Tom Daschle's Tax Problem
I think I actually don't have a problem with Tom Daschle's tax problem.
Instead, I have a problem with the IRS and the taxation of barter income.
Tom Daschle had to pay in excess of $100,000 in back taxes because he used a car and driver employed by a friend of his. The way the IRS sees it, Daschle got a service worth over $300,000 for free and thus has to pay taxes on it.
You can give away money or services to people tax free but only if it's worth less than $15,000. Now there are all sorts of good reasons for this -- since money is really a means to get goods and services, some people could find a way to live uber-wealthy lives by not accepting cash payments for their services. The gift tax limits also keep people from avoiding estate taxes just by giving large assets to their heirs before they die.
But we can still accomplish those goals without having a tax code that creates absurd situations like what happened to Daschle. For one thing, taxes have already been paid for the car and driver. The driver's employer pays certain taxes to employ the driver and the driver pays taxes on his income. Those taxes are paid no matter who the driver is driving around.
The IRS sees this as Daschle getting something for nothing and so he should have to pay taxes on it. Okay, but is that truly necessary? $100,000 is a lot of money. If Daschle's friend offered me the unlimited use of his car and driver, does the IRS believe that I should have to turn him down because I can't afford to pay taxes on the service? That's patently absurd since the service is not a liquid security. The only way to monetize the service would be to take the gift and then charge other people to use the driver i have access to. But if I did that, I'd pay taxes on the income I made in that scheme.
Daschle really didn't do anything wrong and the Treasury should send him his money back with an apology. The IRS shouldn't tax barter arrangements unless somebody is living a lavish lifestyle that's more than 3/4s funded by barter or there's good reason to think that a wealth transfer or estate planning issue is involved (ie, I give away an operating business to somebody).
Every time these tax issues creep up we wag our fingers at the politicians. But maybe, sometimes, the tax code is at fault.
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Thanks for shedding some meaningful light on this, Destor.
February 1, 2009 11:31 AM | Reply | Permalink
I guess if someone offered me a car and driver I might feel differently but alas, instead I've been trying to keep the old car going in -20 degree weather, filling the tires with air, navigating the icy roads, paying the ridiculous repair bills, and I don't feel one bit of sympathy for Tom Daschle. He did indeed get something for nothing and if you add up what you've been paying for your car and its maintenance and the stress of your commutes you ought to figure that out.
He's no loss. He's in bed with insurance companies and will not fight for a strong health bill.
February 1, 2009 11:56 AM | Reply | Permalink
I see what you're saying, bluebell. But I kind of wonder if we really need the IRS to get a piece EVERY time somebody gets something for nothing.
As for Daschle and healthcare reform... that's another issue, for sure.
February 1, 2009 12:12 PM | Reply | Permalink
Huh!!!
Services have value and nobody gives them away. The recipient of a service is taxed based upon the transfer of the value of the service from one person to another. You can't not tax this without destroying a major underlying rationale for taxation to begin with. In every transaction where value is transferred government gets a piece. Without that mechanism government wouldn't be able to provide squat for citizens.
February 1, 2009 12:16 PM | Reply | Permalink
I see what you're saying but services aren't liquid assets. There should be some discount rate. $100,000 in taxes for what Daschle got seems excessive to me. He could have taken luxury helicopter rides everywhere for a year for what he paid in taxes for a car and driver.
February 1, 2009 12:26 PM | Reply | Permalink
Wall Street sells services. Do you think they should have those services discounted for purposes of taxation?
February 1, 2009 8:04 PM | Reply | Permalink
Well, some of those services actually are tax deductible for either you or your employer. Hence the entire 401(k) system.
And businesses do get to deduct expenses and I think that does indeed include hiring an investment banker to engineer a merger for you. So... a lot of services are already tax deductible if not tax free. I'm not in completely foreign territory here. :)
February 1, 2009 9:19 PM | Reply | Permalink
Tax deductible is one thing. Discounting the value of those services is quite another. It is a slippery fish to filet.
Where you seek to modify how services (or anything else) are taxed opens up a can of worms that invites influential parties to inappropriately introduce inequities.
We already have those aplenty, so inviting more is not better. Changes to our tax code are almost always undertaken at the behest of persons who have the means to influence our legislators. And we know who those persons are, why they are able to exercise influence and what their goal is. In fact, there should be an outright ban against lobbying from major corporations and the financial sector. We know their rationale for doing so and it has absolutely not a thing to do with what is good for the country. Their ability to influence our lawmakers is in large measure the very reason we are in our present fix.
