Obama's Treasury pick faces delay as questions mount

McClatchy NewspapersJanuary 14, 2009 

WASHINGTON — The Senate confirmation hearing of Treasury Secretary-designate Timothy Geithner was delayed Wednesday until the day after President-elect Barack Obama's inauguration, meaning that the nominee's troubled tax history will prevent Obama from having his full economic team in place right away.

The hearing's timing also ensures that controversy over Geithner's income-tax errors could distract media attention from Obama's first full day in office.

Geithner's confirmation still seems likely, but it isn't assured. He's under fire for underpaying federal taxes from 2001 to 2004. During most of that time, he was an employee of the International Monetary Fund. When he was made aware of the error, he paid the Internal Revenue Service — an agency under the Treasury's jurisdiction — about $43,000 in back taxes and interest.

Blogs written by accountants were abuzz Wednesday over the revelation that Geithner prepared his own taxes at the time, a practice he's since stopped. As the president of the New York Federal Reserve Bank, Geithner earned a salary of $411,200 last year. That's more than President George W. Bush made. Geithner would take a pay cut if he's confirmed as the treasury secretary.

Over the past decade, Geithner made other errors on his taxes, some as simple as claiming summer camps for his kids under the dependent child-care tax credit. That credit is reserved for working parents who must put their children in preschool programs or after-school care.

Geithner also failed to pay Social Security and Medicare contributions properly for three domestic workers on his personal payroll. He's being criticized, too, for saying that he was unaware that he'd kept a housekeeper on his family payroll for three months in 2005 after her immigration documents had expired. The employee has since married a U.S. citizen and has a green card.

Some Republican senators said that Geithner's tax problems made him a hard sell to a public that's already suspicious of Wall Street and politicians.

"He's got a real problem with me and my constituents," said Sen. George Voinovich, R-Ohio. "He may be a smart guy, but the average person on the street sees that he hasn't paid his taxes. It's a very bad thing for a guy who's running the Treasury to be in that position."

Geithner met with Senate Finance Committee members privately Tuesday, and had private conversations later with other senators.

Senate Republican Policy Committee Chairman John Ensign, R-Nev., was among those who met with Geithner. He said he was looking to judge Geithner's intent as he prepared the tax returns, and was satisfied that Geithner had made what Ensign called "honest mistakes."

"Anyone who has dealt with the IRS tax code knows how complex it is," Ensign said.

During a photo session Wednesday, Obama stood behind his choice.

"Tim Geithner, when I nominated him, was rightly lauded by people from both sides of the aisle . . . as somebody who was uniquely qualified" to handle the economy, Obama said. "Is this an embarrassment for him? Yes. He said so himself."

The tax topic is likely to dominate the Finance Committee hearing next Wednesday, although Chairman Max Baucus, D-Mont., said that Geithner would "clearly" be confirmed.

Others were less confident. Sen. Charles Grassley of Iowa, the committee's top Republican, said there were "questions about sloppiness that need to be resolved," and Sen. Jon Kyl, R-Ariz., the Senate's second-ranking Republican, said he had reservations.

Baucus had wanted to hold the hearing Friday and approve Geithner quickly, but Sen. Jim Bunning, R-Ky., a committee member, opposed fast consideration.

"In light of the short notices from the committee and the late-breaking news about the tax filings, Senator Bunning didn't feel it's appropriate to rush forward this week," said Mike Reynard, a Bunning spokesman. "He wanted more time to review all the information, especially in light of the fact that Geithner is nominated to be the top person dealing with these types of issues."

Other Republicans expressed similar concerns. "I heard one IRS agent apparently make the comment that you're fired if you're an IRS agent" and don't pay taxes properly, said Sen. Jeff Sessions, R-Ala. "And the treasury secretary, of course, supervises IRS. So it's not a little matter."

One reason Geithner could survive the scrutiny is that he's a familiar figure to senators. He's worked with Treasury Secretary Henry Paulson as well as lawmakers on the $700 billion federal bailout, and, perhaps as important, isn't seen as partisan.

Perhaps most important, however, is that the U.S. economy is in perilous condition and the president-elect says that he needs Geithner to help fix it. Compared to that, Geithner's tax missteps may be seen as too petty to derail his nomination.

"He's a very fine man," said Sen. Orrin Hatch, R-Utah, a senior Finance Committee member. "If we want perfection around here, we'll never have anyone for these positions."

However, there were some signs of broader public reaction against Geithner.

The Competitive Enterprise Institute, a research group in Washington that opposes federal regulation of business, issued a statement against Geithner on Wednesday.

"To have him leading the department that manages the IRS would be a slap in the face to the millions of self-employed Americans who fulfill their responsibilities to correctly assess their tax burdens," wrote John Berlau, the director of the institute's Center for Investors and Entrepreneurs.

If Geithner were to withdraw, there's no obvious next choice. Whoever followed would need to get up to speed on efforts to stem the financial crisis. That carries dangers, as global financial markets remain fragile and anxious.

Influential South Carolina Republican Sen. Lindsey Graham alluded to this at the Wednesday photo op with Obama.

"Now's not the time to think in small political terms," Graham advised, supporting the embattled Geithner. "I think he's the right guy."

(Halimah Abdullah contributed to this story)

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