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Tim Geithner's Innocent Mistakes

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"These were careless mistakes," the man who would be President Obama's Treasury Secretary told the Senate Finance Committee yesterday. "They were avoidable mistakes, but they were unintentional."

Timothy Geithner was talking about why he failed to pay $34,000 in payroll taxes he owed for 2001 and 2002. Geithner was working for the International Monetary Fund at the time, which, as a foreign organization, does not pay the employer's half of the payroll tax as an American organization would. In 2006, the IRS audited Geithner, and Geithner paid up for 2003 and 2004. Why didn't he write a check for 2001 and 2002?

He wasn't asked, for one thing -- there is a statute of limitations for tax liability. And Geithner says he simply didn't put $17,000 and $17,000 together. "I paid what the IRS auditor at that point said I owed," Geithner said in response to a gentle question from Chairman Max Baucus. "Now, if I thought about it more carefully at the time . . . I would've gone back and asked a bunch more questions about that, and I would have approached it differently." Yet some Republicans weren't buying the notion of a mere oversight. Geithner is smart and sophisticated, and, of course, savvy about finance. An IRS audit, too, has a way of concentrating the mind. He figured out that he'd made the same mistake for 2001 and 2002. He surely must have known that the IRS could only ask for the money owed from the most recent three years. If the IRS didn't tell him, surely the accountant he hired to straighten out the mess would have. (Although two CPAs I know tell me that no accountant would advise a client to pay for mistakes made in years beyond the reach of the statute.)

Apparently none of the Democrats, and only half the Republicans, on the Senate Finance Committee found this troublesome -- Chairman Baucus introduced yesterday's session by describing the error as "innocent," and this afternoon, the committee gave him a thumbs-up for a vote in the full Senate. Interestingly, this is the sort of thing that you'd think a Republican would be more eager to forgive. They, especially, don't begrudge reluctance to pay taxes. Indeed, John Kyl, the Arizona Republican who took the lead in grilling Geithner about the issue, pointed out that "it's legal to rely on the statute of limitations. There's nothing wrong with relying on the statute of limitations." Kyl's beef, apparently, wasn't that Geithner took the opportunity to use a technicality to avoid (for a while) paying what he rightfully owed, but that he wasn't forthcoming about it.

In Washington, all principles are political. Still, I'm with the five Republicans who voted against the Geithner's nomination. Thirty-four thousand dollars is a lot of money to most Americans. The full Senate should pause before putting Geithner in charge of the agency he may have once tried to cheat.

CORRECTED on Friday, January 23, to report that Geithner paid taxes owed for just 2003 and 2004.

Last updated: Jan 22, 2009




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