What's a politician to do upon discovery that a generous billionaire donor turns out to be a major tax dodger? It's a dilemma already encountered by the Republican and Democratic parties in this season of unprecedented political fundraising.
At a time when newly powerful Democrats, including presidential hopeful Sen. Hillary Clinton of New York, are pressing for aggressive pursuit of unpaid tax bills to boost federal revenue, the party's biggest financier and prominent Clinton backer is tied to one of the largest individual tax avoidance schemes on record.
And two Republican billionaires -- Texas brothers who have poured a small fortune into supporting the presidential bids of two George Bushes and, more recently, Sen. John McCain (R-Ariz.) -- were accused last year of exploiting offshore havens to escape taxes on nearly $200 million in gains.
Amid predictions that the 2008 presidential campaign will be the most expensive in history, with spending possibly topping $1 billion, pressure to raise huge sums of cash is a certainty. For candidates, the question is whether the headlong pursuit of deep pockets may also risk embarrassment over their donors' financial baggage.
Sheila Krumholz, executive director of the Washington-based Center for Responsive Politics, said that candidates sometimes have to make their own "cost-benefit analysis."
"The political cost of taking tainted money can be far greater than the value of the contribution itself," she said.
The alleged tax-dodging billionaires may offer a case in point. They ended up being challenged by the Internal Revenue Service and investigated by Congress. The billionaires denied wrongdoing even as they acknowledged trying to avoid or defer significant tax bills.
And while some politicians have returned the businessmen's donations, others seem not to have been troubled by their gifts. Such cases tend to be complex and the distinction between error and wrongdoing murky.
"It all boils down to which side the public comes down on. Will they blame the candidate for being involved, or the donor?" Krumholz said.
With a personal fortune worth billions and control of the leading Spanish-language media company in the U.S., Hollywood mogul Haim Saban stands alone among Democratic Party donors.
Over the three election cycles from 2002 through 2006, Saban contributed $12.7 million to the party and to Democratic candidates -- outstripping the runner-up in individual donations, real estate investor and movie producer Stephen L. Bing, who gave $8.9 million. Saban has been a fervent supporter of Clinton in her quest for the White House, as he was of her husband, President Clinton.
Mixed blessing
What makes his support something of a mixed blessing is his aggressive use of offshore tax shelters in 2001. In recent months, Saban has been negotiating final settlement of a massive IRS claim over his attempt to avoid paying taxes on a $1.5-billion capital gain -- a savings of $300 million or more.
Stephanie Pillersdorf, a spokeswoman for the financier, said this week that Saban has agreed to pay all taxes due, as well as penalties and interest. She would not say what the total payment would be.
The details of Saban's IRS-challenged tax strategy were first disclosed in August by the investigations subcommittee of the Senate Committee on Homeland Security and Governmental Affairs.
The billionaire's close ties to the Clintons compound the potential for political embarrassment.
For example, a company created as part of Saban's tax avoidance scheme was used to make a $10-million loan in 2004 to the William J. Clinton Foundation to help fund construction of the Clinton library in Little Rock, Ark., the Los Angeles Times has learned. A spokesperson said the Clintons and the foundation were unaware of Saban's tax troubles at the time, so the use of any questionably sheltered funds was unwitting.
Democrats defend Saban, noting that he has publicly acknowledged his attempted tax dodge and has agreed to settle the case. A spokesman for Hillary Clinton called Saban "a strong supporter" and said Clinton was unaware of his tax problems until they were publicly disclosed.
Phil Singer, a Clinton campaign spokesman, also endorsed the Hollywood tycoon's defense that he had simply followed the advice of lawyers.
"As Haim Saban himself has said, not even he knew about the tax issues surrounding" his company, Singer said.
Like Saban on the Democratic side of the political fence, the Texas billionaire brothers Sam and Charles J. Wyly Jr. have been heavy donors to Republicans for years. Their generosity has gained them invitations to the White House and Camp David.
