Government Reform

Nanny Taxes and Bong Hits

In defense of Tom Daschle, and Tim Geithner, and Nancy Killefer, and Linda Chavez, and...

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As the Michael Phelps mini-scandal of 2009 has demonstrated, the American people can be hypocritical jerks sometimes. They scarf down precious Matt Lauer-narrated human interest stories about how celebrities, politicians, and white sports heroes are just like us! But when Phelps hits the bong at a kegger, the nation is aghast to discover he is a totally normal person in non-chlorinated environments.

Likewise with the multitude of tax scandals now engulfing several of President Barack Obama's appointees. More Americans probably cheat on their taxes than smoke pot. And a lot of Americans smoke pot. (Look away IRS. You and your 67,024+ pages of U.S. tax code have already audited me once.) Even those who don't mean to cheat on their taxes will probably do so accidentally, unless they confine their daily activities to (a) going to a salaried job and (b) rushing home to sit perfectly still lest they earn and/or dispense freelance or self-employment income or incur any deductible expenses by, say, giving to charity or getting sick. Needless to say, this does not describe the lives of the best and brightest in government.

Yet the nation goes into paroxysms of horror when potential political appointees screw the pooch on their tax returns. The surest way to making a tax error—thus precipitating a graceful but heartbreaking withdrawal from consideration for high office—is to hire someone to take care of your children while you work extremely hard, perhaps for the U.S. government. Ideally, you will select a skilled and caring person who happens to inhabit the lowest rung of the American class system, an illegal immigrant. You will give her a chance to establish an income, credit, and possibly a path to citizenship. You will accept her into your home, make her part of your family, and pay her a fair wage for her labors. She, in turn, will probably pay taxes on her income. But you, as an employer, might forget/purposely neglect to pay an additional payroll tax on her salary.

Should you be tapped for higher office, this is a brilliant path to shame and ruin for you, your family, your party, your president, and yes, your nanny. Yet for all of your peers, it is simply normal conduct. There are about 70 million kids and 1.3 million childcare workers in the United States. While most of those people aren't full-timers, nannies can be as common as Baby Einstein DVDs among a certain set—and you'd better believe payroll taxes aren't getting paid, recorded, or otherwise properly parsed in an awful lot of houses.

The story of Obama's would-be chief performance officer Nancy Killefer is a tidy case. The woman failed to make quarterly unemployment tax payments to the District of Columbia for a year and a half. She fixed her mistake in 2005 after the D.C. government put a lien on her house for a whopping $298 dollars in taxes owed on the salaries paid to her nannies and assistant, but the city added $48.69 in interest and $600 in penalties. I only wish my tax mistakes were as low as $298. She literally and figuratively paid her debt to society years ago. But no matter, she's out of the running. (A horrible irony: Her previous job has been as the chief financial officer and chief operating officer at the Treasury Department, where she worked on a major project to modernize the IRS.)

Being in possession of two X chromosomes seems to make nanny problems worse, though the rule is far from absolute. Not one, but two Clinton nominees for attorney general of the lady persuasion were deep-sixed by the undertaxed nanny gambit. The nanny and chauffeur combo brought down judicial hottie and "very sexual woman" Kimba M. Wood. The same dragon reared its ugly head and got Zoe Baird, too. (Meanwhile, this nanny is left unmolested in her State Department appointment as a public diplomatic envoy. Is there no justice in the world?)

Linda Chavez, Bush's pick for Secretary of Labor, wound up as the star player in a too-good-to-be-true illegal employee story: Chavez was the first Hispanic nominee to a cabinet position, and she was caught employing an illegal Guatemalan immigrant off the books. Or so the headlines screamed. Later, it emerged that Chavez had never employed the Guatemalan woman in question, but had instead given her money and helped her escape domestic abuse. Never mind, she was out, too.

Who is the big winner in the tax evasion sweepstakes? Confirmed Treasury Secretary Tim Geithner. What does Geithner have that all these other guys and gals don't? After all, in addition to failing to pay $34,023 in self-employment tax from 2001 to 2004, he has had his share of household staff tax screw-ups: According to the Associated Press, he "filed the taxes late for his household employees in 1996 for years 1993 to 1995; he incorrectly calculated Medicare taxes for his household employees in 1998 and received an IRS notice; and he received notices from the Social Security Administration and the IRS after not filing 2003 and 2004 forms for his household employees." He also has an undocumented housekeeper for a few months in 2005. But he's in!

And now, as Tom Daschle and his hedge-funded untaxed chauffeur get out of Dodge, tax return tucked between his legs, it's easy to wonder if it was the ridiculous Libeskindian glasses that did him in. They're just so darned expensive-looking. If it's to be class war, fine. Go after people with nannies and chauffeurs and assistants. (Daschle started it, anyway, with his bragging about his rust bucket of a car and his numerous votes for higher taxes on the rich.) But in that case, call a spade a spade. Ask the question, "Are you now or have you ever been in charge of household help?" on the vetting questionnaire, and strike those who reply in the affirmative. Precious few talented, ambitious people will be left once that crew has been stricken from the rolls.

Anyone in search of a guiding principle, a bright line, or any other absolute won't find one. Michael Barone, king of the wonks, valiantly attempted to find a rule of thumb that divides Geithner's $34,000 from Daschle's $146,000 from Killefer's $298. Geithner, he says, is uniquely qualified to run Treasury, whereas lots of people know about Daschle's bailiwick, health care nationalization. But this explanation doesn't hold much water. Sometimes (oftentimes, in Washington) there simply is no rule. It's just that some people get screwed and some people sneak by, just like you and me when it comes to taxes. Looks like politicians really are just like us!

Katherine Mangu-Ward is associate editor at Reason magazine.