So you can argue about this and change it all you want. But the honest and objective fact is, it is always about someones pocketbook.
February 2, 2009 6:25 AM | Reply | Permalink
Hey Destor, coming from an HR background I couldn't disagree more. Daschle's received a car and a driver as part of compensation for being part of an advisory board, not as a personal gift. Anything that is not used as part of business of the board is a taxable fringe benefit or compensation. It is hard to imagine that even 20% of the car and driver use was for this one board. His 2.1 million in earnings from Intermedia Advisors should have been more than enough to pay out his taxes on the free company car/driver. Or if he didn't want to pay the taxes - reject the benefit (or use it solely for business of the company).
In the real world not of board members and CEOs, sales personnel on a monthly basis have to figure out mileage used for business vs. personal mileage. Payroll figures out what the fringe benefit is and reports it to the IRS. Sales personnel and folks with home offices get audited at a much higher rate to make sure they are not gaming the system.
At least this brings to light that there are more tax cheats at the top of the percentile of earners and maybe the IRS should refocus it's auditing efforts there rather than on middle income earners.
Add to this Daschle's earnings from healthcare interests, and I cannot imagine how his nomination falls in line with Obama's pledge to bring ethics back to Washington. I am no fan of Howie Dean anymore, but I think he'd be a great HHS Secretary. Why is Obama pushing D-Ass-Schill despite his issues on taxes and lobbying? This is not the change Obama promised to bring to Washington.
February 1, 2009 12:32 PM | Reply | Permalink
I'm not exactly sure, but I believe I read that the Bush administration told the IRA to lay off high income people.
I'll try to find out the source of this impression.
Great perspective, as usual Dija.
February 1, 2009 5:20 PM | Reply | Permalink
er, IRS.
Doh!
February 1, 2009 5:21 PM | Reply | Permalink
I think you had it right the first time. ;-)
February 1, 2009 10:20 PM | Reply | Permalink
I very strongly agree with this: "Add to this Daschle's earnings from healthcare interests, and I cannot imagine how his nomination falls in line with Obama's pledge to bring ethics back to Washington."
While I think Matt Taibbi's comments, quoted today by Glenn Greenwald, are in poor taste, I cannot help but agree that Daschle deserves them. See http://www.salon.com/opinion/greenwald/
I worked myself half to death to help Obama carry Florida in hopes my grandchildren can live in a fairer society as adults. I honestly do not think that Daschle is going to make any serious reforms to health care, despite universal agreement that the current system is broken.
February 1, 2009 1:17 PM | Reply | Permalink
This is out of my league and rather than corrupt a good debate on tax policy I'll stay out. I hope it continues. Recommended.
destor and bluebell have opened a sidebar on the larger issue, which is the the value of Daschle to the administration's health care reform agenda. I'd like to wade into this one but later. Folks with more informed perspectives should take the lead.
February 1, 2009 1:34 PM | Reply | Permalink
In one sense he's no worse than anyone else. However, the stupidity and greed involved in his tax evasion is unseemly and does not speak well of him at all. Does this have any bearing on his ability to do the job? No. It does reveal a very unattractive side to him, however, that does not comport with his heretofore "clean" public image. He is not a crimninal, he's just a greedy rich guy. My preference overall would be to have a whole lot less rich guys in policymaking positions overall. I think we'd be better off and our government would be more responsive to the average citizen. In a case like Daschle's we rely only on his memory of what it was like to be a real person and that was decades ago. He has lived a charmed life and has not been close to anyone living in the regular world for decades. One can imagine it might be difficult for a person who has a car and driver supplied for him to go any and everywhere to really understand the life of the average person in today's world. This is not just true for Daschle obviously. In his case it has simply become glaring how unlike the average person he is.
February 1, 2009 1:49 PM | Reply | Permalink
Will this affect any efforts to achieve universal health coverage for all Americans? Or will it affect his performance at HHS? Who is he beholden to, if anyone, for these services he received? Is he just another water carrier for corporate interests? That is my main worry...not the fact that he didn't pay some taxes he owed, even if that is somewhat troubling.
February 1, 2009 1:59 PM | Reply | Permalink
Destor,
I think you’re right that Tom Daschle's “accounting” mistake (not paying taxes on free services from a friend) should not derail his appointment. His appointment should be derailed for the services and income he received not his tax problem. He and his wife have made $millions as tag-team gov/lobbyist lackeys for all kinds of corporate “friends,” including Big Pharma and Insurance whose futures (and stock futures) will be, in large part, in his hands.
