Vetting stumble? Treasury nominee underpaid taxes

McClatchy NewspapersJanuary 13, 2009 

WASHINGTON — President-elect Barack Obama's pick to head the Treasury Department met behind closed doors with a Senate panel late Tuesday in a bid to save his nomination amid revelations that he'd underpaid taxes and briefly employed a foreign-born housekeeper whose immigration papers had expired.

Timothy Geithner, the president of the New York Federal Reserve Bank since November 2003, hasn't had a Senate confirmation hearing scheduled. Late Tuesday it became clear why.

Geithner met privately with members of the Senate Finance Committee to explain why he'd underpaid federal taxes from 2001 to 2004, mostly a period in which he worked as an employee of the International Monetary Fund. Once he was made aware of the underreporting error, he paid the Internal Revenue Service more than $32,000 in back taxes and more than $8,000 in interest.

The Treasury-designee also explained that he was unaware at the time that he kept a housekeeper on his family payroll for three months in 2005 after her immigration documents had expired. That employee, he said, has since married a U.S. citizen and now holds a green card.

While leading Senate Democrats said that Geithner's errors weren't significant enough to derail his nomination, Senate Republicans were noncommittal, and some aides who are close to them said the issues might mushroom into a media firestorm that could sink the nomination.

Obama's camp defended Geithner.

"He made a common mistake on his taxes, and was unaware that his part-time housekeeper's work authorization expired for the last three months of her employment," incoming White House Press Secretary Robert Gibbs said in a statement. "We hope that the Senate will confirm him with strong bipartisan support so that he can begin the important work of the country."

A bipartisan document released by the Senate Finance Committee showed that on Geithner's tax returns in 2001, 2004 and 2005, he claimed a dependent child-care tax credit for time that his children spent at overnight camps. When an accountant apprised him in 2006 that the credit is for things such as after-school care, not overnight camps, Geithner failed at the time to amend his past returns.

The document said the most significant tax concern was Geithner's failure to pay Social Security taxes during his time at the IMF from 2001 to 2003. He sent the IRS and the state of Maryland estimated tax payments that corresponded with federal and state tax allowances, but he didn't write checks for the corresponding self-employment tax allowance, even though he signed an annual tax-allowance request from the IMF.

If he becomes treasury secretary, Geithner will be in charge of the IRS, which makes these tax problems potentially combustible.

Problems with the hiring of illegal aliens sank the 1993 nomination of Zoe Baird, President Bill Clinton's first nominee for attorney general. She'd failed to pay Social Security taxes for her domestic help, which is more serious than the error Geithner acknowledged that his housekeeper's documents had expired without his knowledge.

Democrats said late Tuesday that Geithner's problems didn't merit Senate rejection of him.

Senate Majority Leader Harry Reid, D-Nev., said that he's "not worried at all" about Geithner's nomination.

"The country needs a treasury secretary quickly. In my judgment, these errors, although serious . . . do not rise to the level of disqualification," said Senate Finance Committee Chairman Max Baucus, D-Mont.

However, the Finance Committee must confirm Geithner, an assistant treasury secretary during the Clinton era and, as the head of the New York Federal Reserve Bank, a chief architect of many of last year's Wall Street bailout efforts.

As there was no date set for his hearing, that left the possibility that Obama could take office amid the worst financial crisis since the Great Depression without his chief financial pick in place.

Baucus promised "a hearing on Mr. Geithner as soon as we possibly can."

Republican leaders were silent about whether they'd attempt to block his nomination, a possibly dangerous move for them given the enormous financial crisis facing the nation.

One aide who's close to Senate Republican leaders said, on the condition of anonymity because of the sensitive nature of the issue, that it was too soon to say whether Geithner's nomination would survive.

"This is highly unusual. Normally it's a partisan investigation that topples nominees," said the aide, adding that some Republican senators say that "if it was anyone else, for sure, they wouldn't survive. A lot of people have done a lot less and lost."

Another Republican Senate aide added that Geithner's fate may depend on public reaction.

"If someone goes on TV and starts saying that you and I would be thrown in jail for not paying our taxes, while this guy gets off the hook, and it resonates, he's in trouble," the aide said.

ON THE WEB

Bipartisan release of Geithner tax documents

MORE FROM MCCLATCHY

To ask a question about this story or any economic question, go to McClatchy's economy Q&A

Obama asks for rest of bailout money, pledges tougher rules

No end in sight: California county's foreclosures skyrocket

Report: Laid-off workers can't afford COBRA health coverage

McClatchy inauguration coverage

McClatchy Newspapers 2008

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service