A lost opportunity

President Obama promised that he wanted to change the way Washington does business. He wants and more open and honest government. By turning a blind eye to the new Treasury Secretary’s failure to pay his social security taxes for 2001 and 2002 (until he was nominated to head the Treasury Department, which included the Internal Revenue Service), the President missed an important opportunity to demonstrate the seriousness of his commitment to the integrity of his administration. Treasury Secretary Timothy Geithner has risen quickly through the ranks to high position, is highly respected, and will most likely make an excellent Treasury Secretary. However, after being audited by the IRS in 2006 and found to have mistakenly failed to pay his social security taxes for 2003 and 2004, any misunderstanding he might have had about his need to pay these taxes were surely removed. Yet he did not pay the unpaid social security taxes for 2001 and 2002 until his nomination by Obama to his current position at which time he paid an additional $25, 970 in back taxes and interest penalties.[1] No person is indispensable and the failure of the President to sacrifice his first choice for the position looks more like business as usual than a new page of integrity.

The slippery slope has been greased and viola, down the slope we go with the revelation that Sen. Tom Daschle (S.D.), President Barack Obama‘s nominee to head the Health and Human Service Department had not paid more than $128,000 in back taxes over several years. Is that over the line, or should we forgive him as well?

In the interest of fairness and to reestablish the principle that the law applies to every one, Congressmen John Carter’s office issued the following press release:

“IRS Penalties and Interest Eliminated for All U.S. Taxpayers under new “Rangel Rule” Legislation

“(WASHINGTON, DC) – All U.S. taxpayers would enjoy the same immunity from IRS penalties and interest as House Ways and Means Chairman Charles Rangel (D-NY) and Obama Administration Treasury Secretary Timothy Geithner, if a bill introduced today by Congressman John Carter (R-TX) becomes law.

“Carter, a former longtime Texas judge, today introduced the Rangel Rule Act of 2009, HR 735, which would prohibit the Internal Revenue Service from charging penalties and interest on back taxes against U.S. citizens. Under the proposed law, any taxpayer who wrote “Rangel Rule” on their return when paying back taxes would be immune from penalties and interest.

“We must show the American people that Congress is following the same law, and the same legal process as we expect them to follow,” says Carter.  “That has not been done in the ongoing case against Chairman Rangel, nor in the instance of our new Treasury Secretary Timothy Geithner. If we don’t hold our highest elected officials to the same standards as regular working folks, we owe it to our constituents to change those standards so everyone is abiding by the same law.  Americans believe in blind justice, which shows no favoritism to the wealthy or powerful.”

“Carter also said the tax law change will provide good economic stimulus benefits, as it would free many taxpayers from massive debts to the IRS, restoring those funds to the free market to help create jobs.”

Alan Reynolds of the Cato Institute promptly noted that: “The bill also needs a Tom Daschle amendment to also provide immunity from criminal prosecution for outright tax evasion, such as not bothering to report $83,000 a year from consulting fees, or pretending that being given the use of a free limo with driver (a payolamobile) is not really income but simply "a generous offer from a friend." 

This all sounds sadly familiar.


[1] http://finance.senate.gov/press/Bpress/2009press/prb011309d.pdf

About wcoats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My most recent book is One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon.
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