And, as Greenwald touched on, Daschle was the leader of the Dem Congress that repeatedly caved to the Bush admin, an SOP continued by Pelosi and Reid. Obama’s “friend and confidant,” has made an art out of lobbying without being a lobbyist and the chauffeured Cadillac was just part of that. When Obama’s big health care program is instituted under Daschle’s guidance, whose interests will be protected: the working poor or insurance and drug companies? As always, it's "too early to tell what Obama will do," but I hope we're not still saying that two or three years from now.
February 1, 2009 2:23 PM | Reply | Permalink
Hey, on the policy issues, I agree with you as far as Daschle is concerned. He's not the best man for the job, so maybe I should be happy for tax problems. But, I think my big issue with this is that when people more powerful than us get caught up in stuff that average Americans get audited for -- average Americans who can't write a six figure check and make it go away -- they never stand up and say "Wait a minute, can we examine the rules here?"
And maybe I'm wrong. Maybe the rules are as they should be. But we should have the debate, I think.
February 1, 2009 4:13 PM | Reply | Permalink
I don’t disagree that a debate about taxes is needed (I would argue that services have become our economy and limiting their taxation would be difficult).
But it’s hard to separate a policy debate (especially a discussion of money and chauffeured Cadillacs) from the issue of Daschle’s appointment and his character. It’s like saying, “You know, Dick Cheney was not totally against gay rights because he had a lesbian daughter” and not expecting a truckload of comments about what Dick Cheney really was about.
I see how we sidetracked your thread though. Still, I think it’s a good discussion and one that is needed in light of many of Obama’s appointments.
February 1, 2009 4:38 PM | Reply | Permalink
Sidetracked threads are usually the best ones. :)
February 1, 2009 6:41 PM | Reply | Permalink
Tax issue aside, the HHS job should go to someone who truly understands the lot of the un- or under-insured. That individual should have no ties to corporate healthcare providers or insurers.
I was lukewarm to Daschle, but willing to give him the benefit of the doubt. It appears he's just another privileged lackey beholden to others.
I can't envision myself having a car and driver under any circumstances -- it's a preposterous notion. That Daschle allows himself to be chauffeured around speaks volumes. He apparently has the same sense of entitlement as all the other corrupt politicians, Wall Street bandits, and corporate thieves. People with that mentality have no place in public service.
February 1, 2009 2:24 PM | Reply | Permalink
It's really about leadership.
If the banksters (rhymes with gangsters), who are our economic leaders, lie, cheat and steal, why shouldn't I. If they can default on their obligations while paying themselves big bonuses for doing so, why SHOULD I pay my credit card bill or make my mortgage payment when my house is underwater?
If the Secretary of the Treasury and the Secretary of Health and Human Services don't pay their taxes, why should I pay mine?
After all, these guys are the ones making the rules. If they don't want to follow the rules they make, why should anyone else?
A good leader does not demand that others do what he is unwilling or afraid to do.
More than the laws they make, or the agencies they administer, our leaders govern by the example they set.
February 1, 2009 2:35 PM | Reply | Permalink
I very much agree with that. Which is why that I thought Geithner and now Daschle should open up a conversation about this. They should have the guts to say, "You know, I screwed this up but... is this really the way it should be?" Neither had the guts to do that and that is a problem.
February 1, 2009 3:20 PM | Reply | Permalink
I was lukewarm to the Daschle appointment, until this tax thing came out. 1st, Geithner, now this...
It's just leaving a bad taste in my mouth.
The Obama Presidency is supposed to be about personal integrity...these tax problems, although perhaps not great enough to keep them being confirmed (although that is probably because the people doing the confirming have similar skeletons in their closets)it takes a bit of the gleam off the new administration.
I was born guilty...if there is a murder in the next county, I'm checking my alibi. I can't believe that these people in Washington, hearing the stories about other people's tax issues, aren't rushing to their accountants in droves, making sure that their houses are in order, in advance of need, rather than waiting until they get caught. The arrogance astounds me, and it makes me sad that the President isn't saying, "thanks, but no thanks," to those who are cutting corners on their taxes. Just as we hold teachers and law enforcement to a higher standard than most, we should be holding our elected officials to a higher standard, as well. Are they mistakes? I have no way of knowing that. But the appearance of impropriety is making me queasy.
February 1, 2009 3:29 PM | Reply | Permalink
That is a good point, still... it's like how after Zoe Baird more than a decade ago, we still, every time an appointment is made, hear about somebody employing a housekeeper who they either didn't pay social security taxes for or didn't have an I-9 form for. Now, I'm always mixed on this because I happen to think that expecting somebody to be responsible for the immigration status of their housekeeper or nanny is unreasonable in the extreme. But... the rules have been out there and they haven't changed. Nobody ever stood up and said, "That rule I broke is stupid, let's change it" or anything like that. So... you're right to ask why the same thing keeps happening, public scandal after public scandal.
