Timothy Geithner's confirmation hearing for Secretary of the Treasury was delayed this week over concerns about income taxes that he failed to pay in 2001-2004, among other things. Although normally, I think the minor missteps of life that tend to come up in the type of "extreme vetting" that characterizes the Senate confirmation are totally understandable and excusable, the revelations about Geithner have raised my eyebrows, particularly in light of the fact that, let's remember, the primary function of the Department of Treasury is the IRS.
Here's the text from the story from the Wall Street Journal
The tax issue relates to Mr. Geithner's work for the International Monetary Fund between 2001 and 2004. As an American citizen working for the IMF, 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.
In 2006, the IRS audited Mr. Geithner's 2003 and 2004 taxes and concluded he owed taxes and interest totaling $17,230, according to documents released by the Senate Finance Committee. The IRS waived the related penalties.
IMF employees are exempt from paying income taxes on their local jurisdictions (nice, huh?). U.S. law, however, makes an exception and U.S. employees working in the United States do have to pay income taxes and self-employment Social Security and Medicare taxes. The IMF is a good gig, however. The thought of one of their employees having to actually pay any taxes to a national government is just so odious that they actually reimburse them through an "allowance" for any employees who have to pay taxes, in order to equalize salaries with those who do no.
Mr. Geithner asked for and received such an allowance for each of the years that he worked at the IMF. Yes, you read that right -- he got reimbursed for taxes that he did not pay.
I took a look at the PDF released by the Senate Finance Committee related to Geithner's nomination, which includes Mr. Geithner's signed request for his tax allowance payments. The request for payments ends with the following certification:
In accordance with General Administrative Order No. 5, Revision 7, Section 7.03, I wish to apply for tax allowance of U.S. Federal and State income taxes and the difference between the "self-employed" and "employed" obligation of the U.S. Social Security tax which I will pay on my Fund income. I authorize the Fund or any of its staff members designated by it for the purpose, to ascertain from the appropriate tax authorities whether tax returns were received. I hereby certify that all information contained herein is true to the best of my knowledge and belief and that I will pay the taxes for which I have received tax allowance payments from the Fund. I certify that if any of the data provided on this application changes, I will immediately report such changes to the Fund.
In light of this certification, it's kind of hard to believe that Mr. Geithner's failure to pay his taxes was an honest mistake. Here is a signed statement by him certifying that he would be paying such taxes, and promising to inform the IMF if, for any reason, he did not. He receive the reimbursements for those taxes and, as far as we know, never returned them.
In any event, Mr. Geithner did not just work for the IMF in 2003 and 2004. He started work there in 2001. The IRS was mighty kind to Mr. Geithner: Not only did they waive the penalties for his evidently willful failure to pay taxes for the years they audited -- 2003 and 2004 -- but they also didn't bother to inquire as to whether he had paid them for the earlier years as well (probably due to the statute of limitations on back tax audits). From the Wall Street Journal again:
During the vetting of Mr. Geithner late last year, the Obama transition team discovered the nominee had failed to pay the same taxes for 2001 and 2002. "Upon learning of this error on Nov. 21, 2008, Mr. Geithner immediately submitted payment for tax that would have been due in those years, plus interest," a transition aide said. The sum totaled $25,970.
WTF?!!!
OK, I don't know about you, but if I ever get audited by the IRS, and it's found that I failed to pay a certain tax, and I know that I also failed to pay that same tax in other years, umm, I think I'd be running to the Treasury Department with my check, hoping to avoid another audit. What's going on here?
As to why Mr. Geithner didn't pay all his back taxes after the 2006 audit, an Obama aide said the nominee was advised by his accountant he had no further liability.
But we have a signed statement from Mr. Geithner acknowledging that he did owe these taxes, that he did pay them and requesting reimbursement for such payments. What kind of an accountant advice negates your own signed statements?
There are other issues of course that have also arisen. He failed to verify the work eligibility of his household help, and it turns out that one of the women in his employ was in fact not authorized to work in the U.S. for a period of time. He illegally deducted child care expenses for a summer camp. There was an early-withdrawal penalty from a retirement plan, an improper small-business deduction, a charitable-contribution deduction for ineligible items, and the expensing of utility costs that went for personal use. None of that concerns me very much.
I'll also confess to a pre-existing bias against Geithner because I see nothing about him that would distinguish him from the cast of characters on Wall Street and in Washington that have brought financial and economic ruin to our nation. The IMF for which he used to work has a long and sordid history of imposing draconic structural adjustment policies on developing nations that require deep cuts in education, health care and social services in order to fund payments on foreign debts. The Federal Reserve Bank for which he currently works failed miserably at foreseeing and preventing the current banking crisis and has responded by rewarding failed bankers with trillions in sweetheart federal loans, the details of which they have refused to disclose.
But the self-employment tax revelations are deeply disturbing. We should expect that the proposed head federal tax collector not make mistakes on his own tax returns. The tax code, however, is complicated, so truly innocent errors in judgement are possible. But in this case we have someone who, if we are to believe his signature, knew that he owed these taxes and certified to that knowledge in order to receive a reimbursements from his employer for having paid those taxes. Then, when he was caught by the IRS for not having paid those taxes, he failed to do so completely even then, until late last year when he was nominated to be the Secretary of the Treasury.
Our tax system is fundamentally an "honor" system. The IRS could not possibly audit every single American, for every single year, nor would we want it to. People have to in good faith try to pay what they believe is owed. If that basic honor and trust system begins to break down, woe be to our nation at that point. The federal government's ability to fund its operations is highly dependent on the perception in the world that the U.S. taxpayer will make good on the promises being made. Mistakes are always possible, but willful nonpayment is another thing entirely. I really don't know if having a Tax Collector-in-Chief who willfully failed to pay his taxes is in the best interests of our nation, particularly at this critical moment in our history.
UPDATE:Wow, perfect tie in the poll right now!