Editore"s Note
Tilting at Windmills

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January 13, 2009

GEITHNER DRAWS SCRUTINY.... This seems to be causing some headaches on the Hill this afternoon.

Sen. Charles E. Grassley, ranking Republican on the Senate Finance Committee, is raising questions about a housekeeper who worked briefly for Treasury Secretary-nominee Timothy Geithner without proper immigration papers, and multiple years when Mr. Geithner didn't pay Social Security and Medicare taxes for himself. [...]

According to people familiar with the matter, Mr. Geithner employed a housekeeper whose immigration papers expired during her tenure with Mr. Geithner, currently president of the Federal Reserve Bank of New York. The woman went on to get a green card to work legally in the country and federal immigration authorities didn't press charges against her, these people said.

The second issue involved taxes due while Mr. Geithner worked for the International Monetary Fund between 2001 and 2004. As an employee, Mr. Geithner was technically considered self-employed and was required to pay Social Security and Medicare taxes for himself as both an employer and an employee.

He apparently failed to do so, resulting in Internal Revenue Service audits his last two years at the IMF. As soon as the IRS brought the issue to his attention, he paid the taxes with interest, these people said.

The transition office quickly leapt to Geithner's defense, insisting that his service "should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed."

As nominating controversies go, this seems pretty thin. With regards to the housekeeper, Geithner employed a woman whose papers were in order when he hired her, and who went on to get a green card. There was a three-month gap, but it's easy to believe Geithner didn't know about the discrepancy, and the gap wasn't even worth prosecuting. He went beyond what was legally necessary in paying back withholdings.

On the self-employment taxes, the Wall Street Journal noted that this is a pretty common error among IMF employees -- the institution has deliberately set up a unique payroll system to accommodate foreign employees -- and Geithner addressed it by paying what he owed.

This seems, in other words, like small potatoes, especially given the seriousness of Geithner's responsibilities at the Treasury Department in the middle of an economic crisis.

At this point, Democratic senators have "gathered in an emergency meeting" to discuss the matter, but Senate Finance Committee Chairman Max Baucus (D-Mont.) said the allegations are not enough to "disqualify" Geithner from consideration, and Sen. Debbie Stabenow (D-Mich.), added, "What we talked about had been fully disclosed to transition officials. I am certainly going to support him."

For what it's worth, while Grassley has causing a fuss, at least some other Republicans seems largely unfazed by the revelations. Sen. Orrin Hatch (R-Utah) said he "still supports" Geithner.

At this point, I'd be surprised if anything came of this. We're talking about infractions that a) are minor; b) Geithner addressed and corrected; and c) he made no effort to conceal. It'll take considerable effort for Republicans and Fox News to gain traction with this.

Steve Benen 4:35 PM Permalink | Trackbacks | Comments (22)

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It'll take considerable effort for Republicans and Fox News to gain traction with this.

Maybe you forget how the right wing noise machine works? Drudge will hurl some accusations (completely false) and Limbaugh will pile on while Malkin and Coulter will complain bitterly about the double standards of the left wing commies of the Democrat Party. The Freepers will take up the hue and cry and soon every two bit wingnut blogger will be writing about how Geithner has shown is utter disrespect for the law and should be prosecuted instead of confirmed as Treasury Secretary.

Republicans are out to make as much mischieve as possible.

Posted by: majun on January 13, 2009 at 4:43 PM | PERMALINK

They'll make a fuss, because that's what they do. But the worse nightmare for Republicans would be if Obama dumped Geithner and replaced him with someone like Austin Goolsby.

Posted by: Danp on January 13, 2009 at 4:44 PM | PERMALINK

And of course the liberal news bastion CNN is featuring it with the paragon of moralistic bipartisanship, Bay Buchanon being one of the archaic
pundits whose inane and totally irrelevant views is being put forth

Posted by: grandpajohn on January 13, 2009 at 4:58 PM | PERMALINK

Hannity, Beck, Malkin and Coulter will go through a drum of Wesson Oil and several loads of towels while enjoying this.

Posted by: steve duncan on January 13, 2009 at 4:59 PM | PERMALINK

It'll take considerable effort for Republicans and Fox News to gain traction with this.

Not that it will stop them from running around screaming, "Zoe Baird! Kimba Wood!" until they get CNN or MSNBC to pay attention to them.

Posted by: Mnemosyne on January 13, 2009 at 5:03 PM | PERMALINK

They're doing the same thing with Hillary, too. And unlike Geithner, there is no new news with her.

Posted by: Danp on January 13, 2009 at 5:09 PM | PERMALINK

hopefully Obama learned from studying Clinton's missteps - and it appears that he has.

Clinton should have stood by Judge Wood.

