Obama stands behind Geithner
By Michael Kranish, Globe Staff
WASHINGTON -- President-elect Barack Obama's pick for treasury secretary, Timothy Geithner, failed to pay more than $30,000 in Social Security and Medicare taxes over a four-year period, a revelation that could damage his credibility and hurt his chances for an easy confirmation.
Two years of unpaid taxes were discovered during a 2006 audit by the Internal Revenue Service, and another two years of unpaid taxes were found during a background investigation by Obama's transition team before Geithner was nominated in late November. If confirmed, Geithner would oversee Obama's massive economic recovery package and lead a department that includes the IRS.
Today, Geithner told members of the Senate Finance Committee in a private meeting that he has paid the IRS $43,200 in taxes and interest to account for the lapse, a Democratic official said last night. He also disclosed that he employed an immigrant housekeeper whose legal work status lapsed for the final three months she worked for him in 2005.
Obama stood by Geithner today, issuing a statement through a spokesman that he is "the right person to help lead our economic recovery during these challenging times. He's dedicated his career to our country and served with honor, intelligence and distinction. That service should not be tarnished by honest mistakes."
But the revelation was a stunning development and a potential blow to the portrayal of Geithner as an economic wunderkind, who is slated play a leading role in pushing through Obama's economic stimulus program, which the president-elect has made the early focus of his administration.
It was too soon to tell whether Geithner's nomination would be scuttled by the disclosures. Senate Finance Committee Chairman Max Baucus, whose panel would conduct the confirmation hearings, said today that "these errors were not intentional; they were honest mistakes."
Senate Majority Leader Harry Reid characterized the matters as "a few little hiccups" and was "not concerned at all." Some Republicans joined Democrats in expressing support for Geithner, with Senator Orrin Hatch of Utah saying he was satisfied with Geithner's answers and, "I support him."
But the finance committee's ranking Republican, Senator Chuck Grassley of Iowa, believes the revelations are "serious, and whether or not it's disqualifying is to be determined," spokeswoman Jill Kozeny said. And other GOP senators were waiting to gauge public reaction.
The matter was particularly sensitive given the perception that the country is anxious for quick, bipartisan action on the economy and might not be in the mood for a protracted fight over the Treasury nominee.
"You don't want this kind of revelation about a Treasury Secretary-designate," said Peter Morici, a University of Maryland business professor who frequently testifies before Congress on financial matters. "It casts a shadow over his nomination, and he is going to have to explain himself."
Some independent tax specialists said that Geithner should have known that he was required to pay Social Security and Medicare taxes when he worked at the International Monetary Fund, which does not withhold the taxes from paychecks of US citizens as typically happens at most companies.
"He should know better," said Boston University law professor Alan Feld, who specializes in tax law. "It is hard to explain and it is embarrassing for somebody in his position. The collection of taxes is a difficult enough job without your top man falling down personally on that job."
Geithner was audited in 2006 by the IRS, which found that he had not paid the Social Security and Medicare taxes that he owed for 2003 and 2004. Geithner then paid the back taxes, plus interest of $17,230, and was not required to pay a penalty.
But the Obama transition team found in its review of Geithner's record that he also owed the same taxes for 2001 and 2002. Geithner repaid those as well, sending the IRS $25,970 in back taxes and interest.
Feld said there is a three-year statute of limitations on tax matters, meaning that IRS probably would not have examined whether Geithner owed taxes in the earlier years. But Feld said there is nothing in the law that would have prevented Geithner from informing the IRS that the same problem might have occurred in the two earlier years and paying those taxes.
Geithner, president of the New York Federal Reserve Bank, was undersecretary of the Treasury for international affairs during the Clinton administration from 1998 to early 2001. He then went to work at the International Monetary Fund, where he was director of policy development.
Documents compiled by the Senate Finance Committee showed that the IMF gives employees an allowance to help pay their payroll taxes as self-employed workers. An IMF handbook instructs employees that "you pay the employee's share of U.S. social security taxes."
An Obama transition official declined to comment publicly about the matter. The transition team instead paraphrased Geithner's portrayal of what happened, asserting that at one point he did his own taxes and did not catch the error, and at another point was misinformed by an accountant about the need to pay the taxes.
Geithner is the second Obama cabinet nominee to run into trouble. Earlier this month, New Mexico Governor Bill Richardson withdrew his name as commerce secretary after questions surfaced about a federal investigation regarding contributions and a state contract.
Material from Globe wire services was also used in this report.
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If that's the best anyone can do to discredit him, he should be confirmed. I doubt if half the Senators grilling him are as clean as he is.
