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Sunday, February 01, 2009

Entitlement in the Upper Echelons

January 30, 2009 provided two examples of the core problem facing any effort to turn around the American economy and fix the mechanisms that produced the problems in the first place. One event involved the disclosure of a payment of over $140,000 in back taxes owed by Tom Daschle, the nominee for Secretary of Health and Human Services. The other event was an appearance by former General Electric CEO Jack Welch on Charlie Rose and a comment he made about bonus payouts on Wall Street amidst hundreds of billions in losses. The problem? These events epitomize the complete disconnect between the world of privilege and entitlement perceived by leaders in government and big business and the real world of mistakes and consequences in which the rest of us live.

In the case of Daschle, after his nomination to become HHS Secretary became public on November 19, 2008, the former Democratic Senator apparently felt a slight twinge of guilt regarding roughly $140,000 in taxes he owed, but in fact did not pay, for use of a car and driver provided to him by InterMedia, a private equity firm which employed him as chair of its advisory board. (#1) The back taxes were actually paid on January 2, 2009 but news of the payments and underlying "mistake" only became public on January 30.

Stop and think about the magnitude of this "mistake." In a situation involving the failure to pay over $140,000 dollars in taxes, the $140,000 dollar amount isn't the real number to be concerned about. To owe $140,000 dollars in TAXES, a much LARGER amount of INCOME on which the tax is owed is involved. Daschle's marginal tax rate should be 35 percent so the $140,000 oversight involved over $400,000 of taxable income over the tax years involved. From the most cynical perspective, are American voters and taxpayers really expected to believe someone capable of becoming Senate Majority Leader and a member of the Senate Finance AND Ethics Committees somehow overlooked $400,000 of income? How much income do you have to be earning for $400,000 of income to be so incidental you fail to remember it for three straight years of tax returns?

More interestingly, remember that Daschle paid the back taxes the minute he knew the spotlight was going to shine on his dealings during the confirmation process. That means he didn't really 'forget" the income, he just thought the processes by which the car/driver benefit could be tied to his taxpayer ID were loose enough that under normal IRS operations and capabilities, the connection would never be made to force payment of the additional tax. Once he was nominated, he knew more manual efforts to identify all employers and benefits provided to him would be undertaken and turn up the extra taxable benny. Quite an example of ethical and moral leadership there.

Even if one attempts to give Daschle the benefit of the doubt and one assumes he didn't realize the value of having a personal valet and car pick him up and schlep him about town constituted taxable income, is that really any better of an excuse? What sense of reality is a person who thinks it's normal to have a car service provided free of charge going to bring to the management of health care in the United States? President Obama and numerous Daschle supporters continue to state Daschle provides some sort of unique, singular insight into the health care crises facing the country and his appointment to lead HHS shouldn't be derailed by a little detail like a $140,000 mistake on his income taxes. If he can't handle one "little" detail like $140,000 in his own legal tax obligation, what kind of trillion dollar detail might he overlook crafting some new healthcare policy?

Daschle should be dumped on the curb of K Street immediately. Find someone else to run HSS. No questions asked.

In the case of Welch, he appeared on Charlie Rose on January 30, 2009 for a round table discussion of the current economic crisis with economist Martin Feldstein, New York Times columnist David Leonhardt and Senator Chuck Schumer. He was asked about the seeming hypocrisy of paying billions in bonuses to the senior management of firms which not only lost billions of dollars but lost so many billions of dollars they required hundreds of billions of dollars of taxpayer money to even survive.

His response?

Unfortunately, the interview is not yet posted on the Charlie Rose website to obtain an exact transcript but he basically said this:

Look, I operate a private equity firm and I understand you have to pay for talent. If you can't pay your top talent, they're going to leave and you'll be stuck trying to run the company with all the bums working in the carcass.

(The part in bold is a direct quote.)

Wow. Quite a motivational speaker, that Jack Welch. Is he really saying that all the people working in giant American corporations who AREN'T pulling in $2 to $10 million in salary are "bums" and if not for the brilliance and wisdom of those that ARE pulling in $2 to $10 million, those companies would be worthless without them? Go back and read his comment. That's EXACTLY what he said. The rest of us are losers and suckers, lucky to even HAVE a job working in the engine room while the geniuses on the mahogany bridge set a course for the nearest iceberg, loot the company during the clear sailing then commandeer all the lifeboats.

The world Tom Daschle and Jack Welch inhabit is a great place. Make a $140,000 mistake on your tax return over the course of three filings and not only do you simply get to just pay the back tax plus some interest and NOT have to worry about going to jail, you actually stay in the running for a Cabinet post at the very top of government. Devise and implement fraudulent banking and investment strategies which inflate earnings that produce outsized salaries and bonuses during the buildup to a collapse, then get the public to bail out your firm during the collapse AND use some of the bailout money to pay "combat pay" to encourage the people who produced the disaster to stick around and do more damage.

Nice work if you can get it.


#1) http://www.nytimes.com/2009/01/31/us/politics/31daschle.html