The Replacements: Talent for the End of the Second Term | Commentary

Posted October 8, 2014 at 1:49pm

As the Obama administration enters its lame duck phase, a number of high-level executive branch officials inevitably will leave for the private sector, to return to academia, or for well-earned retirement. The resignation of Attorney General Eric H. Holder Jr. is the most recent example of such departures and a harbinger of the struggles over Senate confirmation to come. Even before a replacement for Holder is officially announced or even trial-ballooned, fights will begin over the steps for considering the nomination, and whether confirmation should wait until after the new Senate convenes.

In the waning days, the White House may struggle to find the “best and brightest” to take over. Exacerbating this will be procedural chokepoints that block talented individuals from serving the public. Those hurdles will make Senate confirmation fights, which often turn on perceived flaws in the vetting “package,” even more contentious.

Over the past 15 years, we have represented dozens of executive branch appointees, and have noticed a number of recurring patterns. The vetting process often deters high-performers from the private sector and has a disparate impact on two specific sectors: women, especially those in two-career “power couple” families, and fund investors. Although no tears are shed for wealthy individuals whose past misconduct prevents them from qualifying, artificial hurdles deny the country talents of highly qualified individuals, and these hurdles disproportionately block hard-working and successful men and women who seek opportunities for public service.

The most obvious such hurdle is the intense focus in the Senate confirmation process on tax and immigration issues related to household employees, especially child care providers and housekeepers. Many successful two-career couples with young children need, and can afford, help in the home. A 2010 Ph.D. dissertation found that, nationwide, at least 80 percent of individual taxpayers with household employers fail to pay payroll taxes or file the mandatory IRS Schedule H. (Haskins, “Household Employer Payroll Tax Evasion: An Exploration Based on IRS Data and on Interviews with Employers and Domestic Workers”) Immigration law compliance rates, including properly completed INS Form I-9s, are less clear, but in our experience are not high. One could reasonably conclude that a vetting requirement that automatically screens out 4 out of 5 American families, and that disproportionately affects two-career families, serves as a serious deterrent for attracting talented, if sometimes neglectful, professionals.

The heavy emphasis on “nanny taxes” in the vetting process in the 20 years since the famous Zoe Baird incident has adversely impacted many successful women seeking to serve in the government. Why this, as opposed to other tax noncompliance, should be a key test of qualification for public service is somewhat illogical. Americans must comply with a range of complicated tax reporting and payment requirements, and 100 percent perfect compliance is actually rare. For example, most Americans fail to pay state “use taxes,” which most states require on all purchases made out of state (including online) that were not subject to sales tax. In our experience, no one has ever accused an executive branch nominee of being a “tax cheat” based upon a failure to pay use taxes on her Amazon purchases. Unpaid payroll taxes on household employees, on the other hand, have derailed a number of high-profile nominations, and deterred many others.

A second hurdle that discourages many from pursuing government service is the prospect of conflicts of interest related to holdings in from complex investment funds. Successful power couples and other well-to-do individuals often own investments in private equity or hedge investment funds; middle-class investors are more likely to hold mutual funds and similar asset classes. Under long-standing regulation, mutual funds are exempt from conflict of interest questions. On the other hand, a nominee who is a limited partner in an investment fund is deemed to have a conflict with respect to each of the portfolio holdings, even though no limited partner has any control over those holdings. As a result, the nominee-limited partner could be forced to liquidate her entire interest in the private fund, even at great economic cost, because of the illiquidity of the individual holdings posing the conflict.

As a result of these obstacles, one possible outcome might be to staff government without attracting individuals from the successful, high-powered backgrounds described above. However, this approach to vetting and Senate confirmation reduces, rather than expands, the potential talent pool for the critical last two years of the administration, which the White House, and the country, can ill afford.

Robert Rizzi is partner at Steptoe & Johnson LLP and has counseled individuals nominated or appointed to executive and judicial branch positions in both Democratic and Republican administrations. Diana Muth is an associate at Steptoe who is also active in representing prospective political appointees through the vetting process.