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2009-02-06

Pulitzer Winners Jim Steele and Don Barlett: Geithner Tax Troubles Far More Egregious Than Daschle’s

Guests

James Steele, Contributin editor at Vanity Fair who has been writing about taxes for nearly four decades. Steele and his reporting partner Donald Barlett have won virtually every major national journalism award, including two Pulitzer Prizes and two National Magazine Awards. Their latest article for the Daily Beast is "Why Geithner Was Worse than Daschle." They are the authors of seven books, including The Great American Tax Dodge: How Spiraling Fraud and Avoidance Are Killing Fairness, Destroying the Income Tax, and Costing You.

Donald Barlett, Contributing editor at Vanity Fair who has been writing about taxes for nearly four decades. Barlett and his reporting partner James Steele have won virtually every major national journalism award, including two Pulitzer Prizes and two National Magazine Awards. Their latest article for the Daily Beast is "Why Geithner Was Worse than Daschle." They are the authors of seven books, including The Great American Tax Dodge: How Spiraling Fraud and Avoidance Are Killing Fairness, Destroying the Income Tax, and Costing You.

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Despite problems with unpaid taxes, Treasury Secretary Tim Geithner was confirmed last week, but Tom Daschle, President Obama’s nominee for Health and Human Services, had to withdraw his nomination for his own tax lapses. We speak to the Pulitzer-winning reporting team Jim Steele and Don Barlett on the breakdown of America’s tax system — and why they say Geithner’s lapses were far more egregious than Daschle’s. [includes rush transcript]

Transcript

This is a rush transcript. Copy may not be in its final form.

AMY GOODMAN: President Obama continues to be plagued by the tax problems of several of his nominees to top posts in his administration. Republicans have seized on the issue as an attack line against the Democrats. Representative Eric Cantor of Virginia, the House Republican whip, recently told a party retreat, “It’s easy for the other side to advocate for higher taxes. Because you know what? They don’t pay them.”

The series of nominees with tax problems started with Timothy Geithner. As Treasury secretary, he now oversees the collection of taxes, but he failed to pay $34,000 in taxes until he received the offer of a cabinet job. Then there was Tom Daschle, nominated for secretary of Health and Human Services, even though he neglected to pay $128,000 in taxes until he was nominated. And there was Nancy Killefer, chosen to be the White House chief performance officer. She failed to pay unemployment taxes for a household employee.

Daschle and Killefer withdrew their names from consideration Tuesday after a firestorm in the media and on Capitol Hill. Geithner, on the other hand, was confirmed by the Senate last week.

This is what he told the Senate Treasury Committee at his confirmation hearing.

    TIMOTHY GEITHNER: Senators, before I finish, I want to address directly the concerns many of you have raised about the mistakes I made in preparing my tax returns. These were careless mistakes. They were avoidable mistakes. But they were unintentional. I should have been more careful. I have gone back and corrected these errors and paid what I owed. I want to apologize to the committee for putting you in the position of having to spend so much time on these issues when there is so much pressing business before the country.

AMY GOODMAN: 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. Well, at least that’s the argument my two next guests put forth in their latest article.

Don Barlett and Jim Steele are contributing editors at Vanity Fair who have been writing about taxes for nearly four decades. They have won virtually every major national journalism award, including two Pulitzer Prizes, two National Magazine Awards. Their latest article appears in thedailybeast.com. It’s called "Why Geithner Was Worse than Daschle." They are the authors of seven books, including The Great American Tax Dodge: How Spiraling Fraud and Avoidance Are Killing Fairness, Destroying the Income Tax, and Costing You. Don Barlett and Jim Steele join us in Philadelphia.

Welcome to Democracy Now!

JAMES STEELE: Good to be with you, Amy.

AMY GOODMAN: It’s good to have you both with us. Jim Steele, let’s begin with you. Why do you think Geithner’s problems were actually worse than Tom Daschle’s tax problems?

JAMES STEELE: Well, Daschle ended up having to pay far more in taxes than Geithner did, and neither one of these cases are forgivable or can be explained away easily. But the difference with Geithner is, I think almost every American knows that you have to pay Social Security and Medicare taxes. I think just the average person on the street who draws a paycheck knows that is taken out of their check. And that’s what’s so disturbing about Geithner’s. If these were avoidable mistakes, if these were simply things he overlooked, I think the question is, why weren’t those corrected at some point before President Obama had tapped him to be Treasury secretary?

