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Timothy Geithner Has Some Past Tax Problems

On the afternoon of Tuesday January 13th 2009, news emerged that Treasury Secretary-nominee Timothy Geithner has a few tax problems in his recent history. As a result, his confirmation hearing scheduled for that date was postponed. Instead, behind closed doors, members of the Senate Finance Committee huddled with the nominee to discuss the specifics of his particular case. Similar tax issues in the past have derailed other candidates for high office.

Rather predictably Democratic senators emerged from the meeting reiterating their support for President-elect Obama's nominee. According to The Wall Street Journal, "Obama aides said they didn't think these issues would present a problem, given what they characterized as the minor nature of the infractions and the gravity of the role Mr. Geithner has been nominated to take. Mr. Geithner's 'service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed,' Obama press secretary Robert Gibbs said in a statement."

Sen. Charles E. Grassley of Iowa, the committee's senior Republican, did not give Mr. Geithner a pass. "It's serious, and whether or not it's disqualifying is to be determined," Mr. Grassley said after the meeting. A new hearing, which promises to be contentious, has been scheduled for Friday January 16th.

While there are apparently several tax issues associated with Timothy Geithner, the most serious relates to his employment by the International Monetary Fund between 2001 and 2004. As an American citizen working for the IMF, the tax rules are a bit confusing. Apparently such American citizens are technically considered to be self-employed and are required to pay both Social Security and Medicare taxes for himself as both an employer and as an employee. In 2006, the Internal Revenue Service audited Mr. Geithner's tax returns for the 2003 and 2004 years and concluded that he owed taxes and interest totaling $17,230 for those two years associated with Social Security and Medicare taxes.

Apparently, though, Mr. Geithner did not go back and pay similar taxes, interest and possibly penalties for the 2001 and 2002 tax years. This was despite having been both audited by the IRS and receiving IMF documents that demonstrated that employees were repeatedly told that they were responsible for paying their payroll taxes. Why then were the taxes for the 2001 and 2002 years (plus interest totaling $25,970) were suddenly paid on November 21, 2008? Oh, does the answer lie in the fact that Mr. Geithner was about to be nominated as Treasury Secretary on the following Monday morning?

The Treasury Secretary is ultimately responsible for the Internal Revenue Service and its policies and procedures relating to the collection of taxes. It certainly would be poor form to have a tax cheat of any type holding that position in a society that depends on voluntary compliance with its tax laws. The next two and a half days will be telling.

Will the Democratic view win out of needing someone of Mr. Geithner's experience and reputation in the country's time of need? Or will the Republican view that a tax cheat, no matter how talented or qualified, is not appropriate to oversee the IRS prevail? Sadly, while admiring Mr. Geithner's work in general, Toomre Capital Markets LLC ("TCM") suspects that the voice of the people will be rather mute and hence the Democratic view will ultimately prevail in this "time of change".

One Snarky Thought

Someone just made a real snarky comment about Timothy Geithner. "If the detail that Geithner pays attention to his taxes is indicative of the way he has handled the credit crisis, just imagine what 'oversights' will be discovered in an audit of his watch!" Thoughts?