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Geithner Hearing Delayed Amid Tax Controversy

January 14, 2009 at 6:40 PM EST
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The Senate finance committee postponed Treasury Secretary nominee Timothy Geithner's confirmation hearing until next week after reports emerged of problems with Geithner's federal tax return payments. A Wall Street Journal reporter details the latest.
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JUDY WOODRUFF: When president-elect Obama began selecting his economic team, his choice of Tim Geithner for treasury secretary was among the first he announced. But Geithner has run into a sudden flap over new disclosures about unpaid taxes and a former housekeeper.

For more, we turn to Jonathan Weisman, who broke the story for The Wall Street Journal.

Thank for joining us.

And let’s take the taxes issue first. What exactly is it that Mr. Geithner is accused of having done?

JONATHAN WEISMAN, The Wall Street Journal: Yes, the tax issue is really the crux of the issue.

Between 2001 and 2004, Mr. Geithner worked at the International Monetary Fund or had income from the IMF. During that time, he did not pay payroll taxes, Social Security and Medicare taxes. And under a weird quirk in the rules, if you’re a U.S. employee of the IMF, you are considered an independent contractor, and you are obliged to pay both the employer and the employee part of your Social Security and Medicare taxes, what we call your FICA taxes.

Well, in 2006, Mr. Geithner was audited by the IRS. At that time, he was the president of the New York Fed. And the IRS discovered that he did not pay these taxes. At that time, he said, “OK, I’m going to pay my back taxes.” There were quite a few of them. I think it was about $23,000 in back FICA taxes at that point.

He then says that his accountant said he was fine. He didn’t pay anything — he didn’t owe anything more. But, during the vetting process, after he was chosen for treasury secretary, the vetters discovered that he actually owed money. He should have paid Social Security and Medicare taxes also in 2001 and 2002.

He did pay those taxes after he was selected for treasury secretary. And that is now before the Senate Finance Committee. Basically, he had $34,000 in taxes that he did not pay when he was supposed to.

A common mistake?

JUDY WOODRUFF: Now, just quickly, as I understand it, the IMF, his former employer, did pay him half of the payroll taxes that he would be owing the federal government, but he in turn didn't pay what he was supposed to pay.

JONATHAN WEISMAN: That's right.

In fact, by the IMF rules, the IMF gives, on a quarterly basis, a check to its U.S. employees to cover its end of federal and state and what they call self-employment taxes. In fact, on that check, it would have -- it say S.E. taxes, meaning self employment taxes.

JUDY WOODRUFF: Right.

JONATHAN WEISMAN: Now, what Mr. Geithner apparently did not do is turn around and put that check into the mail for the -- to the IRS. That instead went to his bank account.

JUDY WOODRUFF: So, the Obama team is saying this is a common mistake. The president-elect himself said it's an innocent mistake. Is that borne out by others?

JONATHAN WEISMAN: Well, it's interesting that you would say that.

Now, they have produced a directive in 2006 by the IRS in which the IRS said almost 50 percent of employees of international organizations mess up their taxes in similar ways. But the IMF says that its employees are actually very good at -- at complying with this. They tell IMF employees -- U.S. IMF employees -- repeatedly during the year that they do owe Social Security and Medicare taxes.

In fact, they have somebody employed who not only is there to advise people on taxes, but he's there to actually double-check IMF employees' taxes to make sure that they have done it, and done it properly.

Other small tax matters

JUDY WOODRUFF: And that person was there when Mr. Geithner worked at the IMF?

JONATHAN WEISMAN: Yes, absolutely. That person has been there for almost two decades, in fact.

But we -- we do not know yet whether Mr. Geithner ever consulted that person, but that person was most certainly there.

JUDY WOODRUFF: And, just quickly, Jonathan, briefly tell us what the other tax issues were, and then the housekeeper issue.

JONATHAN WEISMAN: Well, there were just a lot of cats and dogs. They didn't amount to a whole lot of money.

One interesting one was the, you know, as a lot of parents try to use their dependent care benefit on which they get to write off some amount of money on their taxes for -- for nannies and such, he -- Mr. Geithner used the time that he sent his children to an overnight camp as dependent care. That's not allowed. In fact, it is allowed for day camps, but not overnight camps.

Now, on the -- on the housekeeper matter, the housekeeper apparently worked for Mr. Geithner for a year. Now, when he -- when she first went to work for him, he did check his -- her immigration and work papers were in order. They then lapsed. And, for three months while she was working for him, she was technically not legally working in the United States.

She then left and had a baby, renewed her papers, got married to an American citizen, is living there fine. That doesn't seem to be a huge problem.

Tax issue may cause 'groundswell'

JUDY WOODRUFF: Now, we have only got -- we have got a little over a minute left.

Some of the Republicans on the Finance Committee, which is supposed to confirm Mr. Geithner, are saying this as a serious matter. His confirmation now -- hearing has been held up until the day after the inauguration.

How big a problem is this for Mr. Geithner?

JONATHAN WEISMAN: Well, you know, he was supposed to have a confirmation hearing at one point tentatively scheduled for yesterday, Tuesday. Then it was going to be put off until Friday. Now it's put off until Wednesday.

And the Republicans that objected, Sen. Jon Kyl of Arizona, Sen. Jim Bunning of Kentucky, said their main concern was that they probably will be at another hearing for Eric Holder on Friday. But they acknowledge that, by having this out there, and having reporters and committee staff combing over these documents, you know, a groundswell could happen.

And we did hear from people like Sen. George Voinovich today, who expressed kind of the populist sentiment, which says, you know, there are a lot of fat cats on Wall Street who have been living high off the hog. And now we don't want a guy like Tim Geithner, who was up in Wall Street during the crash -- he was working at the New York Fed -- we don't want one of these guys down here if he's not going to pay his taxes.

And there is that populist sentiment out there.

JUDY WOODRUFF: So, meantime, we do know some other Republicans are giving him a vote of confidence.

JONATHAN WEISMAN: Absolutely.

JUDY WOODRUFF: Well, this is all going to play out the middle of next week. So, we will see.

Jonathan Weisman, thank you very much.

JONATHAN WEISMAN: Thank you.