tirelessly to discourage enforcement of the Internal Revenue Code. Thomas F. Daschle and Treasury Secretary Timothy F. Geithner are the latest poster boys for the success of that campaign.
But their offenses were not equal. Despite the fact that Geithner sailed through the confirmation process—while Daschle went up in flames—Geithner’s tax troubles were actually far more egregious. People tend to give Geithner a pass, because the overall amount he owed was smaller and it just involved Social Security and Medicare, rather than income tax. But Geithner actually acknowledged years ago that he owed the taxes—but didn’t pay them until he was nominated for the Treasury job. That hardly counts as a mistake.
Daschle, for his part, failed to count as income the value of a car and driver he received from a New York private-equity firm, InterMedia Advisors, during 2005-2007. He also overstated charitable contributions and understated income from InterMedia, which paid him $1 million a year. Daschle filed amended tax returns last month reporting $128,203 in additional taxes and $11,964 in interest. The revised tax returns were submitted after President Obama announced that he intended to nominate Daschle to be secretary of Health and Human Services.
Geithner’s situation was nonetheless a bigger ethical lapse. As an employee of the International Monetary Fund in 2001 and later years, Geithner was responsible for sending a check to the IRS to cover his own payroll taxes. He didn’t do so. What he did do was submit a request to the IMF for reimbursement of those taxes. And he collected.
According to the Senate Finance Committee, Geithner “filled out, signed and submitted an annual tax-allowance request with the IMF that states, ‘I wish to apply for tax allowance of US federal and state income taxes and the difference between the ‘self-employed’ and ‘employed’ obligation of the US Social Security tax which I will pay on my Fund income.’” In other words, Geithner—now charged with making sure Americans obey the tax laws—was given money by his employer to pay his taxes, but then didn't pay them. Not until, that is, he decided to become Treasury secretary.
John Talks Joe
Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
The Right Dumps Carrie
Jacob Bernstein is a senior reporter at The Daily Beast. Previously, he was a features writer at WWD and W Magazine. He has also written for New York magazine, Paper, and The Huffington Post.
Geithner's Stock Plummeting
Jeff Madrick is a contributor to the New York Review of Books and a former economics columnist for the New York Times. He is editor of Challenge Magazine, visiting professor of humanities at Cooper Union, and senior fellow at the New School's Schwartz Center for Economic Policy Analysis. He is the author of Taking America, The End of Affluence (Random House) and The Case for Big Government.
Good article, for once.
It's hard to understand how a 5-digit figure can be overlooked, and then chalked up to a simple "mistake." If anyone I knew left $42,000 off their filing, their life would probably become a living hell for the next few years. People like Geithner and Daschle just say oopsie and quietly pay it back.
Disgusting. Maybe some little good will come out of this, like stricter enforcement and streamlined tax laws. But that's asking a lot from the incestuous world of Washington.
This user is no longer registered.
I agree -- interesting read, and yes, Geithner was worse. I think the resignations this week were really a result of the bad luck timing / cumulative effect -- they they had been up first, they would have slipped through instead. Not that I'm excusing them. But what Geithner did -- where he actually collected reimbursement for the taxes (proving he clearly understood the need to pay them as well) then pocketed the money is criminally bad behavior and it is a disgrace that he's our Treasury Sec. He is Obama's worst appointment, not just because of this but because he really was already part of the problem he's allegedly working to fix in the first place, as well as a key player in the mistakes up to this point during the Bush term in addressing it. We needed fresher, less Wall Street-connected blood than him and instead got an insider who's also a cheat.
Geithner, worse than Daschle? What about President Obama who nominated both and stood-by both in spite of their criminal activity? Remember, Daschle took himself out, not President Obama. You guys drone on about these common tax cheats of which there are by your own estimates--millions while President Obama glides through the days screwing-up left and right, promising tax refunds to people who pay no taxes, and then wandering off to act like a dufus on foreign television. Earth-to-journalists--we have a President who has no idea what he's doing or what he's talking about.
Economists for years have said that the current tax system is a joke. The idea of a graduated flat-tax rate on both corporate and private income would be revenue neutral in its first two years, then revenue positive thereafter. Adoption of this plan, which closes loopholes for everything except catastrophic medical expense, but redueces the tax paid by individuals and corporations, would actually discourage fraud and increase tax revenue. While the amounts paid by both individuals and corporations would be smaller, there would be less opportunity for fraud because there would be far fewer write-offs, line-item deductions, and faliures to pay. This would increase the amount of tqax actually paid. Moreoever, coporations that outsource to foreign countries and hide the profits should not be able to escape paying US taxes on money made abroad.
