Thursday, January 15, 2009

It's January 15: did you pay your quarterly taxes?

Tim Geithner with his (maybe) soon-to-be boss

Chances are pretty high that you did -- all of them, including those payroll taxes for Social Security and Medicare that millions of self-employed individuals must pay.
You'll hear from the IRS if you don't!

But the man President-elect Obama has nominated to be Secretary of the Treasury, as critical post a post as exists in government in these trying times, failed to pay his 2001, 2002, 2003 and 2004 payroll taxes. Supposedly, Geithner was too busy or distracted or didn't understand his responsibilities or made what the Obama team is calling "a honest mistake. Such a mistake may have been somewhat easier to make because at the time he worked for the International Monetary Fund, which does not withhold such tax payments, because it's a international organization.

However. the IMF did routinely give Geithner and its other America employees clear notice that they, as Americans, had to pay these taxes themselves on the same basis they are paid by self-employed individuals. Yet, Geithner skipped this liability until the IRS sent him a notice in 2006 informing him he owed the taxes for 2003-2004. He paid those but unbelievably, considering he was at the time President of the Federal Reserve Bank of New York and a former Under Secretary of the U.S. Treasury, he did not pony up for 2001 0r 2002. Ostensibly, this was because the statute of limitations on those back taxes had run by the time the issue caught up with him (that gives him the lame excuse that "they didn't catch me"). A couple of months ago, when Obama's team was vetting him for his new post, they discovered the unpaid 2001-02 taxes and forced him to pay those with the interest owed. Then, they kept the issue a secret until The Wall Street Journal found out about it.

It also has been reported that the IMF actually reimbursed its American employees for the employer half of the Social Security tax, and that Geithner specifically applied for this reimbursement and got it. Thus, he received compensation intended to "gross up" his salary to cover part of the taxes; he took the money; and then didn't pay the taxes anyway!

As of today, this tax delinquency (along with an also inexplicable lapse in employing an immigrant housekeeper whose legal residence had expired) is being passed over by most in Washington. Obama stands by him. Senate Democrats stand by him. Key Republicans like Lindsay Graham and Orin Hatch are standing by him. Their line is that Geithner is so clearly the man needed to manage the ongoing Wall Street mess that these "minor" and "honest mistakes" ought not to deprive the nation of his critically important services in this key position.

I'm not so sure. Geithner doubtless will be confirmed, and it may well be that he is the best appointee. After all, no one's perfect.

But gee whiz! Isn't paying your taxes one of the most elementary responsibilities of citizenship? Tax returns can be complex and demanding, which is why nearly everyone who doesn't file the short form employs an accountant, a simple precaution that Geithner ignored in most of the relevant years, filing his taxes himself. What about his apparently taking the dough from the IMF and still not paying the taxes? Is it possible for that to have been an "honest mistake"? And why did he not clear his record by paying all of the back taxes, regardless of the statute of limitations, before being obliged to do so by Obama? Did he not believe that the President of the New York Fed, with great responsibility to oversee the banking center of the world, should dot every "i" and cross every "t" in his personal finances?

may be a whiz -- and I initially applauded Obama's choice of him -- but no one is indispensable. The prospect of a tax cheat presiding over the IRS at a time of financial and economic crisis should give everyone pause. Geithner is already being pilloried on the late night talk shows. If everything does not go smoothly with the economy, he'll take a lot of heat -- and his ability to withstand it has been compromised before he even starts the job.

I'm not saying Obama should withdraw the nomination, but with confirmation hearings postponed until next week, Obama has time to rethink the whole issue. He is going to need a Treasury Secretary who inspires confidence whenever he speaks, not one who inspires derision. There is always Larry Summers, after all, who has vast experience as a former Treasury Secretary and high standing on Wall Street and is reputed to be Obama's key economic and financial advisor anyway.

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