ABC News has learned that the nomination of former Senator Majority Leader Tom Daschle, D-S.D., to be President Obama’s secretary of health and human services has hit a traffic snarl on its way through the Senate Finance Committee.
The controversy deals with a car and driver lent to Daschle by a wealthy Democratic friend — a chauffeur service the former senator used for years without declaring it on his taxes.
It remains an open question as to whether this is a "speed bump," as a Democratic Senate ally of Daschle put it, or something more damaging.
After being defeated in his 2004 re-election campaign to the Senate, Daschle in 2005 became a consultant and chairman of the executive advisory board at InterMedia Advisors.
Based in New York City, InterMedia Advisors is a private equity firm founded in part by longtime Daschle friend and Democratic fundraiser Leo Hindery, the former president of the YES network (the New York Yankees’ and New Jersey Devils’ cable television channel).
That same year he began his professional relationship with InterMedia, Daschle began using the services of Hindery’s car and driver.
The Cadillac and driver were never part of Daschle’s official compensation package at InterMedia, but Mr. Daschle — who as Senate majority leader enjoyed the use of a car and driver at taxpayer expense — didn’t declare their services on his income taxes, as tax laws require.
During the vetting process to become HHS secretary, Daschle corrected the tax violation, voluntarily paying $101,943 in back taxes plus interest, working with his accountant to amend his tax returns for 2005 through 2007.
(Daschle reimbursed the IRS $31,462 in taxes and interest for tax year 2005; $35,546 for 2006; and $34,935 for 2007, a Daschle spokesperson said, adding that Daschle had asked his accountant to look into the tax implications of the car and driver five months before Obama won the presidency.)
The Daschle spokesperson told ABC News that the senator, facing questions from the committee, has said "he deeply regretted his mistake. When he realized it was a mistake he corrected it rapidly."
The chairman of the Senate Finance Committee, Sen. Max Baucus, D-Mont., has called his colleagues for a private meeting at 5 p.m. ET Monday to discuss these complications surrounding Daschle’s nomination.
In the meantime, the White House and Democratic allies are coming to Daschle’s defense.
"The president has confidence that Sen. Daschle is the right person to lead the fight for health care reform," White House deputy press secretary Bill Burton said. "In preparation for his nomination, Sen. Daschle and his accountant identified some tax issues and fixed them. They filed amended return with the IRS and made payments with interest. Sen. Daschle brought these issues to the Finance Committee’s attention when he submitted his nomination forms and we are confident the committee is going to schedule a hearing for him very soon and he will be confirmed."
Jim Manley, a spokesman for Senate Majority Leader Harry Reid, D-Nev., added: "Sen. Daschle will be confirmed as secretary of health and human services. He has a long and distinguished career and record in public service and is the best person to help reform health care in this country."
But House Republicans attending a retreat in Hot Springs, Va. also were buzzing about the news of Daschle’s tax problems.
In a speech to his fellow Republican House members, Rep. Eric Cantor, R-Va., compared Daschle’s issue with the tax problems that hindered the confirmation of Treasury Secretary Timothy Geithner and those of Rep. Charles Rangel, D-N.Y., who is embroiled in a controversy over payment of taxes on a beachfront villa in the Dominican Republic.
"A pattern is developing," Cantor said. "The pattern is solidified. … It’s easy for the other side to sit here and advocate higher taxes because — you know what? — they don’t pay them."
This is the second Cabinet nominee of President Obama’s to face questions of tax malfeasance. Geithner paid more than $34,000 in taxes during his vetting process for income earned at the International Monetary Fund. Earlier, Commerce secretary nominee Bill Richardson withdrew his name from consideration after reports of a federal investigation involving whether his office engaged in "pay to play," a charge Richardson denied.
The spokesperson said, by way of explaining how it was this happened: "In 2005, Sen. Daschle’s close friend Leo Hindery, who lives in New York, offered him the use of a car and driver in Washington when he was not using it. That same year, they began a formal business relationship where he was an independent consultant and chairman of the external advisory board to InterMedia Advisors. The car was not provided as part of his compensation. So it never occurred to him that it should be considered income. The senator simply and probably naively considered its use a generous offer by a longtime friend."
Hindery did not have any comment. Daschle has personally refrained from commenting.
Daschle came before the Senate Health Education Labor and Pensions Committee for a hearing on Jan. 8, 2009, and it was a veritable love-in, with the respected former colleague praised to the high heavens.
But staffers at the Senate Finance Committee are generally a little more exacting — witness the stormy weather faced by Treasury Secretary Tim Geithner for his back-tax snafus — and they have been delving into the issue and exploring all the ramifications before holding a committee vote on his nomination.
The Daschle spokesperson insisted that the former senator is the one who should get credit for discovering, fixing and disclosing the tax issue.
"In June 2008, Sen. Daschle mentioned the use of the car to his personal accountant and asked him if there were any potential tax consequences," the spokesperson said. "His accountant said that there could be tax consequences and said he was going to fix them as part of Daschle’s 2008 filing. So when he got down to vetting, Sen. Daschle decided to amend his returns for 2005, 2006 and 2007, and he paid all the taxes. At the urging of Daschle, the accountant was very conservative in his estimates."
Regardless of how the information came to light, a spokeswoman for Sen. Chuck Grassley, R-Iowa, the ranking Republican on the Senate Finance Committee, said the public should be aware.
"Sen. Grassley’s position for this nomination is the same as it has been for every other nomination processed by the Finance Committee since 2001, that all relevant information about a nominee must be made public in order for the confirmation process to go forward in the committee," the spokeswoman said. "The public’s business ought to be public, and committee members must weigh all the facts of a nominee’s record."
Daschle has long been one of President Obama’s closest advisers, so it was no surprise when the mild-mannered pol was named Obama’s nominee to be HHS secretary shortly after Obama won election; his official nomination came Dec. 11, 2008.
Should Daschle have difficulty being confirmed — a prospect that seems unlikely given the benefit of the doubt senators frequently extend to one another, not to mention the Senate’s Democratic majority — he doesn’t have to worry about finding another job in the administration, since President Obama has also appointed him to serve as director of the new White House Office on Health Reform.
– Jake Tapper, with reporting by ABC News’ Jonathan Karl