The only explanation is that none of these people want to change the rules so that ordinary Americans don't get caught up in them, they just assume they'll never get caught.
February 1, 2009 3:53 PM | Reply | Permalink
I don't think the rules in these instances are the problem. These are folks who are much better educated and much more thoroughly informed on public policy than average folks. I don't believe these are mistakes. Daschle didn't spend all those years in Congress and representing constitutents without knowing the tax law. Though it is possible that you could count the number of people in South Dakota who have a limo and driver on one or two hands.
February 1, 2009 4:50 PM | Reply | Permalink
I agree with you, destor, that the IRS code needs major revision, this rule included. However, in Daschle's case, I'm not as ready to cut him any slack because I have trouble believing this was inadvertent. Even if one believes he himself is not up on the IRS rules, it is simply not credible that he would rely on accountants that are that uninformed. This is not a particularly obscure rule as dijamo pointed out in an earlier comment.
Does anyone else think the timing of this "discovery" just a little bit suspicious? Just happens to coincide with Obama's finally locking up the nomination?
I also have a serious problem with his apparently not informing the Obama people of this issue until weeks after his nomination as HHS secretary, if published reports on this issue can be believed. That is not the transparency that has been promised and is needed.
Finally, I agree with other commenters that he was a suspect nominee in the first place due to his connections to the health care corporate world. If this is what passes as "knowledge of the issue", I'd rather have a smart, honest person who has genuine empathy for those who desperately need decent health insurance coverage with no past experience in health care as HHS secretary.
February 1, 2009 4:41 PM | Reply | Permalink
I like Daschle, destor, but this troubles me. I'm with stilli that it just doesn't pass the smell test, also with Geithner. Plus, the keeping it from Obama. Distressing. Also, while I knew that he had written a book about healthcare, I did not know of his connections with that industry. That, to me, is troubling. Bothersome.
Overall, it's taken away from my enthusiasm for the guy. Now I'm lukewarm.
Good blog, des!
February 1, 2009 5:19 PM | Reply | Permalink
The real problem here is not the Tax Code, or Daschle's inattention to it, it's that he knew of his problem and didn't disclose it.
This is as bad a lapse of judgment as McCain's selection of Gov. Winky.
Daschle has got to be out of there, pronto.
http://www.nytimes.com/2009/02/02/us/politics/02daschle.html?hp
February 1, 2009 5:26 PM | Reply | Permalink
How many of you prepare your own tax returns? The vast majority of American filers depend on someone else, in case that's news to you.
Put all of the information out there--Daschle apparently thought his accountants were taking care of this and that didn't happen.
Business Week used to send out a tax case to a big group of CPAs every year and then audit the returns that were sent back. None of them ever came up with the same amount due. That should tell us all something about our miserable tax code that apparently fits in well over 25 hefty volumes.
I saw this close up in the 1990s when powerful interest groups went after the Clintons and others in their administration. And here we are again and we have liberals, progressives and Democrats who want to cave at the first whiff of a problem.
This is not remotely like the bonuses on Wall Street or the luxurious AGI spa-goers or the folks wanting to luxuriate in a new French jet. I actually heard someone attempt to defend the bonuses on Wall Street by saying the average bonus was $100,000 and that was certainly a "low" figure. Yet, Daschle having CPA's who didn't understand the tax code....or was a bit busy with the Obama campaign and thought his CPA's were handling matters....or his record on progressive issues...all can be dumped as we rush to believe these powerful interest groups.
Some of you were around in the 1990's to witness this crap and you don't recognize it now?
February 1, 2009 5:39 PM | Reply | Permalink
I pay my own taxes and I was also a juror on a tax case that sent a farmer to prison for evading taxes. You sign the tax return. You are responsible. Being a former Senate Majority Leader doesn't make you less competent than a midwestern farmer. Well maybe it does. If he's that incompetent I don't trust him with the future of my healthcare.
February 1, 2009 6:06 PM | Reply | Permalink
Good grief, blue, what you've written is not the point. The world is not this black and white. You believe that Daschle deliberately underpaid his taxes; I don't. It really goes to motive and you believe the worst--and there's nothing abnormal about that since you are certainly the group pessimist.