The tax code is a joke. A multi-billion dollar industry exists simply to interpret and manipulate it. The rich can get away without paying taxes because they can afford to pay CPA's and lawyers to get them out of it. Corporations get away withoiut paying proper taxes for the same reason. This needs to change, or the proveribila bakc of the middle-class will be broken beyond compare. Right now, the average US citizen pays 47% of his/her income in taxes of one form or another. If the tax code were changed, he/she would pay a smaller amount, but more people would pay, thus creating more tax revenue. Write your congressperson, folks. We need some help here!
Simply put - this is unfair to people like me and my family, who work hard and pay our taxes to help provide for the protection and services from the government. Geithner should step down and the wealthy should pay their fair share or say hello to the US in the 21st century, a colony of China.
Geitner and Dashchle should have both withdrawn. It is these men Geitner who we are once again putting faith in to do the right thing. Daschle should know better since he has been in DC for some time. Finally, it is break of trust, and respect for President Obama. The President is trying his best to put America on track and these clowns are still working the system they way they aways do which has resulted in this economic meltdown. President Obama is a better man than I, but I continue to hope for change, hope that I could show some tolerence for men who disrespect the office of the President
njnoecker,
Your response is simple a mean spirited response. One of the elements of this process is that it is about disclosure. President Obama and his team asks for full disclosure and respect that the men/women asked will be forthright. These are not men who just got on the block, they are seasoned professionals. So they were not paying taxes under George W. I do not fault the President for believing the words of what he thought were ethical men and women. This is the "hope for change" we need to have people who will tell the whole truth and not just the parts that they like.
This was a terrific article; it was as though the authors read my mind. I've been smouldering with resentment over this Geithner thing for weeks now. I'm a single parent with three children, and I know there would be no mercy for me if I dared to not pay my taxes. Geithner is a disgrace. He looks like Eddie Haskell from "Leave it to Beaver" in the online edition of The NY Times this morning. His Uriah Heepish manner even makes the whole situation worse. Where is Obama's vaunted "judgement"? I think President Obama is in over his head.
This user is no longer registered.
Geithner was audited in 2005 and paid self employment tax for 2006 and 2006. He most likely did not pay 2003 and 2004 because the statute of limitations for collection had lapsed. The Obama vetting team pushed him to pay them nevertheless.
They're both tax cheats, but I am most offended by Daschle who sat on the committee that wrote tax laws that bind the rest of us.
The IRS doesn't seem to go after those in the upper bracket (unless scandel forces their hand), but let me assure you they do come after you if you make between 30-60K per year, and they come fast.
Now I have filed taxes every year on time since I was 15 yrs old (a long time ago). I didn't file (due to circumstances) in 2006... by the time 2007 tax time came around, the IRS had already sent me a nasty-gram. Now I was already preparing returns for both years, but still.
When I read about these guys skipping out for years it is a tad frustrating. The Tax Code needs overhauling; a flat tax with NO loopholes needs to be passed, and the IRS needs to get off its collective bureauocratic arse and do its job.
I just read an article the other day saying the exact
opposite because Geither's was a much more obscure process error since his employer was exempt from paying parole tax and he had to file it as an individual. Daschle's was an obvious omission of gain.
Regarding our income tax system, I am going to suggest what we need to do, why we need to do it, and why it will never, ever happen.
Our system of income taxation needs massive simplification. Inadequate enforcement, as the above article suggests, is not the problem. Lack of compliance, especially by putative government servants, is not the problem. Our collective inability to comply with the tax code lay at the root of the matter. By inability, I mean that it cannot be done. It's a mission impossible.
Geithner, Daschel et al. should be the poster children tax reform, not the whipping boys for the latest political faux pas.They are smart, they have money, they have the best people working for them. But they don't do their own taxes. They hire people to prepare their tax returns for them. Why? They choose to have a life and career aside from being a slave to knowing and applying the intricacies and minutiae of the Internal Revenue Code. The real crime, the real story, is that Geithner and Daschel and most Americans along with them are incapable of really getting their taxes right even with a good faith effort.
Do you need evidence for this assertion? How many nationally branded tax preparation services and products can you name off the top of your head? H&R Block. Jackson Hewitt. Liberty. TurboTax. TaxCut. The marketplace obviously believes we all need help doing our taxes. In my modestly city of about 100,000, the phone book lists almost 40 accounting firms. That's about 2,500 people (and half as many households) for roughly each accountant. And the bean counters aren't just doing double entry bookkeeping; they're doing taxes. I have and MBA and a law degree. I studied individual and corporate taxation. I gave up doing my own taxes years ago because it took days to do, even with a good software program (TurboTax). Concepts like "frustrating" and "waste of time" and "I'll bet I'm still paying more taxes than I should" and "I'm still not sure I'd pass an audit" danced in the back of my mind. Doing one's own taxes, if there is any way to avoid it, is a thing of the past, an Atari console in a Wii world.
