Questions, but few answers, about Geithner's finances

McClatchy NewspapersJanuary 20, 2009 

WASHINGTON — As President Barack Obama's nominee for Treasury secretary, Timothy Geithner, prepares to explain at his Senate confirmation hearing on Wednesday why he failed to pay self-employment taxes for four years, little is known publicly about his finances.

Since 2004, when he became president of the Federal Reserve Bank of New York, Geithner wasn't required to file personal financial disclosure statements, and neither the Senate Finance Committee nor aides to Obama have released similar information.

So it's difficult to trace Geithner's financial condition from 2001 to 2004, when he failed to pay self-employment taxes of $34,023, information that might shed light on whether he made an honest mistake or had some reason to try to skirt tax laws.

Also, like millions of Americans, Geithner rode the housing bubble from middle class Maryland to the affluent suburbs of Westchester County, N.Y.

The lack of a more complete picture about the man who stands to become the nation's chief tax collector appears to be in conflict with Obama's repeated vow that his administration will be the most transparent ever.

Obama aides and Treasury officials didn't respond to requests for more financial information about Geithner, but without greater disclosure, some observers see possible future problems.

"The Obama administration has its first test of its open doors policy," said Lawrence Jacobs, the director of the University of Minnesota's Center for the Study of Politics and Governance. "Serious mistakes have been found in Geithner's tax filings. Will the administration come clean to reassure Americans that everything else is in order?

"The risk here is that the Obama administration, only hours old, could be tainted by the stain of hypocrisy, claiming to be open, but practicing the same old game of secrecy."

Based on a review of real estate records of homes bought and sold by Geithner and his wife, Carole, the couple wasn't rolling in cash during the years of his tax omissions, when he worked at the International Monetary Fund as part of a 20-year public service career. Carole Geithner has worked as a clinical social worker when she wasn't looking after their two children. Such work typically isn't high-paid.

Questions about Geithner's mishandling of his tax matters could dominate the hearing before the Senate Finance Committee because of some of the circumstances. Among them:

  • Geithner paid $16,732 in back taxes and interest for the years 2003 and 2004 after an Internal Revenue Service audit, but didn't amend his 2001 and 2002 returns, which reflected the same error, at that time.
  • He made amends for the 2001 and 2002 omissions, paying $25,970 in self-employment taxes and interest, but only after he was nominated to serve as Treasury secretary.
  • The IMF circulated documents to Geithner offering extra pay to cover his U.S. self-employment taxes. He filled out the forms and received the extra cash, but he didn't pay the taxes.

Geithner earned $398,200 as president of the New York Fed, and the taxes might seem to be a minor issue for the couple. If their home purchases in earlier years are an indication, however, finances were more challenging earlier in the decade when the unpaid taxes may have been an issue.

The couple bought a home in the Washington suburb of Bethesda, Md., in 1992 for $275,000, taking a mortgage of $202,300. Through a series of refinancings and the sale of two properties, they climbed the economic ladder until they bought a house for $1.6 million in Larchmont, N.Y., in 2004.

All of the Geithners' mortgages — from big banks including Nationsbanc, which is now Bank of America; Chase Manhattan, which is now J.P. Morgan Chase; and Wells Fargo — carried adjustable-rate mortgages with the risk that annual rate increases could raise their interest payments to as much as 11.25 percent, though the couple tended to refinance or sell their homes before ever they faced a rate adjustment.

They also took out second mortgages, now known as home equity lines of credit, borrowing a total of nearly $1 million in 2002 on their second Bethesda home, which they bought a year earlier for $1,085,000.

In 2004, they sold that house for $1.45 million and bought their current house in the New York suburb of Larchmont with a $1 million Wells Fargo mortgage, later adding a $400,000 home equity line of credit, also from Wells Fargo.

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