This is the thing that’s actually disturbing about both of these cases. Both Geithner and Daschle went back and paid these taxes, but only after their names were dropped into that hopper, which suggested they were going to be cabinet officers. If these were truly under those categories of those kinds of mistakes, the question is, why wasn’t that done at some time in the past, especially in the case of Geithner, where he had been audited by the IRS for previous tax years and had paid some additional taxes at that time. It was only after he was suggested for the Treasury secretary and the vetting process began that he then remitted these additional taxes.

AMY GOODMAN: Don Barlett, explain further exactly what the taxes were that Tim Geithner paid and didn’t pay and what the relation was to his work at the IMF, the International Monetary Fund.

DONALD BARLETT: Well, as Jim indicated, these are the payroll taxes — Social Security, Medicare — that everyone has to pay. And, you know, the tax code is complex. Everybody knows that. It is easy to make a mistake.

But the reason we said that Geithner’s was far more egregious is this. He signed a piece of paper acknowledging that he owed both taxes while he was employed by the IMF. He then collected the money from IMF to pay the taxes. Now, most of us, you know, the payroll taxes are withheld. We don’t get reimbursed for those taxes. It comes out of our own pocket. But Mr. Geithner not only signed a paper acknowledging he owed taxes, he collected money to pay the taxes and then didn’t pay them and pocketed the money. This is why it was far more egregious for him and why — you know, the New York Times demanded that Tom Daschle withdraw, and he did. But the same demand was not put on Mr. Geithner.

And even more disturbing is the fact that only one Democratic member of the Senate Finance Committee voted against Mr. Geithner for this reason — for this reason. That was the Iowa Senator Tom Harkin, who said he just couldn’t support it. And Harkin was right, because the message this is sending to the public of large — the tax system already is as close to collapse as you’re going to get as a result of it not being enforced evenly. The double standard on tax law — as you indicated in the introduction, Jim and I have been writing about taxes for almost forty years. Our first series that won the Pulitzer Prize was on the unequal enforcement of the tax code. And that was back in the 1970s. And since then, it has exploded. And what is happening now in Washington just captures where it is now. Here you have the Senate Finance Committee approving this, and you have the Senate overwhelmingly approving it.

AMY GOODMAN: I just want to go back to that one point that you made about Geithner and what you wrote about in this piece in The Daily Beast. “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.”’”

So the IMF actually gave him money for those taxes to pay, but he didn’t pay them. When exactly did this come to his attention? And why is it now that he’s paying them, Don?

DONALD BARLETT: Well, he wanted to be secretary of the Treasury. I mean, you want a top cabinet job, you’ve got to pay your taxes. I mean, it looks a little unseemly if you don’t.

AMY GOODMAN: Right, it’s clear why he’s paying them now, but how long was it? I mean, it was called to his attention before this point.

JAMES STEELE: IRS did two —-

DONALD BARLETT: Two audits.

JAMES STEELE: Two audits for a couple of those previous years. And he did have a settlement with them at that time. But it was not until his name was proposed for Treasury secretary that then the vetting -— in that vetting process, he went back and looked at two other years, if I’m not mistaken, and it was on those, where the situation was very similar to the ones he had settled with IRS, that he then paid the taxes.

AMY GOODMAN: You write, “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.” Jim Steele, go on with that point.

JAMES STEELE: One of the points we made in The Daily Beast piece was that there’s almost become a culture of avoidance and, beyond that, in more severe cases, of fraud in the country. And one of the reasons is, you’ve had Congress systematically, for many years now, saying, “We don’t really want tough enforcement.” They don’t say that in exactly those words, but by restricting the IRS, by cutting its work force, by discouraging the sophisticated studies that measure taxpayer compliance, by actually legislation that has tied the hands of many IRS agents, they’ve said, “We really don’t want vigorous enforcement.”

Now, everybody knows the IRS from time to time oversteps its bounds, and we’ve written about taxes and the IRS for many, many years. So we know that, and we understand that. But it’s one thing for that versus what Congress did starting back in the ’90s, in particular. They began passing laws that were called restructuring and reform of IRS. And in these laws, they set forth a list of actions that, if an agent committed, were grounds for dismissal, for firing. I mean, some of these were downright ridiculous. If you assaulted a taxpayer, of course you should be fired. One would hope that was true even before that law.

But another of these things, and they called them inside the agency “the ten deadly sins,” was something like this: if you harassed a taxpayer — well, what does that mean? If you go out and ask a taxpayer who hasn’t paid their bills — their taxes to pay those bills, is that harassment? I mean, nobody likes to pay — nobody likes taxes, per se. It’s an unpopular agency that way. But the message was clear: Congress just systematically, over and over again, tried to emasculate the IRS. They sent the message that enforcement was not that important an issue anymore. So it’s not surprising that avoidance and error and fraud and all of those things are greater than ever. And this is why enforcement has been watered down tremendously over the last generation.