One can easily wax eloquent on the sheer volume and complexity of the tax code. I'll leave that argument to your own imagination, but let me suggest a few adjectives to spice up your narrative: byzantine, labyrinth, spider's web, incomprehensible, gluttonous, excessive, oppressive, verbose, imperial, arcane, and "trap for the unwary".
Consider tax compliance by an archetypal tripartite: a head of household/home owner; a small business owner/self-employed; a mega-corporate firm. Average Joe and Average Joan know intuitively that they are getting screwed (what's the polite word for that?). Most of the deductions the government gives with the right hand it takes away with the left. Here's a few recollections off the top of my head. Isn't the threshold minimum for a medical deduction 7�%? By the time you get to take the deduction, you're bankrupt anyway. To take a mileage deduction for business use of your personal automobile, don't you have to keep a log of the mileage? Who does that, really? Aren't may of the itemized deductions capped (or floored) depending on your AGI? Could you really survive a full blown audit unscathed? And I suspect most AJs don't itemize, anyway. That means most average Americans are paying more in taxes than they are legally required.
The self-employed and small business owners have it worse. They don't have the option of a 1040 EZ. They are required to comply with the alternative, i.e. the more complicated set of rules. And they pay more taxes than the AJs. Where AJ's employer may pay a matching portion of a tax, a self-employed individual pays both halves. Even where a business owner has no employees, that taxpayer still must account for and pay earnings deductions for income tax, Medicare, Medicaid, Social Security and in some cases unemployment and workers compensation. Unemployment and worker's comp with no employee, you ask?? Yes, in many cases. What you may see as an independent contractor the government may define by fiat as an employee. You think your local dry cleaner does all this herself? No. That's why we have 40 accounting firms in my town.
Finally consider the really, really big businesses, the ones that advertise on national television and hire and fire tens of thousands at one swoop. They do double duty. They have both their own internal account firms (a department) and still find it necessary to hire outside auditors and tax advisers. One the one hand they want to make sure they comply (so they can survive an audit) and on the other they want to make sure they take advantage of every deduction and every loophole possible. Oh, they also pay for lobbyist. That way they get special loopholes written into the tax code just for them. Sigh. How sweet.
The real injustices of the tax system are its inevitable by-products: fear, resentment and cost. In the back of our collective minds, we fear a tax audit, we fear penalties and interest, and we fear the possibility of going to jail if we really screwed up, even innocently. (There's that word again.) We resent knowing that the rich and the big can afford to find every deduction and loophole conceivably possible and can afford to lobby for more while most regular Americans (having rudimentally run the cost/benefits analysis) opt for the perennial 1040 EZ. And we all pay the cost, directly or indirectly. We pay in time doing our taxes. We pay for products and services to help us do our taxes. And we pay the increased costs passed through to us by your local dry cleaner and mega international product/service provider.
And that last point is why meaningful tax reform will never happen. In a phrase, its in the vested interest of too many people to drastically simplify the tax code. Consider the impact on your local economy and the national economy if we no longer needed all those accountants, all those tax preparation providers and products, all those corporate bean counters and auditors, and (heaven forbid) all those lobbyist to help us through tax season. Unemployment would double and GDP would plummet.
How did we let this happen in the first place? How did we become so dependant on so artificial a contrivance as a tax code? It's more than a shame and a waste of otherwise productive resources and talented individuals. It's a sin. And we all are paying our penance without prospect of redemption. Do we really want to continue to live like this?
Well, now we know how to fund the recovery -- fund the IRS to clean up the tax loopholes and collect the arrears!!!! $600 billion a year!!!! That just makes me sick. If you stack all those bills up one on top of each other that has to be 400 miles tall stack! if a trillion is 639 miles tall, as Sen Thune (R SD) showed on the floor of the senate yesterday.
Fix the IRS!! I am not advocating a punitive system that tosses confused and ignorant out on the street for a honest errors or ignorance but clearly there can be a way to collect taxes and prosecute the criminals perhaps build in an ombudsman process to protect the honestly ignorant or misled.
"By our own rough estimate, as much as $600 billion-more than two-thirds of the government's stimulus package-is lost each year as a result of tax fraud and avoidance."