It appears the transition team was aware of this; it is almost like Obama was baiting the R's to bring up something minor and substantively unrelated to Geithner's tasks so he could have a fight "once and for all" about the "gotcha!" style of confirmation hearings.

And when did the once-normal Grassley suddenly turn into the Mr. Wilson of the Senate? A little cranky are we Chuck?

Posted by: zeitgeist on January 13, 2009 at 5:11 PM | PERMALINK

Yeah, it sounds serious, until you read the next paragraph that says the taxes and withholdings have since been paid.

Not paying withholdings when they were due has happened to me and my spouse; when employed by a company, they don't always make it clear what extra tax work you're required to do, and the IRS isn't the most diligent in informing you, either.

Posted by: Crissa on January 13, 2009 at 5:22 PM | PERMALINK

"After a 2006 Internal Revenue Service audit identified the lapse on his 2003 and 2004 tax returns, Mr. Geithner paid tax and interest of $17,230 and the I.R.S. waived penalties, according to the transition.
But Obama vetters discovered the same lapse for 2001 and 2002 and brought it to Mr. Geithner’s attention last Nov. 21, after which he paid tax and interest of $25,970, transition officials say."

Presumably he didn't remember that he'd worked at the same place, under the same withholding, in 2001-2002.

Posted by: gcochran on January 13, 2009 at 5:40 PM | PERMALINK

I worked at the IMF when Geithner did and can sympathize. You are strictly on your own to figure out the arcane methodology the IMF imposes on US citizen-employees for payment of income taxes. I had a CPA do it for me - and he blew it two years running resulting in back taxes owed plus interest - made the same error I bet Geithner made. A tempest in a teapot.

Posted by: NSMe on January 13, 2009 at 5:47 PM | PERMALINK

The thing with the housekeeper is nothing, and getting the IMF withholding wrong is perhaps understandable, although I have this dream of a Treasury Secretary who can get such things straight.
However, the only plausible reason for not straightening out the same mistake on earlier returns - after the IRS pointed it out - had to be disinclination to pay an owed tax unless forced to. That or amnesia.

Posted by: gcochran on January 13, 2009 at 5:55 PM | PERMALINK
Presumably he didn't remember that he'd worked at the same place, under the same withholding, in 2001-2002.

Or maybe he had different people prepare his taxes in each of those years, and didn't know the same mistake was made; particularly, perhaps he assumed that when the IRS found the error in two tax years, it would have found it, at least, in any years immediately preceding and following unless the same error wasn't present.

Posted by: cmdicely on January 13, 2009 at 6:00 PM | PERMALINK

People who claim they didn't realize SS wasn't getting taken out of their checks are either very stupid or lying. Had he not been audited, you and me would be flipping the bill for his arrogance.

Should that disqualify him, you fucken bet. This isn't the Surgeon General, this is they guy who will have a lot to say about those very dollars (tax dollars in general) he doesn't feel like he need to contribute.

But let's say he truly made a mistake. That is no better. The future Treasury Secretary overlooked his own paycheck obligations for 2 years and he is going manage the US Treasury in a major recession ?

This is the crap that made Bush a legend:
1) Tax cheat nominated as Tresury Secretary or
2) Man who didn't realize SS wasn't being taken from his salary for two years nominated as Treasury Secretary.

Posted by: ScottW on January 13, 2009 at 6:12 PM | PERMALINK

A year after Zoe Baird, Christie Whitman, while running for Governor, was found to have had a nanny she never paid any tax on for years. Voters voted her in anyway. She was later confirmed as head of the USEPA by the Senate. Many of the Republicans that voted for her then are still there. This issue is dead.

Posted by: Patrick on January 13, 2009 at 6:12 PM | PERMALINK

People who claim they didn't realize SS wasn't getting taken out of their checks are either very stupid or lying.

He wouldn't have had SS taken out of his checks in the first place. As a 1099 contractor, he was responsible for sending his SS payments to the IRS on a quarterly basis. You only have SS taken out of your check if you're a W-4 employee.

Posted by: Mnemosyne on January 13, 2009 at 7:01 PM | PERMALINK

[...] Geithner employed a woman whose papers were in order when he hired her, and who went on to get a green card. There was a three-month gap,[...] -- Steve Benen

I came to the States in January of '73, on a 3-months tourist visa. Renewed it twice, so that I was legal till the end of September. Got married -- to an American citizen -- at the beginning of September and, within a week of the wedding, my petition for the green card was on its way to DC (the nearest Immigration and Naturalization office). Because the said office is *always* backlogged, I didn't even get the summons for the interview till middle of December, the interview was in January and my green card arrived in late March. So, theoretically, I too was an illegal, from the end of September '73, to the end of March
'74. But nobody came to deport me, because all the paperwork for the green card was "in train". That is, I *did* take care of my end of things in a timely manner, but bureaucracy everywhere grinds slower than the mills of God (and nowhere nearly as fine). I bet something similar happened to the lady that Geithner employed, hence the 3-months gap in her immigration status.