Closing Gitmo, $1 trillion in new spending and skyhigh CBO baseline budgeting, higher taxes, Marxist economic redistribution, a CIA chief with no intelligence experience, the return of the Clintons, and now a Treasury official scandal. This is shaping up to be one helluva horrible preview of the next 4 years.
I find it hard to believe that he was paid via a 1099 insted of a W-2 form and he didnt know he owed payroll taxes. Who prepared his tax return? Furthermore, if he didnt know such a basic tax rule is he qulified for this job?
Complete and utter bull. This man ran the New York Fed, and we are to believe he didn't know he owed SS and Medicare taxes? If he weren't an Establishent crony, he would have been SWAT teamed years ago.
More "change we can believe in". I think I'm going to "forget" to pay my taxes in April and see if I can get a position in Obama's cabinet. And that nanny of mine without the Green Card will have to go. But hey.........it was an honest mistake.
This is much to do about nothing.
Great idea! Lets appoint an irresponsible man to be the secretary of the Treasury! Keep up the good work Obama!
sounds like our treasury secretary elect doesn't like to pay those nasty self employment taxes for social security. Maybe he like the rest of us knows its not going to be there when he retires.
Cool, now I don't have to pay taxes anymore. If they give me a hard time I will tell them to call Obama, he will stand behind me. What is it with democrates and paying taxes?
0's Commerce appt drops out last week due to a pay for play indictment. And now his Treas appt doesn't like to pay his taxes.
Geesh. Talk about Judgement You Can Believe In.
Hold on to your wallets with these Keystone Cops in charge.
Gosh it is nice to see that the inmates have again taken control of the asylum. I surprised this made it to The Globe. After all it was just an oversight.....
Funny how the IRS can get some peoples back taxes and not others.
He wants to be treasury secretary and he can't pay his taxes properly. Give me a break. What a disgrace.
This just in Willy Nelson is going to head up the DEA and IRS. I'm keeping the McCain Palin bumper stiker on for now!
I'm sorry, this makes me sick. I have a ton of money taken out of my paycheck each month for SS and Medicare - everyone who has had a job since they were sixteen knows they have to pay these taxes. And this brilliant "wunderkind" is trying to say it was his accountant's fault? I wonder if he made six or seven figures each year.... I'll bet if he had paid the taxes he would might have had to trade one of his BMWs or Range Rovers for a Chevy - poor guy. He's going to be in charge of the IRS? Sick sick sick. I call it a little "dishonest mistake".
Why was he excused from paying penalties?
I don't know much about the tax laws, but I do know that when I make money, Sam wants some of it.
Our Founding Fathers told us: If you do only one thing- NEVER let lawmakers set rules that apply to you and not them.
It appears to me that we believe we're wiser than they were. They wrote the constitution; we elect administrators who hold us to it...but, not themselves.
Perhaps, we deserve to be deceived?
If this was a republican appointee he would be drawn and quartered. But he is a democRAT appointee, so oops, he just made a mistake and it's okay 'cause the taxes are paid now. Not a very auspicious beginning for this colossal collection of clowns.
Repeat after me folks.
Obama is our saviour.
Obama is our lord.
Obama, the demi-god has arrived.
This is like picking an illegal alien to run the Border Patrol.
Geithner got caught. Joe the Plumber was called a criminal but this guy made "honest mistakes. " Yeah right...Uh huh.. He should know the laws backwards and forwards. Send him a copy of Turbo Tax. What a joke. !! Yea,,,,change we can believe in ....hire another crook. good job of vetting the candidates Obama ...much like the media failed to vett you properly in the primaries. Much more OBAMA DRAMA to come folks !!!
We, in the "middle class" make sure our income taxes are paid while this gentleman makes a "mistake" and many call this a "much to do about nothing"?
Where have the ethics and intelligence of our country gone? This man should not be considered for any position of such importance in the United States. Get with it, everyone, what is happening in our country? Please do not give me an answer that there are other politicians who are just as bad--let's clean them out of our system.
It's unbelievable how bad the Financial industry is, both private and public. Full of people with questionable acts, backgrounds and ethics. Obama cannot be soft since he was the one espousing the tough talks and lack of regulations and ethics by Bush. Obama and his administration have no room to tolerate a man who's going to be in charge of the treasury and cannot find an accountant to review his tax obligations. This is a serious miss and it's better to admit to the serious mistake and choose another candidate. Obama needs to set the tone to the financial community that he has zero tolerance for this kind of history or behavior. Fiduciary trust must be re-established. By not admitting to the grotesque oversight, I think Obama will simply show how naive and weak he's going to be and will simply be run over by a bus in the touch and woolly town of Washington DC.
If this was a Bush guy he would be slaughtered by the press. How sad the bias in the media and America. How long will people ignore that this new adminstration is just Clinton Version 2.0 Socialism and bad for this country?