Very good article. Geithner should never have been chosen by Obama in the first place and never confirmed by the Senate. Obama should fire him as Geithner is an uneccessary negative in the first two weeks of a new administration. Once again, Obama looks like a hypocrite. Obama is not off to a good start, he's exhibiting poor judgment in many of his staff appointments, he's flip flopping on "buy American" a major campaign promise, he's hypocritical on "no lobbyists" will work in his administration, except for the twelve or more he really, really needs. The Democrats really missed a major opportunity, we could have and should have had Hillary as our President.
maddymappo, I'm not sure what you read and I grant that I may not have all the facts, but to the extent they have been widely published I don't see how you come to that conclusion. First of all, to Geithner, the need to file payroll taxes as an independent contractor is not an obscure process -- it is well known by anyone who has worked as an independent contractor as he was. Ask around to any friend you have who is one. And for the sake of argument, assume it was obscure. That's fine. But the company then specificaly educated him on the need to file these taxes, according to documents, and more importantly he demonstrated his express knowledge of the need to file when he submitted an expense report asking the IMF to cover the cost of his filing those specific taxes. Then he pocketed the money they paid him for that exact purpose. So he both cheated the public and committed fraud with the company for which he was consulting. As to Daschle, the "income" he didn't file on was not cash but the implied fair value of receiving rides from a friends limo as a form of compensation. But since he was consulting for his friends company, technically any service he received was compensation. This idea that you have to think of any and everything done for you then go seek out the dollar value of it is much less obvious and more obscure than the widely known need to self-file payroll taxes as an independent consultant, especially in this "gig economy." For example, let's say your friend and the head of the company gives you a really nice bottle of wine for the holidays as a gift. If he expenses the bottle to the company and you are on the companies payroll, guess what, it is compensation. He can have the company cover the taxes but if he doesn't, you need to pay them. And them failing to inform you does not get you off the hook technically. We face this problem every year -- we give some of our contractors small gifts at the holidays and then have to deal with the tax implications of that "compensation."
Geithner sounds like the typical sleezy Washington insider who cheats and then whimpers and grovels after he gets caught.
. . . and that facial expression in his photo.
Like a puppy who relieved himself
on the expensive family rug, hoping his owner
doesn't smell it or find it.
I have always told my children that if you want to get someone to do a job, find someone that does not know it can't be done so they go ahead & do it. Obama has a great crew to fix Wall Street "EXCEPT" for one small thing, THEY ALL HELPED SCREW IT UP & THEY ALL MADE BILLIONS FROM THE SCREW UP'S THEY HELPED CREATE" If this is change we can believe in the real screw up was with people like me who really believed Obama would change things... When I saw the Confederate Congress republicans support all of them, I new the Country was in for more of the same Bush, Clinton "the hell with the people" thinking when it came to reforming the banks & other Wall Street money problems.... It is truly a shame that Obama is turning out to be the Earl Warren of the progressive movement just as Earl Warren was the nightmare of the republicans.... Maybe some day before the turn of the next century we will truly get a leader that cares about ordinary people & does something for them, rather then leaders that talk about it & do nothing for them....
Steve Forbes campaigned for the presidency on the basis of a flat tax. He made a strong case. But where were the voters? The inertia of the American citizenry is frightening.
These writers are great. Their book, "America: What Went Wrong" is filled with examples of how Reaganomics failed America and the world and the craziness that is "free trade."
What makes me livid with anger is how Daschle could be hired by InterMedia company when he already has a job. He is paid by the people he serves. WTF? How can these guys have all these "side jobs" that conflict with their primary job. This is the kind of thing that Obama needs to stop to save our country.
Don't fall for a flat tax unless the first $50,000 is non taxable. Every person would be allowed to make $50,000 before paying taxes. All heads of households etc. would be eliminated. There would be no allowance for dependents. After 50,000, all income is taxed at 20 percent including capital gains. Corporations overseas would be taxed more heavily than those in the US. Overseas mailboxes would be eliminated. Amazing that Halliburton who made bilions upon billions is now in Dubai. Shameful!
Frankly, Geithner's tax problem was a screw-up, but not THAT big a deal. But I wish he wouldn't look so guilty all the time. Every picture I see of him, he seems to be looking over his shoulder as if somebody's about to figure him out.
And I haven't heard him speak yet. Is that because his voice is still changing?
Calling the PR department--instruct this young man in public life, already. And, Tim, pay the goddamn fees yourself!
Thank you.
As a first time user, your comment has been submitted for review. It can take anywhere from a few hours to a day or two for your comment to be reviewed, depending on the time of week and the volume of comments we receive.
Please log in to leave comments.