Penny Pritzker’s Tax Problem

Obama’s Commerce Department nominee has some Romney-esque tax issues.

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Obama's nominee to be the next head of the Commerce Department, Penny Pritzker, faced her Senate confirmation hearing on Thursday. Surprisingly, the members of the Senate Commerce Committee did not grill her on an area that seems ideal for criticism: her family's storied history of tax dodging.

If confirmed, Pritzker would be one of the wealthiest cabinet secretaries ever. Her personal net worth, according to the Bloomberg Billionaires Index, stands north of $1.5 billion.

Her family owes its fortune to the Hyatt hotel chain and a host of other business ventures (including Superior Bank, which had a serious subprime problem and collapsed in 2001). And that massive fortune was paired with a massive effort to avoid taxes.

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According to the New York Times, "Pritzker's family is renowned for finding ways to avoid paying taxes on its wealth. The Pritzkers were pioneers in using tax loopholes to shelter their holdings from the Internal Revenue Service." Citizens for Tax Justice lays out how part of the grand scheme works:

One of the primary ways the Pritzker family uses offshore trusts to avoid taxes is by having income from their businesses funneled into offshore trusts. Those trusts then pay debt service to a bank, owned by the family trust, that loans that money right back to the business. The upshot is that all the taxable profits disappear and the family wealth accumulates unabated.

The group added, "While Pritzker's personal involvement with her family's most infamous tax avoidance legacy is unclear, it is clear that she has actively used tax avoidance strategies in her own professional and private life," including helping Hyatt avoid taxes on property it owns.

If the Pritzkers' tax avoidance schemes sound a lot like those employed by former Massachusetts Gov. Mitt Romney – which President Obama rightfully pilloried during the 2012 presidential campaign – that's because they are. Pritzker also raised some eyebrows for receiving $54 million in "consulting fees" from a trust her family owns, which likely helped her avoid taxes, and for understating her income by $80 million on her latest financial disclosure forms.

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None of this means that Pritzker would necessarily do a bad job as Commerce Secretary – having employed tax havens is not a reflection on her work ethic or management skills. And she certainly bears no responsibility for the broken U.S. tax code. But nominating her does raise the question of how seriously Obama takes the sort of tax reforms he has called for since before he moved into the Oval Office.

Tax dodging by the rich and corporations costs every other American taxpayer $1,026 per year in higher taxes or reduced benefits and services. The nation has bills due regardless of whether the rich pay their fair share, so every dollar hidden by the wealthy in an offshore tax haven has to be made up somewhere else.  This is a serious public policy problem – not just in the U.S., but in developed economies around the world. Obama even released a plan that the administration estimated would raise $8.7 billion over 10 years by cracking down on tax avoidance by wealthy individuals (that has gone nowhere).

Pritzker certainly has other knocks against her, including Hyatt's horrid treatment of its workers. But the biggest issue is that she epitomizes a problem Obama says needs to be fixed, yet he's elevating her into his Cabinet with nary a word about it.