Posted by: exlibra on January 13, 2009 at 8:01 PM | PERMALINK

I'll give him the benefit of the doubt on the 2003 - 2004 miss, but NOT on the delayed correction for 2001 and 2002.

I do taxes - if a new client came to me and this issue arose, I would at least ask how long he had worked at the IMF and suggest that he file amended returns for those years also. I wouldn't wait for the IRS to get back to me about it.

I agree that the housekeeper issue is just dumb.

My 2 cents.......

Posted by: mo on January 13, 2009 at 9:16 PM | PERMALINK

Stupid isn't the term I would use, it borders on criminal. Any CPA that had a part in this s/b looked at very carefully also.
If the income was on a 1099 then at the very least in those first years any tax program would have made him pay 1/2 of the social security and later years any program would have made him account for the total social security or filed a form choosing
a reason why it was not subject to SS.
The right wing will have a field day with this.

Posted by: ALLEN THOMSEN on January 13, 2009 at 10:38 PM | PERMALINK

This typical Washington. NO one has a clue about taxes even the Commissioner of IRS and the future Secretary of Treasury. How can one run a Department if you don't even know the basic law. Why is someone capable of running a department if you don't even have any technical knowledge. Anyway if his tax preparer didn't catch it, he must of hired a moron. Any CPA worth his certificate knows this basic stuff. I would say he knew what he was doing and was hoping to avoid paying SS. Technically this civil fraud and should be prosecuted but it won't be. People with friends in the right place don't get charged and of course this is just an oversight.

Posted by: Gordon on January 13, 2009 at 11:58 PM | PERMALINK

Not pay Soc. Sec tax? He knew what he was doing. Anybody in the financial sector understands about self-employment. Further, the IRS bends over backwards to be helpful to the self-employed about these taxes. He knew. And it looks terrible for someone heading up Treasury to be so hypocritical about paying his fair share to the government.

Posted by: vickie on January 14, 2009 at 5:14 AM | PERMALINK

Hey Steve, aren't you playing a bit of double standard here? Minor? Fair mistake?

Come on. If he is "your" guy who is smart and competent these transgressions are minor and are mistakes. Your partisan spin on this is just so transparent. How about some independent judgment?

The WaPo reports today:

"Documents released by the Finance committee documented the errors made by Geithner. One showed his signature on a tax worksheet that states that he has an "obligation of the U.S. Social Security tax, which I will pay on my fund income." "

So, he KNEW he had to pay the Self Employment Tax on this! Even the freaking WaPo has to characterize this as an "error".

And when the IRS caught him on the last couple years of non payment, did he voluntarily admit his non payment on the previous two years? NO!
This didn't happen until the Obama team vetted him. If he had some integrity he would have volunteered his "error" for the previous two years. Shit.

He is gonna skate on this, no doubt. The country is desperate for salvation, but we'll be doing it with the same kind of technocratic elites that have risen to the top of the heap due to their brains and friends in high places.

Try again Steve, but with more credibility this time.

Posted by: lou on January 14, 2009 at 7:06 AM | PERMALINK

IMF employees who are US citizens get a W-2, not a 1099. The WSJ article says these employees are considered "self-employed". That is wrong. Both the IMF and the IRS consider them "employees" -- but employees of an employer who does not withhold any taxes.

Tax preparers and tax prep software packages are not set up to handle this situation. The nearest analogue is the church employees.

Having worked in this situation before, I can attest that accountants get it wrong. Employees with W-2 just don't flag the 'gotta have this guy pay SE taxes unlike almost all other employees' alert.

I expect that Geither paid everything (taxes and SE taxes) on a quarterly basis, had his tax prepare do his year end taxes, got a refund of the SE "overpayment" in his first year at the IMF and then used this as the expected tax payments from then on.

When audited in 2006, he paid up for audit years and, per the article, received advice that the IRS did not require payments for prior years (as the statute of limitations had run out).

It then becomes an ethical issue only. He should have paid at the time, but either through bad advice or oversight, he did not. The tax liability is no longer legally required. Should he have volunteered to pay the additional 16K?

The household employee issue is a reasonable oversight -- if it had gone on over a year, then he would needed to have been negligent or abusive. IMF has annual certification process for household staff. It would have been caught and corrected at the annual review.

Posted by: Anonymous Coward on January 14, 2009 at 9:47 AM | PERMALINK



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