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Obama's Taxing Transition


Obama's gone from "A" to "B-" says Michael Watkins, because the first few weeks of every executive transition are about symbolism, not substance

Posted on The Leading Edge: February 5, 2009 5:41 PM

What a difference a few days can make to the trajectory of a transition. At the end of last week, I was prepared to give our new President an "A" for outstanding efforts to create positive momentum. Now I'm thinking he deserves a B-minus at best. Why the shift? In a word, taxes. Specifically the lack of payment thereof by the President's cabinet nominees.

It's not the failure to pay per se, it's what it tax issue symbolizes. Because the first few weeks of every executive transition are about symbolism, not substance. The goal is not to make deep substantive changes happen, that comes later. The goal is to make a few symbolic moves that resonate with key constituencies and signal the right intentions. Make the right moves and it boosts your credibility. But symbolism is a double-edged sword. Make some significant symbolic slips and you risk a rapid erosion of your credibility. You also give your opponents a stick with which to beat you from that point forward.

The first couple of weeks of the Obama transition really were picture perfect. From the decision to involve a respected evangelical minister in the inauguration, to announcing the decision to close the Guantanamo prison (but with a time delay to work out the details), to the lifting of the ban on Federal funding for international family planning, to the approval of a stem-cell research project, to the push to achieve a bipartisan consensus on an economic stimulus plan, the President was on a roll.

Then it emerged that his nominee for Treasury Secretary, Timothy Geithner, failed to pay taxes for benefits he received while working for an international organization. While almost certainly the result of an honest mistake, and ultimately not fatal, the picture of our new Treasury Secretary being a tax delinquent is not a pretty one. It's easy fodder for the late-night comedians.

Had that been it, the fuss would rapidly have dissipated. But then in rapid succession Obamas's nominees for Secretary of Health and Human Services Tom Daschle and Chief Performance Officer Nancy Killifer succumbed to embarrassingly large (Daschle not paying $140K) or just plain embarrassing (Killifer having a lien put on her home because she didn't pay employment taxes for household help) tax problems.

To paraphrase an old saw, "once is a coincidence, twice is a trend, three times is enemy action." Only in this case, it's friendly fire.

The tax troubles are highly corrosive of Obama's credibility on at least two levels. First, why were these issues not caught during the vetting process? Neither of the two possible explanations—stupid concealment by the nominees or incompetence by the vettors—reflect well on our new President. Then there is the potent symbolism of Democrats pushing for higher taxes even as they fail to pay them. The Republicans have already picked up this club and begun to beat the new Administration with it. "It is easy for the other side to advocate for higher taxes," Representative Eric Cantor of Virginia, the House Republican whip, told a party retreat last weekend, "because you know what? They don't pay them."

The risk is not just that this will complicate future efforts to revise the tax code. It could easily become symbolic of a broader and deeper hypocrisy on the part of the new Administration which, after all, has staked its credibility on improving ethics and increasing transparency in Washington.

While we are on the subject of symbolism, finally, I'm also quite unimpressed by the President's decision to limit the salaries of executives of companies that take "exceptional" government funds. At best, it strikes me as very bad policy. At worst, it's a cynical play to divert attention from the Administration's own emerging ethical problems—call it the Obama Political Recovery Act of 2009.

What do you think of Obama's taxing troubles? As a new leader, is his transition at risk?

This post is part of our in-depth look at Obama's First 90 Days in office.

Provided by Harvard Business—Where Leaders Get Their Edge

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