February 1, 2009 6:23 PM | Reply | Permalink
Hey, I admit to being a total cynic but I've paid taxes for enough decades to find it incredible that a former Majority Leader doesn't know enough about the tax code to know that he had to pay taxes on something like that. Read Greenwald's column about the guy. I never have believed that Obama is any change agent but those of you have bought into that shouldn't be so blind. This guy is not going to go to bat for our healthcare. No way! He'll go to bat for big insurance and we'll be paying taxes to them for healthcare we don't get. But he'll probably get another car and driver.
February 1, 2009 6:40 PM | Reply | Permalink
Paying does not equal knowledge. I've been audited and believe me it increases knowledge; and, nope, I'm actually someone who underreported and got money back after the audit.
Also, CPA's given the same damned information file different numbers; Business Week used to test this annually and for the 20 years I bothered to read about it, there were no two CPAs whose numbers matched out of hundreds that came in every year.
If I have an IRS question, I make a minimum of 5 calls to the IRS to get an answer. I have NEVER had all 5 give me the same answer.
What a simplistic world some of you are acquainted with......
February 1, 2009 7:39 PM | Reply | Permalink
I'm not a pessimist, and I'm always up for giving someone the benefit of the doubt, but jeez, enough already...Do these rich guys just have incompetent accountants, or they just don't don't give the accountant all the info? Why does this happen so often? Why don't the problems others have make them think, hmmmm, if they have to pay taxes on that, maybe I should be paying on (fill in the blank) before I get my you-know-what in the wringer, instead of, well, maybe no one will find out about my (fill in the blank.)
February 1, 2009 7:10 PM | Reply | Permalink
I think this is part of the problem though... the tax code is obviously too complex if you can hire a professional and still get in trouble for the pro's actions.
You asked: "Why do people not see other people paying certain taxes and think that maybe they should too?"
Well, one problem with that is that people also OVERpay their taxes and if you miss a deduction and pay more, the IRS doesn't exactly bend over backwards to get your money back to you. There's a good chance that the person who paid a tax that you didn't is just wrong or has a bad accountant.
The real problem is that taxes shouldn't be so complicated that H&R Block is a public company.
February 1, 2009 7:23 PM | Reply | Permalink
Thomas Friedman was onto something in his column today about the financial crisis. Nobody trusts any institution anymore. Obama's most important task is trying to rebuild trust. He can't do that if he fills his administration with a bunch of hacks.
February 1, 2009 7:23 PM | Reply | Permalink
LEAVE TOMMY ALOOOOOONE!
February 1, 2009 6:20 PM | Reply | Permalink
You sign the tax return. You are responsible.
There it is right there. Why is it so difficult for grown men and women to admit they goofed?
And getting back to destor's original point, I agree...the tax code is practically incoherent to non CPA's. You don't even know half the time if you made a goof until the IRS comes knocking at the door.
Yet, no one in congress seems to want to do anything about it. Yeah, every once in a while somebody throws out the flat tax bone, but it just gets buried over and over again. I don't even know if I'm in favor of a flat tax anyway. Too much discussion about it, never any action, like a lot of issues before us.
I so hope it won't be more of the same.
February 1, 2009 7:26 PM | Reply | Permalink
I'm not sure the Obama team didn't know.
No one's clean in Washington. Rules, exceptions to rules and quid pro quo occupy a vast and blurry gray area that often only comes into focus if there's some ulterior political motive.
I wonder if Daschle is thinking that compared to what some get away with, this tax thing is nothing.
That kind of thinking is the real danger.
February 1, 2009 7:30 PM | Reply | Permalink
Dester, just a suggestion. Give up on the Mexican weed. It is clear from your avatar that you need something with less umph!!!!
February 1, 2009 7:41 PM | Reply | Permalink
I have a suggestion...the IRS should just audit everyone who has made over 1M a year....chances are they cheated, and they could shrink the size of the IRS and get more money back w/o nickle and diming the little guys...just a thought.
February 1, 2009 8:55 PM | Reply | Permalink
Stilli, are you saying that the .1 percent who own forty percent of everything are less than honest? Mitchell and Boehner and Rush and Sean and Glenn tell me they are the only real Americans!!!!
February 1, 2009 9:00 PM | Reply | Permalink
Not only are they honest but they love us and wish us the best.
February 1, 2009 9:51 PM | Reply | Permalink
Yeah, and it's not a pure kinda love either. Nice boa Destor.
February 1, 2009 10:07 PM | Reply | Permalink
Whoooooo!
February 1, 2009 11:17 PM | Reply | Permalink
Stylin' and profilin', whooooo!
February 2, 2009 12:28 AM | Reply | Permalink