DONALD BARLETT: And the other problem here is that —-

AMY GOODMAN: Don Barlett.

DONALD BARLETT: —- because of that legislation, as a result of pressure from Congress, a lot of really good people have bailed out of IRS. It is not easy investigating taxes. It’s a complex area. You need people who are really familiar with what’s going on out there. At the same time, more and more money has been moved offshore, which makes the job even more complex. And there are fewer and fewer and fewer agents with the skills needed to do this.

JAMES STEELE: This is another case where the Bush administration — we all know how they sort of turned their back on the rest of the world in all kinds of foreign affairs issue. This is another example of where the Bush administration went it alone. When most of the developed countries through the OECD, Organization for Economic Cooperation and Development, sought to have a unified front on these offshore bank accounts and avoidance and tax shelters, the Bush administration turned their back on them. And, in fact, many of the Republicans in Congress — Tom DeLay and Dick Armey come to mind — basically strongly and vigorously campaigned against the US taking part in that initiative, on the basis that that was a privacy matter and the US didn’t want any part of it. Once again, another message being sent by us, the US, that avoidance, that weak enforcement, all of those things, all of those key areas where we need to be in this world, that we were not going to take part in.

DONALD BARLETT: There’s a — Jim used a key word there: "privacy." That was used throughout the Bush administration really to conceal fraud, taxpayer fraud. Some of it’s mistakes. Some of — many of it is honest mistakes. But some of it is outright fraud. And they didn’t want to prosecute it.

AMY GOODMAN: Last question on that point, the Swiss giant bank UBS maintaining secret accounts, how does that fit into this story?

DONALD BARLETT: Well, here again, you have these 19,000 accounts — you know, a trillion dollars — and there still — a part of this, again, is the lack of really sophisticated manpower in IRS to go after this. And part of it is the secrecy laws in other countries that the Bush administration thumbed its nose at.

JAMES STEELE: I mean, the internet has also contributed greatly to the democratization of tax fraud and avoidance. I mean, you can go online today and open one of these Caribbean bank accounts, in a way that twenty years ago you had to go to the Cayman Islands or the Bahamas or someplace like that and actually show up in person and do this. So all of these things have contributed to this.

So IRS’s job is, without a doubt, more difficult, more complex, more demanding. And so, rather than putting any resources into that area to make sure that everybody drawing a paycheck in this country who’s paying their fair share of taxes, to make sure that those aren’t subsidizing the fact that somebody who has a Caribbean bank account isn’t — we’re not putting resources into that — instead we’re acting like that’s a privacy matter. It’s not a privacy matter. It’s a tax avoidance and fraud matter.

DONALD BARLETT: And what’s interesting is the ordinary person out there really gets it now, as opposed to when we wrote about this thirty years ago. We’ve been inundated with emails and calls from people as a result of the Daily Beast article. And there was one in particular from a woman who said, “It’s been explained to me that they go after people like me, $20,000 annual income, because they can pressure me. And for the higher-income people, they’ve got to deal with tax lawyers, it’s more expensive, it’s more time-consuming, and it just takes longer to collect the money.” And that’s true. That’s absolutely true.

AMY GOODMAN: I want to ask you both to stay with us just after break. Then we will be joined by P.W. Singer, who wrote Wired for War: The Robotics Revolution and Conflict in the 21st Century. Stay with us.

[break]

AMY GOODMAN: We’re going to be speaking with P.W. Singer in a minute, but just back to Jim Steele and Don Barlett for one minute. The blog that you did, “A Federal Reserve System for Health Care — It’s About Time,” Jim Steele, just lay it out quickly.

JAMES STEELE: In our book on healthcare of three or four years ago, in suggesting a solution as to how we could finally get universal care and single-payer in the system, we said the politics of the problem are so fractious in Washington, the idea of a government agency, per se, it’s just not politically feasible. So we suggested a quasi-government agency like the Federal Reserve Board to be kind of an overseer of healthcare, independent of each Congress, independent of each president, that might serve as that overall body that could finally get us over the hump and provide the universal care that this country and people need. And we suggested this because this idea has been circulating — we did this several years ago. Now, we’ve been gratified to see some of these ideas actually being circulated in the Obama administration. It’s hard to tell how the derailing of Daschle, who was certainly going to be an advocate of this, will factor into all of this.

AMY GOODMAN: I want to thank you both for being with us, Jim Steele and Don Barlett, contributing editors at Vanity Fair who have been writing about taxes for nearly four decades, have won two Pulitzer Prizes for their work. Their latest article appears at thedailybeast.com, "Why Geithner Was Worse than Daschle."

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